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September 17, 2019 |
Webcast: The False Claims Act – 2019 Mid-Year Update: Financial Services Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has recently issued statements and guidance indicating some new thinking about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed eight straight years of nearly $3 billion or more in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the financial services sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join us to discuss developments in the FCA, including: The latest trends in FCA enforcement actions and associated litigation affecting the financial services sector; Updates on the Trump Administration’s approach to FCA enforcement, including developments with the Yates Memo, guidance on cooperation credit in FCA cases, and DOJ’s use of its statutory dismissal authority; Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and The latest developments in FCA case law, including recent Supreme Court jurisprudence and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision. View Slides (PDF)  PANELISTS: Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ’s enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Sean S. Twomey is a senior litigation associate in the Los Angeles office with experience in complex commercial cases at both the trial and appellate level, with an emphasis in sports law and health care compliance, enforcement, and litigation. He is experienced in handling white collar investigations, internal audits, and enforcement actions, and also has significant experience in False Claims Act qui tam litigation and related civil and criminal investigations in which he has represented clients in a variety of industries. F. Joseph Warin is a partner in the Washington, D.C. office, chair of the office’s Litigation Department, and co-chair of the firm’s White Collar Defense and Investigations practice group. His practice focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. James Zelenay is a partner in the Los Angeles office where he practices in the firm’s Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

September 17, 2019 |
Ronald Mueller and Lori Zyskowski Elected Fellows by American College of Governance Counsel

Washington, D.C. partner Ronald O. Mueller and New York partner Lori Zyskowski were elected as Fellows of the American College of Governance Counsel. The American College of Governance Counsel is a professional, educational, and honorary association of lawyers widely recognized for their achievements in the field of governance. The newly elected fellows were announced in July 2019. Ronald Mueller advises public companies on a broad range of SEC disclosure and regulatory matters, executive and equity-based compensation issues, and corporate governance and compliance issues and practices. He advises some of the largest U.S. public companies on SEC reporting, proxy disclosures and proxy contests, shareholder engagement and shareholder proposals, and Section 16 reporting and compliance. Lori Zyskowski is Co-Chair of the Firm’s Securities Regulation and Corporate Governance Practice Group. She advises clients, including public companies and their boards of directors, on corporate governance and securities disclosure matters, with a focus on Securities and Exchange Commission reporting requirements, proxy statements, annual shareholders meetings, director independence issues, and executive compensation disclosure best practices.

September 16, 2019 |
Ninth Circuit Issues Decision in Closely Watched Data Scraping Case

Click for PDF On September 9, 2019, the Ninth Circuit issued its long-anticipated decision in hiQ v. LinkedIn, one of the most closely watched data scraping cases in years. Affirming the district court’s decision, the Ninth Circuit held that data analytics company hiQ was entitled to a preliminary injunction forbidding LinkedIn from denying hiQ access to publicly available LinkedIn member profiles. Background Many companies harvest or “scrape” electronic data from third parties—sometimes with that third party’s permission, sometimes without. In some cases, data analytics companies like hiQ scrape data, aggregate it, apply their own algorithm, and sell the resulting data analytics products and services. In other cases, companies may scrape data for internal research purposes. hiQ’s case against LinkedIn attracted significant interest from data hosting platforms, data analytics companies, and other companies that engage in data scraping, as well as from public interest organizations that were divided over the issue, with the Electronic Privacy Information Center warning of the privacy risks associated with data scraping, while the Electronic Frontier Foundation and other entities emphasized the need for open access to information online. The Issue in hiQ v. LinkedIn LinkedIn is a professional networking website with over 500 million members, on which users post resumes and job listings and build connections with other members. LinkedIn members retain ownership of the information they submit, which they license non-exclusively to LinkedIn. Members can choose whether to make their LinkedIn profiles visible only to direct connections, to certain LinkedIn members, to all LinkedIn members, or—as relevant here—to the general public. hiQ Labs is a data analytics company that uses automated bots to scrape information from public LinkedIn profiles, and then aggregates that data to create “people analytics” tools that it sells to business clients. In May 2017, LinkedIn sent hiQ a cease-and-desist letter, asserting that hiQ violated LinkedIn’s User Agreement, demanding that hiQ stop accessing and copying user data from LinkedIn, and warning hiQ that continued activity would violate state and federal law, including the Computer Fraud and Abuse Act (“CFAA”), the Digital Millennium Copyright Act (“DMCA”), and the California common law of trespass. Shortly after, hiQ filed suit, seeking injunctive and declaratory relief in order to continue scraping data from LinkedIn’s public pages. In August 2017, the district court granted hiQ’s motion for a preliminary injunction and ordered LinkedIn to refrain from enacting any legal or technical barriers to hiQ’s access to public profiles. The Ninth Circuit heard oral argument in March 2018. The Ninth Circuit’s Opinion In an opinion authored by Judge Marsha S. Berzon, the Ninth Circuit affirmed the district court’s grant of a preliminary injunction. First, the Ninth Circuit found that hiQ had demonstrated a likelihood of irreparable harm absent a preliminary injunction. Crediting the district court’s determination that hiQ’s entire business depends on access to public LinkedIn profiles, the Ninth Circuit found that the record supported hiQ’s assertions that it would be forced to breach existing contracts, forgo prospective deals, lay off most of its employees, and shutter its business absent a preliminary injunction. Second, the Ninth Circuit upheld the district court’s determination that the balance of hardships tips in favor of hiQ, pointing out that LinkedIn has no protected property interest in the data contributed by its users, who retain ownership over their profiles, and that LinkedIn users who choose to make their profiles public have little expectation of privacy with respect to the information they post publicly. Third, the Ninth Circuit held that, under the sliding-scale approach to the preliminary injunction factors, because the balance of hardships tipped decidedly in hiQ’s favor, hiQ satisfied the likelihood-of-success prong by raising serious questions going to the merits. The Ninth Circuit agreed with the district court that hiQ had shown a likelihood of success on its tortious interference with contract claim, pointing out that LinkedIn knew hiQ scraped data from its servers for hiQ’s own products and services, and that LinkedIn’s competitive business interests were insufficient to justify its interference with hiQ’s existing contracts. The Ninth Circuit rejected LinkedIn’s affirmative defense that hiQ had accessed LinkedIn data “without authorization” under the CFAA, 18 U.S.C. § 1030, and that the CFAA preempted hiQ’s state law claims. Authorization, the panel wrote, “is an affirmative notion, indicating that access is restricted to those specially recognized or admitted”: The wording of the statutory phrase “‘[a]ccess[] . . . without authorization,’ 18 U.S.C. § 1030(a)(2), suggests a baseline in which access is not generally available and so permission is ordinarily required.” That interpretation, Judge Berzon noted, is confirmed by the legislative history of the CFAA, which was enacted to prevent intentional computer hacking—an act “analogous to that of ‘breaking and entering.’” “Public LinkedIn profiles, available to anyone with an Internet connection,” the Court explained, therefore do not constitute information for which authorization or access permission is generally required. Further, the Ninth Circuit cautioned that the rule of lenity favors a narrow interpretation of the “without authorization” provision, as Section 1030 is primarily a criminal statute and statutes must be interpreted consistently in the criminal and civil contexts. Finally, the Ninth Circuit found that, on balance, the public interest favors granting the preliminary injunction. The Ninth Circuit observed that, although LinkedIn had an obvious interest in blocking abusive users and thwarting attacks on its servers, the injunction does not prevent it from employing anti-bot measures to combat such abuses. And permitting companies like LinkedIn that collect large amounts of data “to decide, on any basis, who can collect and use” user data posted publicly on their platforms “risks the possible creation of information monopolies that would disserve the public interest.” What To Expect The Ninth Circuit’s opinion—although framed narrowly as deferring to the district court’s determinations on the preliminary injunction record in this case—is likely to be relied upon by companies seeking to scrape publicly available data from public websites. The contours of Section 1030 liability have been the subject of competing interpretations in different Circuits. The First, Fifth, Seventh, and Eleventh Circuits have adopted a broad view of the CFAA, extending Section 1030 liability even to misuse or misappropriation of information lawfully accessed, as when a corporate employee with valid login credentials provides files to a competitor, see, e.g., United States v. Rodriguez, 628 F.3d 1258, 1263 (11th Cir. 2010); United States v. John, 597 F.3d 263, 271 (5th Cir. 2010); Int’l Airport Ctrs., L.L.C. v. Citrin, 440 F.3d 418, 420–21 (7th Cir. 2006); EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577, 581–84 (1st Cir. 2001), and permitting civil CFAA claims to proceed based on violations of a website’s terms of service, Sw. Airlines Co. v. Farechase, Inc., 318 F. Supp. 2d 435, 439–40 (N.D. Tex. 2004). By contrast, the Second, Fourth, and Ninth Circuits have adopted a narrow view, interpreting the CFAA as a restriction on unauthorized access rather than on “mere use of a computer” (including use in violation of a website’s terms of service), and thus limiting Section 1030 liability to those who, through disingenuous means, gain access to data in a manner analogous to “breaking and entering.” H.R. Rep. No. 98–894, at 3706 (1984); see, e.g., United States v. Valle, 807 F.3d 508, 523–28 (2d Cir. 2015); WEC Carolina Energy Sols. LLC v. Miller, 687 F.3d 199, 205–06 (4th Cir. 2012); United States v. Nosal (Nosal I), 676 F.3d 854, 857–63 (9th Cir. 2012) (en banc). The decision in hiQ v. LinkedIn marks a long-anticipated addition to that landscape, reaffirming the Ninth Circuit’s narrow approach while providing additional clarity as to the scope of Section 1030’s “without authorization” provision. Companies should not be too quick to view the Ninth Circuit’s opinion as an invitation or green light to scrape, however. The Ninth Circuit was careful to point out that “victims of data scraping are not without resort” and, in particular, that accessing and scraping data without the website owner’s consent may give rise to a common law tort claim for trespass to chattels. Going forward, we can expect that companies seeking to prevent data scraping will rely less on the CFAA and more on state law claims such as trespass to chattels. In addition, the Ninth Circuit’s opinion “is premised on a distinction between information presumptively accessible to the general public and information for which authorization is generally required.” Companies seeking to prevent scraping may attempt to demarcate data as non-public by requiring authorization or authentication measures or otherwise restricting access. The following Gibson Dunn lawyers prepared this client update: Alexander Southwell, Matthew Benjamin, Alexandra Perloff-Giles and Erica Sollazzo Payne. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following leaders and members of the firm’s Privacy, Cybersecurity and Consumer Protection practice group: United States Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, asouthwell@gibsondunn.com) M. Sean Royall – Dallas (+1 214-698-3256, sroyall@gibsondunn.com) Debra Wong Yang – Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com) Olivia Adendorff – Dallas (+1 214-698-3159, oadendorff@gibsondunn.com) Matthew Benjamin – New York (+1 212-351-4079, mbenjamin@gibsondunn.com) Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com) Richard H. Cunningham – Denver (+1 303-298-5752, rhcunningham@gibsondunn.com) Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com) Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, jjessen@gibsondunn.com) Kristin A. Linsley – San Francisco (+1 415-393-8395, klinsley@gibsondunn.com) Karl G. Nelson – Dallas (+1 214-698-3203, knelson@gibsondunn.com) Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com) Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, mwong@gibsondunn.com) Europe Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, abaladi@gibsondunn.com) James A. Cox – London (+44 (0)20 7071 4250, jacox@gibsondunn.com) Patrick Doris – London (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Jean-Philippe Robé – Paris (+33 (0)1 56 43 13 00, jrobe@gibsondunn.com) Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com) Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com) Sarah Wazen – London (+44 (0)20 7071 4203, swazen@gibsondunn.com) Vera Lukic – Paris (+33 (0)1 56 43 13 00, vlukic@gibsondunn.com) Alejandro Guerrero – Brussels (+32 2 554 7218, aguerrero@gibsondunn.com) Asia Kelly Austin – Hong Kong (+852 2214 3788, kaustin@gibsondunn.com) Jai S. Pathak – Singapore (+65 6507 3683, jpathak@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 16, 2019 |
Financial Times Recognizes Gibson Dunn at the European Innovative Lawyer Awards 2019

The Financial Times named Gibson Dunn a standout firm at the European Innovative Lawyer Awards 2019. The firm was recognised in the Innovation in the Rule of Law and Access to Justice category for London associate Ryan Whelan’s work leading the legal and political campaign in the UK against “upskirting.” The awards were presented on September 12, 2019. Gibson Dunn actively encourages robust participation in pro bono matters.  We believe that lawyers have a special ability and duty to help ensure meaningful access to the justice system for everyone.  We are dedicated to the idea that the most vulnerable in our society receive a fair opportunity to receive legal representation in times of need. Whether protecting constitutional rights, working on behalf of the LGBTQ community, spearheading anti-human trafficking efforts, battling slumlords, fighting on behalf of domestic violence victims, advocating on behalf of veterans, or engaging in extensive efforts on behalf of the immigrant community, our lawyers have provided access to justice for those who could not otherwise afford it. The uniting force behind our pro bono work has been – and continues to be – a shared commitment to protecting the Constitution, upholding the rule of law, and providing access to justice for all.

September 16, 2019 |
DOJ’s Antitrust Division Elects Binding Arbitration to Resolve Merger Challenge

Click for PDF On September 4, 2019, the U.S. Department of Justice’s Antitrust Division filed a complaint in the Northern District of Ohio challenging Novelis Inc.’s proposed $2.6 billion acquisition of Aleris Corporation. In a first, the Antitrust Division has agreed to resolve the matter through binding arbitration under the Administrative Dispute Resolution Act of 1996, 5 U.S.C. § 571 et seq. Assistant Attorney General Makan Delrahim remarked that “[t]his new process could prove to be a model for future enforcement actions, where appropriate, to bring greater certainty for merging parties and to preserve taxpayer resources while staying true to the [Antitrust Division’s] enforcement mission.” It remains to be seen whether this case portends a larger shift in the Antitrust Division’s approach to resolving merger investigations and negotiating remedies, or whether arbitration will be limited to the specific circumstances surrounding Novelis’ acquisition of Aleris. To the extent arbitration becomes a meaningful option for merging parties in future cases, however, the ramifications are significant. Background The Antitrust Division and the Federal Trade Commission share responsibility for investigating proposed mergers and acquisitions to determine whether, if consummated, they would violate Section 7 of the Clayton Act, which prohibits transactions whose effect “may be substantially to lessen competition.”[1] Parties to transactions that are subject to the Hart-Scott-Rodino Act (or “HSR”) must observe a waiting period before closing, and typically do not close until the Antitrust Division completes its investigation. If, after investigating a proposed transaction, the Antitrust Division concludes it would violate Section 7, it will typically demand a remedy (such as a divestiture of one party’s assets) or, if the parties do not propose a sufficient remedy, challenge the transaction in federal district court. Novelis announced its proposed acquisition of Aleris on July 26, 2018, and the proposed transaction was subject to HSR. Under the terms of the agreement, Novelis would acquire Aleris’ 13 production facilities across North America, Europe, and Asia.[2] Following an antitrust investigation lasting roughly 14 months, the Antitrust Division filed suit challenging the proposed acquisition.[3] The complaint alleged that the transaction would combine two of only four North American producers of aluminum auto body sheet metal, and that the combined company would represent 60 percent of production capacity in this market. The Antitrust Division supported its claims by quoting internal documents where Novelis indicated concern that, absent the transaction, Aleris would be acquired by a new entrant that would “likely … bid aggressively and negatively impact pricing” in the market. In an unusual move, the Antitrust Division simultaneously issued a press release stating that the parties had agreed to arbitrate the central question of product market definition, the outcome of which would determine whether the parties would divest certain assets to cure the alleged competition concern.[4] In a related court filing, the Division laid out its rationale for pursuing arbitration rather than its usual practice of challenging the merger in federal court or agreeing to a negotiated divestiture. It noted that merger challenges require “weeks-long trials involving the submission of thousands of pages of exhibits, and testimony from a substantial number of fact witnesses, as well as extensive expert testimony.”[5] Citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344–46 (2011), the Antitrust Division explained that arbitration is favored by federal policy and would offer “a speedier and less costly alternative to litigation.” The filing attached a redacted term sheet explaining that the arbitrator would decide one question: whether aluminum auto body sheet constitutes a relevant product market under the Horizontal Merger Guidelines. The arbitrator would not reach the ultimate question of whether the transaction would substantially lessen competition under section 7 of the Clayton Act. Significantly, according to the Division, whether or not the parties will need to divest assets hinges on the arbitrator’s determination. If the arbitrator ruled that the relevant product market is broader than aluminum auto body sheet, the Division agreed to withdraw its complaint and the parties could close without any divestiture remedy. If the arbitrator concluded that aluminum auto body sheet is the relevant market, then the parties would be obligated to divest the overlapping business to a buyer acceptable to the Division through a Tunney Act proceeding in which a court would approve the settlement so long as it is in the “public interest.” This unique process provides the parties with certainty as to when they can close their merger. If the arbitration proceedings are still pending on December 20, 2019, or if the Antitrust Division prevails, then the parties and the Antitrust Division agreed to negotiate a hold separate order. The hold separate order would allow the parties to close their deal pending final court approval of their agreed-upon remedy, so long as they agree to hold the divested assets separate. If the parties prevail, however, then they can close their deal without conditions (i.e., they can close without a hold separate or a remedy). Either way, closing would be allowed no later than December 20. Key Takeaways An Emerging Third Option? Up until now, parties to a transaction that the Antitrust Division claimed raised antitrust concerns had two options to resolve the dispute: (1) negotiate a remedy to address competitive concerns raised by the transaction, or (2) litigate against the Antitrust Division in federal court. Novelis may signal the Antitrust Division’s willingness to offer a third option that allows the Division and the parties to avoid a trial in federal court by allowing an arbitrator to decide dispositive issues. However, a broader policy has not yet been announced, and it may turn out that this new arbitration option may be limited to certain cases. AAG Delrahim noted “[t]he division would have to evaluate several factors before agreeing to arbitrate,” including the potential “efficiency gains,” whether the issues to be resolved in arbitration are “clear and easily can be agreed upon,” and the cost of any “lost opportunity to create valuable legal precedent.” Novelis offers clues as to how these factors might apply in future cases. The Division and the merging parties agreed on the parameters of a divestiture remedy and that the need for the remedy turns on the resolution of a discrete question—in this case, the definition of the relevant product market. Matters that present multiple or more complex antitrust issues or where no structural remedy is practically available may not be candidates for arbitration. Of course, mergers being investigated by the Federal Trade Commission would not be subject to this new policy. Timing Certainty May Be the Primary Benefit.  The Division’s filing suggests that arbitration would be “speedier” than litigation, though the Novelis arbitration timelines are comparable to the deadlines in case management orders for recent merger trials. Per the filing, the Division and the parties are obligated to work toward commencing the arbitral hearing within 120 days from the filing of an answer, with the hearing to be completed within 21 days, and a final decision within 14 days after the hearing. Assuming no extension to the 21-day deadline to file an answer under Rule 12, the parties would receive an arbitration decision within 176 days, or almost six months. This is roughly equivalent to the length of time typically needed to reach a decision on the merits in a federal merger trial, which averaged roughly 150 days for litigated in recent years. This suggests that the primary benefit of arbitration in this setting may be timing certainty, though limits on appeals of arbitration decisions may present time savings over trial and appellate litigation. Limited appeal rights may further narrow the scenarios in which arbitration will be a suitable option for either the Division or the parties. Fewer Confidentiality Concerns for Third Parties. The Novelis arbitration hearing will be confidential and (presumably) governed by a protective order. In contrast, during a federal court trial, third party customers and competitors of the merging parties often must testify publicly in open court (or at least, must reveal their views to the parties or their counsel under a protective order). In this regard, confidential arbitration appears to eliminate the need to grapple with complex and sensitive confidentiality issues that arise during trial. By the same token, federal court opinions generated by these cases provide valuable insights and precedents for future antitrust cases. To the extent that confidential arbitration becomes more prevalent, there may be fewer such opinions. ____________________    [1]   15 U.S.C. § 18.    [2]   Novelis to Acquire Downstream Aluminum Producer Aleris, July 26, 2018, available at: http://investors.novelis.com/2018-07-26-Novelis-to-Acquire-Downstream-Aluminum-Producer-Aleris.    [3]   Complaint, United States v. Novelis, Inc., 1:19-CV-02033, Dkt. 1, (N.D. Ohio Sept. 4, 2019), available at: https://www.justice.gov/opa/press-release/file/1199441/download.    [4]   Justice Department Sues to Block Novelis’s Acquisition of Aleris, Press Release, U.S. Department of Justice, Sept. 4, 2019, available at: https://www.justice.gov/opa/pr/justice-department-sues-block-noveliss-acquisition-aleris-1.    [5]   Plaintiff United States’ Explanation of Plan to Refer This Matter to Arbitration, United States v. Novelis, Inc., 1:19-CV-02033, Dkt. 11, (N.D. Ohio Sept. 9, 2019). The following Gibson Dunn lawyers assisted in preparing this client update: Adam Di Vincenzo, Richard Parker and Chris Wilson. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the authors, the Gibson Dunn lawyer with whom you usually work, or any of the leaders and members of the firm’s Antitrust and Competition practice group: Washington, D.C. D. Jarrett Arp (+1 202-955-8678, jarp@gibsondunn.com) Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com) Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com) Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com) Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com) Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com) Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com) Brian K. Ryoo (+1 202-887-3746, bryoo@gibsondunn.com) Chris Wilson (+1 202-955-8520, cwilson@gibsondunn.com) New York Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com) Los Angeles Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com) Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com) San Francisco Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com) Trey Nicoud (+1 415-393-8308, tnicoud@gibsondunn.com) Dallas M. Sean Royall (+1 214-698-3256, sroyall@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com) Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com) Brian Robison (+1 214-698-3370, brobison@gibsondunn.com) Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Denver Richard H. Cunningham (+1 303-298-5752, rhcunningham@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 13, 2019 |
Les classes de créanciers dans le nouveau droit des procédures collectives : pistes de réflexion.

Paris restructuring partners Benoît Fleury, Jean-Philippe Robé, Jean-Pierre Farges, and Pierre-Emmanuel Fender are the co-authors of “Les classes de créanciers dans le nouveau droit des procédures collectives : pistes de réflexion” [PDF] published in Fusions & Acquisitions Magazine on September 13, 2019. The paper discusses the dramatic modifications that will be undergone by the French restructuring landscape as a result of Directive 2019/1023 of June 20, 2019 on restructuring and insolvency. The co-authors focus on the innovative Directive-introduced concept of ‘class formation’ and concentrates on its potential consequences for debtors’, shareholders’ and creditors’ strategies.

September 13, 2019 |
Stacie Fletcher and Katherine Smith Named Among Americas Rising Stars

Euromoney Legal Media Group named two partners to its 2019 Americas Rising Stars list. Washington D.C. partner Stacie Fletcher was named “Best in Environment,” and Los Angeles partner Katherine Smith was awarded “Best in Labor & Employment.” The awards were announced on September 12, 2019. Stacie Fletcher represents clients in a wide variety of federal and state litigation, including agency enforcement actions, cost recovery cases, and mass tort actions. Katherine Smith has extensive experience representing employers in individual, representative and class action litigation at both the trial court and appellate level. Her practice focuses on high stakes litigation matters such as wage and hour class actions, whistleblower retaliation cases, and executive disputes.

September 10, 2019 |
The UK Serious Fraud Office’s latest guidance on corporate co-operation – Great expectations fulfilled or left asking for more?

Click for PDF On August 6, 2019 the Serious Fraud Office (“SFO”) in London published a new section of its Operational Guidance entitled Corporate Co-operation Guidance (the “Co-operation Guidance”). The Director of SFO, Lisa Osofsky, foreshadowed the publication of such guidance in previous speeches, noting in one that the purpose of the guidance was “to provide… added transparency about what [companies] might expect if they decide to self-report fraud or corruption.” [1] This raised great expectations amongst practitioners and companies alike. The question is whether these expectations have been met or do they leave readers asking for more? The primary audience for the Co-operation Guidance is SFO prosecutors and investigators. This is also the case for the Deferred Prosecution Agreement Code of Practice (the “DPA Code”) where, the Crime and Courts Act 2013 directs that a Code be published to give prosecutors “guidance on – the general principles to be applied in determining whether a DPA is likely to be appropriate in a given case.” [2] However, despite the intended primary audience of these documents, knowing the considerations that prosecutors will take into account when assessing whether it is in the public interest to offer a Deferred Prosecution Agreement  (“DPA”) is invaluable insight for companies. In many respects the Co-operation Guidance codifies the content of speeches given by the Director and other members of the SFO’s senior leadership. Reliance on speeches to understand the requirements had always been unsatisfactory where they may have been unpublished, selectively reported and on occasions were inconsistent.[3] Introduction to the Co-operation Guidance The Co-operation Guidance begins by providing high level opening descriptions of cooperation, which includes timely self-reporting to the SFO, the identification of the alleged perpetrators and the prompt provision of evidence. On the other hand it identifies delay, stalling tactics or prejudicing a criminal investigation by warning potential suspects, as uncooperative. The Co-operation Guidance also makes clear early on that it is not a “checklist”, that “each case will turn on its own facts” and that “co-operation is one of many factors that the SFO will take into consideration when determining an appropriate resolution…” In saying this the SFO preserves a significant breadth of prosecutorial discretion. This is welcome to the extent that it provides the possibility for a case being resolved by a DPA that does not fit a conventional view of what constitutes the interests of justice. For example, such discretion has permitted a previous DPA to be concluded where the Court’s first reaction was that if the company in that matter “were not to be prosecuted … then it was difficult to see when any company would be prosecuted.” [4] Whilst discretion may therefore be welcome, the unqualified  words that “even full, robust co-operation – does not guarantee any particular outcome” suggests that the SFO has missed the opportunity to maximise the incentivisation for self-reporting and other co-operation. In contrast, the DOJ’s FCPA Corporate Enforcement Policy contains a presumption in favour of a declination with disgorgement for self-reporting, co-operation and remediation absent aggravating circumstances. Those considering reporting conduct captured by both UK and US enforcers are therefore presented on the face of it with different and potentially inconsistent standards and consequences for self-reporting and other co-operation. In its introductory paragraphs the Co-operation Guidance refers to and quotes from the separate but similarly named Guidance on Corporate Prosecutions (the “Corporate Guidance”). The Corporate Guidance is undated but heralds back to the Directorship of the SFO under Richard Alderman which ended in 2012. It was the first attempt to provide direction in respect of the SFO’s expectations of companies regarding co-operation. It contains the public interest factors both in favour of charging and not charging companies. Those public interest criteria were adopted in the public consultation draft of the DPA Code in 2013. As a result of that public consultation the public interest criteria were amended in the DPA Code as finally published. The Corporate Guidance is now therefore redundant. Anyone referring to both the Corporate Guidance and the DPA Code will find inconsistent criteria, and may therefore arrive at a conclusion which is flawed. [5] Examples of Co-operative Conduct Provision of Information In a speech delivered by Ms Osofsky on December 4, 2018 she stated: “Cooperation is making the path to a case easier. For the prosecutor that means making the path to admissible evidence easier. This is not rocket science. It is documents. It is financial records. It is witnesses. Make them available – promptly. Point us to the evidence that is most important – both inculpatory and exculpatory. In other words, give us the “hot” documents. Don’t just bury us in a document dump. Make the evidence available in a way that comports with our laws. Make it available in a way useful to us so that we can do our job – which we will do. We will not, of course, simply take your word for it. We will use what you give us as a starting point, not an end point. We will test, we will probe. Do not do things that create proof issues for us or create procedural barriers.” Despite the Co-operation Guidance making it plain that it is not exhaustive nor a checklist for identifying cooperative conduct, instead of providing overarching guidance which describe positive behaviours consistent with the Director’s words, it instead begins by particularising in detail over twenty mechanistic criteria in respect of material identification, collection, processing and production which reads like the very checklist it previously disavows. Those experienced in conducting internal investigations will already approach document identification, collection, processing and production in a methodical manner. The detail given in the Co-operation Guidance however signals that the SFO will seek the provision of material of a specified scope, that is compliant with a particular collection and production methodology, is accompanied by an audit trail and individuals are identified who will be able to give evidence in a future trial in these respects. Given the particularised approach, companies and their advisors should familiarise themselves with the requirements. Individual Interview Accounts The importance of the company’s approach to interviewing individuals is dealt with in detail. Obtaining, preserving and disclosing early accounts from persons central to the events under investigation has long been a key focus of the SFO, and has led to extensive litigation, either where the SFO has sought such accounts (SFO v ENRC)[6] or failed to do so properly (R (on the application of AL) v SFO).[7] The Co-operation Guidance states that companies should seek the SFO’s view “before interviewing potential witnesses or suspects” or “taking other overt steps”. In this respect, the Co-operation Guidance does not acknowledge that there may be interviews or other overt steps that need to be conducted by the company in order to establish whether there is any conduct to self-report to the SFO. The Director of the SFO however has recognised that this may be the case in a number of speeches including on April 3, 2019 where Ms Osofsky stated that, “I know that companies will want to examine any suspicions of criminality or regulatory breaches – indeed they have a duty to their shareholders to ensure allegations or suspicions are investigated, assessed and verified, so they understand what they may be reporting before they report it.” The absence of this recognition in the Co-operation Guidance is a significant omission which creates uncertainty. Our view is that  those conducting investigations may conduct interviews and take other unavoidable overt steps in order to establish whether there is anything to report. However if those interviews, whether alone or combined with other steps, demonstrate misconduct that would be of interest to the SFO, then any further interviewing or taking of overt steps prior to self-reporting, will likely fall short of what is suggested by the Co-operation Guidance. Companies will therefore have to give careful consideration as to whether interviews should be suspended, pending consultation with the SFO. It would seem that it is not the SFO’s desire to direct internal investigations, but instead to secure the opportunity to determine whether it should conduct interviews first, in order for example to secure an individual’s first account or prevent a suspect being tipped off. A request not to interview is comparable to the de-confliction of witness interviews in the DOJ’s FCPA Corporate Enforcement Policy. If the SFO makes such a request in practice, it is then reasonable to assume that it will conduct an interview promptly to ensure that the company may proceed to interview for its own fact gathering purposes, including  disciplinary or remedial action. A company’s disciplinary and remedial action are also documented as important considerations for assessing whether a DPA is in the interests of justice.[8] There have been instances where companies in the UK have been directed not to conduct interviews at all. This occurred in the investigations of Tesco Stores Limited and Serco Geografix Limited. The acquiescence by the companies to such a request weighed positively in favour of DPAs being approved. However, there are more recently commenced investigations in which companies have not been so directed so it cannot be determined yet whether this reflects a settled trend. It may be expected that such direction will be given in the future, particularly in cases concerning uniquely UK misconduct and involving a small number of persons of interest. Privilege Claims over Internal Investigation Interview Records A whole section of the Co-operation Guidance is devoted to privilege. Waiver is characterised as co-operative but an assertion of privilege will in the eyes of the SFO be neutral. While this is a welcome clarification, the Co-operation Guidance notes that a Court may view the assertion differently and footnotes the case of SFO v ENRC in support of that caution. In our view the judgement in that case says no more than waiving privilege will be viewed positively. However, it is in our view unlikely that a Court deciding whether a DPA is in the interests of justice would weigh a properly established assertion of privilege against a company when establishing whether to approve a DPA. Of the five DPAs approved to date in the UK, two involved assertions of privilege yet were approved by the same judge who gave the judgment in SFO v ENRC. Those DPAs are in our view clear authority that waiver of privilege is not a prerequisite. Where there is a balancing exercise of potentially competing considerations as to whether a DPA is in the interest of justice, the positive weight of a waiver of privilege in some cases may make a determinative difference favouring a DPA. However, this will be difficult to determine at the early stages of a self-reporting process and may be incapable of remedy later. Whether to assert privilege thereby forfeiting credit, or waiving privilege to receive it, will require careful judgements to be made. Where privilege claims are made, the Co-operation Guidance reminds prosecutors that the claims will need to be properly established. Not only is the SFO interested in knowing what individuals have said in interviews that it was not party to, it is cognisant that future defendants will be equally interested. The SFO has a duty to those defendants to pursue all reasonable lines of enquiry to secure such information. In our client alert of September 5, 2018, commenting on the case of SFO v ENRC, we set out what a company must demonstrate in order to best establish a claim of privilege. The Co-operation Guidance states that such claims should be certified by independent counsel. The SFO appears therefore not to be prepared to accept representations made by a company, regardless of how well they might be articulated or evidenced. While not prescriptive on the level of detail that will be required in independent counsel’s certification, given the statement that claims of privilege will need to be properly established, it suggests that significant detail will be expected. The reasons for this are twofold. Firstly, in requiring independent counsel certification, the SFO is implicitly agreeing to be bound by such certifications. As such they must be able to make a qualitative examination of the certification. Secondly, the detail will be important since future individual defendants may dispute the certification even if the SFO is satisfied, and therefore the reasoning will need to be capable of withstanding such challenge. The use of independent counsel is a proactive step to address potential criticism by individual defendants that the testing of a company’s assertion of privilege was inadequate. Whether the use of independent counsel will halt the satellite litigation contesting privilege claims rather than merely providing a different springboard for the challenge remains to be seen. We suspect it will be the latter given the often complex and finely balanced factual considerations that need to be assessed. In 2014 individual defendants made precisely such a challenge to independent counsel’s determination, albeit in that case they were unsuccessful. [9] Conclusion The Co-operation Guidance is the product of repeated requests from companies and legal practitioners for clarity as to what constitutes co-operation in corporate investigations in order that they know how to secure a DPA. Under the SFO’s previous Director, the issuing of such guidance was resisted. [10] For the SFO to depart from this position was worth doing only if the outcome is to provide clarity and certainty. The clarification on conducting interviews and claims of privilege is certainly helpful and sets some recent ambiguity to rest. How document collection, processing and production should occur is made clear. However the manner of a company’s document collection and production is unlikely to ever be weighed heavily in an SFO decision to offer to resolve a case by way of a DPA. Therefore whilst understanding SFO requirements in this respect is helpful, the lengthy addressing of this issue in the Co-operation Guidance elevates disproportionately its relative importance in any such decision. It is however the unwillingness to describe definitively the consequences of self-reporting and other co-operative behaviour which, absent aggravating features, would presumptively result in a DPA being offered is the key point on which the Co-operation Guidance does not meet expectations. Whilst the SFO is likely to dismiss this uncertainty as a difficulty for companies and their advisors to navigate, the enforcement of multi-jurisdictional financial crime and the incentivisation of its self-reporting is an enforcer’s responsibility and requires an appreciation of the global enforcement landscape. Providing such clarity and certainty could have significantly encouraged self-reporting thereby advancing the prompt and effective enforcement of corporate crime, which was the main driver behind the introduction of DPAs. As the then Solicitor General, Oliver Heald QC said in 2012 when announcing the decision to introduce DPAs, “Whatever perspective we bring to the issue of enforcement, it is clear that all involved could benefit from a tool to reduce the complexity and uncertainty of current enforcement powers, and to deal with cases more quickly and in a way which better meets the interests of justice and commands public confidence.”[11] This unresolved lack of clarity and certainty is likely to leave companies asking for more. _____________________ [1]   Lisa Osofsky, “Fighting fraud and corruption in a shrinking world” 3 April, 2019, Royal United Services Institute, London. [2]   Schedule 17, paragraph 6(1) (a). [3]   See reporting of a speech given at GIR Live, London, December 6, 2018 which made the novel suggestion that asserting privilege may be inconsistent with co-operation – https://globalinvestigationsreview.com/article/1177673/waiving-privilege-shows-willingness-to-cooperate-sfo-official-says [4]   SFO v Rolls-Royce Plc, Southwark Crown Court, 17 January 2017, https://www.judiciary.uk/wp-content/uploads/2017/01/sfo-v-rolls-royce.pdf at paragraph 61. [5]   By way of illustration the Corporate Guidance states that: “A genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions, including the compensation of victims: In applying this factor the prosecutor needs to establish whether sufficient information about the operation of the company in its entirety has been supplied in order to assess whether the company has been proactively compliant. This will include making witnesses available and disclosure of the details of any internal investigation.” The DPA Code however states (with emphasis added for illustration) that “Considerable weight may be given to a genuinely proactive approach adopted by P’s management team when the offending is brought to their notice, involving within a reasonable time of the offending coming to light reporting P’s offending otherwise unknown to the prosecutor and taking remedial actions including, where appropriate, compensating victims. In applying this factor the prosecutor needs to establish whether sufficient information about the operation and conduct of P has been supplied in order to assess whether P has been co-operative. Co-operation will include identifying relevant witnesses, disclosing their accounts and the documents shown to them. Where practicable it will involve making the witnesses available for interview when requested. It will further include providing a report in respect of any internal investigation including source documents.” [6]   [2018] EWCA Civ 2006. [7]   [2018] EWHC 856 (Admin). [8]   DPA Code, paragraph 2.8.2 iv. [9]   R v Dennis Kerrison and Miltos Papachristos, Southwark Crown Court. [10]   https://globalinvestigationsreview.com/article/1149586/sfo-director-we-dont-do-guidance [11]   Oliver Heald QC, “Keynote Speech to the World Bribery and Corruption Compliance Forum, 23 October 2012:  https://www.gov.uk/government/speeches/keynote-speech-to-the-world-bribery-and-corruption-compliance-forum. This client alert was prepared by Sacha Harber-Kelly, Patrick Doris and Shruti Chandhok. Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these developments.  If you would like to discuss this alert in greater detail, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm’s UK disputes practice. Philip Rocher (+44 (0)20 7071 4202, procher@gibsondunn.com) Patrick Doris (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Sacha Harber-Kelly (+44 20 7071 4205, sharber-kelly@gibsondunn.com) Charles Falconer (+44 (0)20 7071 4270, cfalconer@gibsondunn.com) Allan Neil (+44 (0)20 7071 4296, aneil@gibsondunn.com) Steve Melrose (+44 (0)20 7071 4219, smelrose@gibsondunn.com) Sunita Patel (+44 (0)20 7071 4289, spatel2@gibsondunn.com) Shruti Chandhok (+44 (0)20 7071 4215, schandhok@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 10, 2019 |
Litigation Partner Joshua Lerner Joins Gibson Dunn in San Francisco

Gibson, Dunn & Crutcher LLP is pleased to announce that Joshua Lerner has joined the firm as a partner in its San Francisco office.  Lerner, formerly a partner at Durie Tangri, will continue to focus on litigating major complex commercial matters. “Josh will be a terrific addition to the firm,” said Ken Doran, Chairman and Managing Partner of Gibson Dunn.  “He has a well-deserved reputation as an accomplished trial lawyer.  Having spent time in-house and in private practice, Josh brings a pragmatic perspective to the business and legal issues confronting our clients, particularly in the tech sector.  Gibson Dunn has one of the premier litigation platforms in the world, and Josh will add to that strength.” “Josh brings excellent experience representing large multinational technology clients in high-stakes matters,” said Charles J. Stevens, Partner-in-Charge of the San Francisco office.  “He will complement our thriving litigation practice in the Bay Area and firmwide.” “I’m thrilled to join the Gibson Dunn team,” Lerner said.  “Gibson Dunn’s reputation as a litigation powerhouse is well-known, and I’m looking forward to expanding my practice.  I’m also confident that the firm’s collaborative culture will be a natural fit.” About Joshua Lerner Lerner advises leading technology companies on complex commercial litigation.  His practice covers a wide variety of areas, including class actions, intellectual property, trade secrets, breach of contract and founder disputes. Before joining Gibson Dunn, Lerner was a partner at Durie Tangri for 10 years.  From 2006 to 2009, he was in-house at Genentech, serving as a Senior Litigation Counsel.  Prior, he also practiced at Clarence Dyer LLP & Cohen and Keker, Van Nest & Peters LLP.  Over the course of his career, Lerner has taught business torts at University of California, Hastings College of the Law. Lerner received his law degree in 2001 from the University of California, Berkeley, School of Law.

September 9, 2019 |
SEC Staff Announces Significant Changes to Shareholder Proposal No-Action Letter Process

Click for PDF On September 6, 2019, the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (“SEC”) announced[1] two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable beginning with the 2019-2020 shareholder proposal season: Oral Response by Staff: The Staff may now respond orally instead of in writing to shareholder proposal no-action requests.  The Staff’s oral response will inform both the company and the proponent of its position with respect to the company’s asserted Rule 14a-8 basis for exclusion expressed in the no-action request.  The Staff stated that it intends to issue a written response letter to a no-action request “where it believes doing so will provide value such as more broadly applicable guidance about complying with Rule 14a-8.” No Definitive Response by Staff: The Staff may now more frequently decline to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.  Importantly, the Staff stated that if it declines to state a view on any particular no-action request, the interested parties should not interpret that position as indicating that the proposal must be included in the company’s proxy statement.  Instead, the Staff stated that in these circumstances, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8. In the announcement, the Staff also reiterated that—in the situations described in prior Staff Legal Bulletins[2]—it continues to find an analysis by the board of directors useful when a company seeks to exclude a proposal on grounds of either ordinary business (Rule 14a-8(i)(7)) or economic relevance (Rule 14a-8(i)(5)).  The Staff also noted that parties continue to be able to seek formal, binding adjudication on the merits of Rule 14a-8 issues in court. Background of the Staff’s Announcement Under Rule 14a-8(j), if a company intends to exclude a shareholder proposal from its proxy materials, it must notify the SEC no later than 80 calendar days before it files its definitive proxy statement, and must simultaneously provide the shareholder proponent with a copy of its submission.  The company’s submission must include an explanation of why the company believes that it may exclude the proposal under Rule 14a-8, and the explanation “should, if possible, refer to the most recent applicable authority, such as prior [Staff] letters issued under the rule.”[3]  This mandatory process has evolved into the practice of companies submitting no-action requests that ask the Staff to concur with their view that shareholder proposals are properly excludable under one of the procedural requirements or substantive bases set forth in Rule 14a-8. Rule 14a-8 contemplates that the Staff will respond to these requests.  For example, Rule 14a-8(k) states that a shareholder proponent can respond to a company’s exclusion notice, but states that proponents should make such submissions as quickly as possible so that the Staff “will have time to consider fully your submission before it issues its response.”  In Staff Legal Bulletin No. 14, the Staff stated, “Although we are not required to respond [to a no-action request], we have, as a convenience to both companies and shareholders, engaged in the informal practice of expressing our enforcement position on these submissions through the issuance of no-action responses.  We do this to assist both companies and shareholders in complying with the proxy rules.”[4]  Thus, for the past several decades, the Staff has responded to almost every shareholder proposal no-action request, except in limited situations (discussed below).  Similarly, the Staff has treated Rule 14a-8 no-action requests differently than no-action requests in other contexts by publicly disclosing the Rule 14a-8 no-action requests promptly following submission, whereas most no-action requests not involving Rule 14a-8 are publicly disclosed only after the Staff has responded to the request.[5] Following the 2018-2019 shareholder proposal season, during which the Staff performed the Herculean task of timely responding to hundreds of shareholder proposal no-action requests notwithstanding the month-long partial government shutdown, the Staff stated in a number of forums that it was considering changing its practice of expressing its views in writing in response to every no-action request.  For example, Division of Corporation Finance Director William Hinman was quoted as stating, “Going forward . . . we are going to be thinking about whether every request for a no-action letter need[s] a formal response from us.”[6]  Director Hinman added, “If we don’t think we have something to add, we may not issue a letter.  Something we are thinking about.  We may actively monitor the area and not necessarily give a response.”[7] As a result of these reports, a number of groups met with and/or wrote to the Staff regarding its proposal, raising concerns with the proposed change.[8] Perspectives on the Staff’s Announcement The Staff’s announcement provides few details on how and in what circumstances its new policy will be implemented.  While the full implications of the Staff’s announcement thus are difficult to assess, some initial observations follow. No Immediate Relief for Companies or Proponents: While the number of Rule 14a-8 no-action requests submitted to the Staff has been trending downward,[9] the new procedures may further relieve some of the burdens on the Staff of the shareholder proposal process.  However, they do not appear to lessen the costs and burdens of the shareholder proposal process on companies.  Under Rule 14a-8(j), a company must still notify the Staff if it intends to exclude a shareholder proposal from its proxy statement under Rule 14a-8, and it must still explain why the company believes that it may do so.  Because the Staff’s announcement provides no clear standards on when the Staff will apply its new procedures, companies likely will conclude that they should continue to request no-action relief and fully explain and cite support for their position.  Likewise, shareholder proponents may continue to conclude that it is worthwhile for them to submit responses seeking to refute companies’ positions on the excludability of proposals. Uncertainty over Effect of Staff’s Decisions to Decline to State its Views: The Staff historically has only rarely declined to state its views on a no-action request under Rule 14a-8, typically adopting that position when a proposal topic was subject to pending litigation.[10]  Importantly, the Staff announcement noted that its determination to not state its views on a no-action request does not mean that it disagrees with a company’s analysis or conclusion and that, in fact, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8.  Nevertheless, a company faced with this situation will have the dilemma of determining whether in fact to exclude the proposal.  As noted by the Council of Institutional Investors (“CII”) in its letter to the Staff,[11] the result may be that some companies include proposals in their proxy statements that, in the past, the Staff would have concurred could be excluded.  That result would require all of the company’s shareholders (many of whom already have been overburdened with assessing how to vote on proposals during proxy season) to expend valuable time and resources on such proposals, even though, in CII’s words, “[s]ome of these proposals are likely to be misguided or on trivial issues.”[12]  In considering whether to omit a proposal in such situation, a company will need to consider the potential reaction of its shareholders, the risk of adverse publicity, possible reactions from proxy advisory firms (discussed below), the risk of litigation, and the possibility that including the proposal in its proxy statement will attract more proposals in future years. Response of Proxy Advisors: Both Institutional Shareholder Services (“ISS”) and Glass Lewis have policies under which they may recommend votes against directors if a company excludes a proposal without having received a Staff response or court order agreeing that the proposal is excludable or withdrawal from the proponent.[13]  However, these policies were issued before the Staff’s announcement and statement that their declining to state a view on a no-action request does not mean that a company has failed to state a valid basis to exclude the proposal.  Given concerns that have been expressed over burdens imposed on all shareholders if the Staff’s new policies result in an increase in the number of proposals included in company proxy statements, it will be important to watch whether the proxy advisory firms adopt a more nuanced approach to their analyses of company decisions to omit shareholder proposals when the Staff has declined to state a view, particularly in light of the SEC’s recent interpretive guidance on the applicability of Rule 14a-9 to the firms’ voting recommendations and cautions regarding the fiduciary duties of investment advisors relying on such recommendations.[14] Increased Risk of Litigation and Related Costs: Although Staff no-action letter responses reflect only informal views of the Staff and not binding adjudications, both companies and proponents have tended to defer to the Staff’s views, and litigation under Rule 14a-8 has been rare.[15]  Shareholder proposal litigation is costly (especially compared to the costs of obtaining a no-action letter response), and federal district courts cannot be relied upon to consider and adjudicate shareholder proposal disputes on the expedited schedule required during proxy season.  Nevertheless, it has always been the case, as noted in the Staff’s announcement, that “the parties may seek formal, binding adjudication on the merits of [a Rule 14a-8 interpretive] issue in court.”  The Staff’s announcement increases the risk to both proponents and companies that they may find themselves in court addressing the excludability of a shareholder proposal under Rule 14a-8. Greater Uncertainty in Rule 14a-8 Interpretations: A number of questions remain on the potential impact of the Staff’s new policies on the long-term transparency around and dynamics of the Rule 14a-8 process. For example, the Staff currently maintains two Rule 14a-8-related websites for shareholder proposal no-action requests: one where it posts incoming no-action requests, and one where it posts Staff responses to no-action requests.  The Staff could effectively maintain the same level of transparency as in the past by maintaining this practice and, when it issues an oral response, including some indication on the website where it posts decided no-action letters, indicating the nature of its oral response (Concur, Unable to concur, or No View) and, if it concurs, the basis of its concurrence.  However, the Staff announcement does not indicate whether the Staff intends to inform the company and proponent of the basis of its decision when issuing an oral response to a no-action request that makes multiple exclusion arguments (including, for example, that it concurs with the company on the basis of its Rule 14a-8(i)(7) argument), much less whether it will include some public indication on its website in such instances. Clearly there will be less definitive guidance on the application of Rule 14a-8 when the Staff declines to state a view on whether a proposal may properly be excluded from a company’s proxy statement. Nevertheless, depending on the frequency, context, and disclosure (if any) around the Staff’s determinations not to state a view, we expect that participants will seek to interpret or read meaning into the situation, rightly or wrongly. The Staff announcement indicates that one instance in which the Staff will issue response letters will be to provide “more broadly applicable guidance about complying with Rule 14a-8.” Although the Staff has on occasion used a Rule 14a-8 no-action response to elaborate on its interpretation of the rule, historically the Staff has utilized Staff Legal Bulletins to provide “more broadly applicable guidance” regarding its interpretation of Rule 14a-8.  The Staff’s announcement appears to suggest that it now will more commonly spring guidance on the shareholder proposal community in the middle of the season and in the context of specific factual situations, which may make such guidance harder to apply in other contexts than if the Staff addressed such issues more generally. In light of the foregoing, there is concern that the Staff’s procedural changes will result in companies and proponents being less able to easily or accurately determine the Staff’s views on the applicability of Rule 14a‑8 to a certain proposal.[16] In the absence of any written record, third parties may not know whether a proposal that was challenged in a no-action letter was excluded, and on what grounds, or if the Staff declined to state its position (the Staff’s announcement did not indicate that it would cease to disclose when a no-action request was withdrawn).  If that does occur, over time this may (ironically) result in an increase in the number of shareholder proposals submitted to companies and the number of no-action exclusion requests submitted to the Staff, as proponents and companies have less guidance on when and on what grounds proposals are excludable. Conclusions Although the shareholder proposal landscape is constantly evolving, the Staff’s announcement heralds a more significant shift in the landscape.  Combined with the implications of the SEC’s recent guidance for proxy advisory firms and investment advisers engaged in the proxy voting process,[17] it means that the 2019-2020 shareholder proposal season could be particularly tumultuous.  Moreover, it remains likely that the SEC will propose amendments to Rule 14a-8 in the near future,[18] although any such rules are unlikely to be in effect for much of the 2019-2020 shareholder proposal season.  Nevertheless, shareholder proponents likely will be mindful of these dynamics when evaluating whether to submit novel proposals, and companies should consider now how these changes may bear on their approaches in seeking no-action exclusion of shareholder proposals and engaging with their shareholders in advance of and during the upcoming proxy season. [1]   Available at https://www.sec.gov/corpfin/announcement/announcement-rule-14a-8-no-action-requests. [2]   See, e.g., Staff Legal Bulletin No. 14I (Nov. 1, 2017), available at https://www.sec.gov/interps/legal/cfslb14i.htm, and Staff Legal Bulletin No. 14J (Oct. 23, 2018), available at https://www.sec.gov/corpfin/staff-legal-bulletin-14j-shareholder-proposals. [3]   Rule 14a-8(j)(2)(ii). [4]   Staff Legal Bulletin No. 14, Shareholder Proposals (July 13, 2001), available at https://www.sec.gov/interps/legal/cfslb14.htm.  As stated in the Division of Corporation Finance’s “Informal Procedures Regarding Shareholder Proposals” (Nov. 2, 2011), which in the past the Staff has attached to each of its Rule 14a-8 no-action letter responses, “The Division of Corporation Finance believes that its responsibility with respect to matters arising under Rule 14a-8 [17 C.F.R. § 240.14a-8], as with other matters under the proxy rules, is to aid those who must comply with the rule by offering informal advice and suggestions and to determine, initially, whether or not it may be appropriate in a particular matter to recommend enforcement action to the Commission.”  Available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8-informal-procedures.htm. [5]   See 17 C.F.R. § 200.82 (providing for public availability of materials filed pursuant to Rule 14a-8(d)). [6]   The Deal, “SEC’s Clayton Eyes Tougher Rules for Proxy Firms, Proposals” (July 16, 2019).  See also Bloomberg Law, “SEC May Curb Review of Contested Shareholder Proposals” (July 16, 2019). [7]   Id. [8]   For example, see Council of Institutional Investors, Letter to Staff: SEC Corporation Finance 14a-8 Process (August 12, 2019), available at  https://www.cii.org/files/issues_and_advocacy/correspondence/2019/ August%2012%202019%2020190812%2014a-8%20No-Action%20Process%20letter.pdf. [9]   The following statistics are based on information we have compiled from the SEC’s website and the Institutional Shareholder Services shareholder proposals and voting analytics databases. No-Action Request Statistics   2019* 2018* 2017* Total number of proposals submitted 792 788 827 Total no-action requests submitted 228 256 288 No-action submission rate 29% 32% 35% Staff responses 180 194 242 Exclusions granted 119 (66%) 125 (64%) 189 (78%) Exclusions denied 61 (34%) 69 (36%) 53 (22%) *   Year references are to each year’s shareholder proposal season, which we define to mean the period from October 1 of the preceding year through June 1 of the indicated year.  The number of Staff responses is lower than the number of no-action requests submitted due to withdrawals and also reflects no-action letters submitted late in the season that are responded to after our June 1 measurement date. [10]   See, e.g., Electronic Arts Inc. (avail. May 23, 2008) (“We note that litigation is pending in the United States District Court for the Southern District of New York with respect to EA’s intention to omit the proposal from EA’s proxy materials.  In light of the fact that arguments raised in your letters and that of the proponent are currently before the court in connection with the litigation between EA and the proponent concerning this proposal, in accordance with staff policy, we will not comment on those arguments at this time.  Accordingly, we express no view with respect to EA’s intention to omit the instant proposal from the proxy materials relating to its next annual meeting of security holders.”). [11]   See note 8. [12]   Id. [13]   ISS, U.S. Proxy Voting Research Procedures & Policies (Excluding Compensation-Related) Frequently Asked Questions (Aug. 13, 2018), FAQ 67 (available at https://www.issgovernance.com/file/policy/active/americas/US-Procedures-and-Policies-FAQ.pdf): [U]nder our governance failures policy, ISS will generally recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company omits from its ballot a properly submitted shareholder proposal when it has not obtained: 1) voluntary withdrawal of the proposal by the proponent; 2) no-action relief from the SEC; or 3) a U.S. District Court ruling that it can exclude the proposal from its ballot. … If the company has taken unilateral steps to implement the proposal, however, the degree to which the proposal is implemented, and any material restrictions added to it, will factor into the assessment. Glass Lewis, 2019 Proxy Paper™ Guidelines, An Overview Of The Glass Lewis Approach To Proxy Advice – United States (2019) (available at https://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_US.pdf.): In instances where companies have excluded shareholder proposals . . . Glass Lewis will take a case-by-case approach, taking into account the following issues: . . . The company’s overall governance profile, including its overall responsiveness to and engagement with shareholders . . . Glass Lewis will make note of instances where a company has successfully petitioned the SEC to exclude shareholder proposals.  If after review we believe that the exclusion of a shareholder proposal is detrimental to shareholders, we may, in certain very limited circumstances, recommend against members of the governance committee.   [14]   Gibson, Dunn & Crutcher LLP, “SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process,” available at https://www.gibsondunn.com/sec-issues- new-guidance-for-proxy-advisors-and-investment-advisers-engaged-in-proxy-voting-process/. [15]   But see TransDigm Group Incorporated (avail. Jan. 28, 2019) (New York City Office of the Comptroller commenced litigation over the proposed exclusion of its proposal prior to the Staff issuing its no-action letter response). [16]   Agenda, “SEC Launches ‘Brand New’ Changes to No-Action Process” (Sept. 6, 2019) (quoting the New York City Comptroller and representatives from the Council of Institutional Investors and As You Sow expressing concern with the Staff announcement). [17]   See note 14. [18]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119 (“As our Regulatory Flexibility Agenda notes, in the near future the Commission expects to consider . . . proposed rules to amend the submission and resubmission thresholds for shareholder proposals under Rule 14a-8 under the Exchange Act . . . .”); Gibson Dunn Securities Regulation Monitor, “SEC To Propose Shareholder Proposal and Proxy Advisory Firm Rule Amendments” (May 24, 2019), available at  https://www.securitiesregulationmonitor.com/Lists/Posts/Post.aspx?ID=367. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the Securities Regulation and Corporate Governance practice group, or any of the following lawyers: Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) Lori Zyskowski – New York (+1 212-351-2309, lzyskowski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 9, 2019 |
Google and YouTube Reach Historic Settlement with FTC and New York AG Over Alleged COPPA Violations

Click for PDF On September 4, 2019, Google and its subsidiary, YouTube, agreed to pay a record $170 million fine to settle allegations by the Federal Trade Commission (“FTC”) and New York Attorney General (“AG”) that YouTube harvested children’s personal data in violation of the Children’s Online Privacy Protection Act (“COPPA”) Rule, 16 C.F.R. § 312. The proposed settlement—which will require Google and YouTube to pay $136 million to the FTC and $34 million to the State of New York—represents the largest civil penalty ever imposed under COPPA since the legislation’s enactment in 1998, eclipsing the previous record of $5.7 million paid by video social networking app Musical.ly (now known as TikTok) earlier this year. The settlement is the latest in a string of aggressive, high-stakes enforcement actions against companies alleged to have committed privacy-related violations—a trend we expect to continue in coming years. Moreover, the deal signals a notable expansion in the circumstances in which third-party platforms are considered to be directed to children or to possess actual knowledge that they are collecting personal information from users of a child-directed site or service, thereby potentially expanding COPPA’s reach to businesses that previously may not have considered the need for COPPA compliance. Background The FTC’s COPPA Rule imposes certain obligations on operators of websites or online services directed to children under the age of 13 that collect, use, or disclose personal information from children, as well as websites or online services that are deemed to be directed to children because they have actual knowledge that they collect personal information from users of other websites or online services directed at children.[1] Such obligations include providing notice of the operators’ data collection practices and obtaining parental consent prior to the collection of personal information from children. A violation of the Rule constitutes an unfair or deceptive act or practice in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), for which the FTC may seek civil penalties.[2] The FTC and New York AG’s complaint alleges that Google and YouTube violated the COPPA Rule by collecting persistent identifiers—which track users’ actions on the Internet—from viewers of “child-directed channels” without first providing notice to parents and obtaining their consent, and that YouTube then used these identifiers to provide targeted advertising to underage viewers in exchange for nearly $50 million in advertising revenue. The complaint claims that content creators of child-directed channels are “operators” for purposes of the COPPA Rule because they collect children’s personal information, and that YouTube was aware that these channels were directed at children, marketed itself as a kid-friendly platform, used a content rating system that includes categories for children under 13, and specifically curated content for a separate mobile application called “YouTube Kids.” As such, the complaint contends, Google and YouTube had actual knowledge that they collected personal information, including persistent identifiers, from viewers of channels and content directed to children under 13, and thus are deemed to operate an online service directed to children under COPPA. In addition to the $170 million civil penalty, the settlement will require Google and YouTube to notify channel owners that child-directed content may be subject to the COPPA Rule’s requirements and implement a system for YouTube channel owners to designate whether their content is directed at children. This is significant “fencing in” relief because COPPA does not itself require platforms that host and serve ads on child-directed content, but do not create content themselves, to inquire as to whether content is directed at children. In addition, YouTube and Google must provide annual training to relevant employees regarding COPPA Rule compliance and are enjoined from violating the notice and consent provisions of the Rule in the future. In practice, these measures will place responsibility on YouTube as well as individual content creators to proactively identify any child-directed content on the platform and obtain the requisite notice and consent required under the Rule. YouTube has already publicly stated that it will begin limiting data collection on child-directed content and will no longer offer personalized ads on child-directed videos.[3] The FTC approved the settlement in a 3-2 vote. In a joint statement, Chairman Joe Simons and Commissioner Christine Wilson characterized the settlement as “a significant victory” that “sends a strong message to children’s content providers and to platforms about their obligations to comply with the COPPA Rule.”[4] In a separate statement, Commissioner Noah Phillips expressed support for the settlement while urging Congress to enact privacy legislation that includes more detailed guidance as to how the FTC should calculate civil penalties in privacy cases, where harm is often difficult to quantify.[5] In their dissenting statements, Commissioners Rohit Chopra and Rebecca Kelly Slaughter criticized the proposed settlement as insufficient because it fails to (i) hold senior executives at Google and YouTube individually accountable, (ii) impose injunctive relief requiring YouTube to “fundamentally change its business practices,” and (iii) impose a monetary penalty of an amount sufficient to deter future misconduct.[6] The settlement is currently pending judicial approval in the United States District Court for the District of Columbia. Key Takeaways: The FTC May Contend that COPPA Applies to Platforms, Ad Networks, and Others that Are Aware (or Reasonably Should Be Aware) that They Collect Personal Information from Users of Child-Directed Sites or Content – Despite the fact that YouTube offers products and services to the general public, requires users to be over the age of 13 for use of most features, and does not itself create content, the FTC and New York AG concluded that YouTube was covered by the COPPA Rule because it allegedly had “actual knowledge” that it was collecting personal information from viewers of channels and content directed to children under 13. Similarly, in December 2018, the New York AG took enforcement action against a non-consumer-facing internet service provider that does not itself operate a child-directed website because it was aware that several of its clients’ websites were directed to children under 13. These cases have potentially far-reaching implications for companies that offer apps, websites, and other services that do not target children or position themselves as serving children, but which, in fact, collect personal information from users of child-directed sites in some manner and have actual knowledge of such collection. Regulators Continue to Focus on Privacy Issues (Particularly Children’s Privacy Issues) – The YouTube settlement is another example of a long-running effort by regulators—in particular, the FTC and New York AG—to investigate and enforce against companies and individuals for privacy-related violations. In July, the FTC announced its largest monetary settlement to date in connection with alleged data privacy-related violations by a social media company, and the New York AG has pursued a number of actions based on alleged COPPA violations, including an $835,000 settlement in 2016 with several children’s brands that were allegedly tracking users to serve ads. In light of the increased focus on privacy-related violations in recent years, we anticipate that this trend will continue at both the federal and state level. Regulators Are Increasingly Willing to Collaborate on Privacy Enforcement Efforts – The joint effort by the FTC and New York AG against YouTube and Google is but one recent example of regulators pooling resources to enforce against large companies. In December 2018, twelve state Attorneys General, led by the Indiana Attorney General, filed the first ever multi-state data breach lawsuit against a healthcare information technology company and its subsidiary related to a breach that compromised the personal data of 3.9 million people. This is in line with a broader trend of states continuing to coordinate enforcement efforts through multi-state litigations arising from large-scale data breaches and other alleged violations. The FTC Is Re-Setting Its Standards for Calculating Civil Penalties to Force Companies to Reevaluate the Consequences of Noncompliance – In a statement accompanying the settlement, Chairman Simons and Commissioner Wilson noted that the YouTube settlement is nearly 30 times higher than the largest fine previously imposed under COPPA. And, as noted above, the FTC announced its largest-ever civil penalty in July 2019 as part of a settlement over alleged privacy-related violations—a self-proclaimed “paradigm shift” in consumer privacy enforcement. There, the FTC noted that the penalty was over 20 times greater than the largest fine under the EU’s General Data Protection Regulation (“GDPR”) and one of the largest civil penalties in U.S. history, surpassed only by cases involving widespread environmental damage and financial fraud. In sum, the FTC has expressed a willingness in recent years to impose civil penalties much higher than any previous fine as a way of setting a high-water mark to deter others from committing future violations. The FTC Continues to Resolve Enforcement Actions Using Highly Prescriptive Consent Orders – In the wake of the LabMD decision, the FTC has resolved numerous cases using highly prescriptive consent orders that mandate sweeping injunctive relief. In LabMD, the Eleventh Circuit found that an FTC cease and desist order mandating a “complete overhaul of LabMD’s data-security program to meet an indeterminable standard of reasonableness” was unenforceable because it lacked adequate specificity.[7] Since then, the FTC has increasingly used consent orders that require detailed injunctive measures to resolve enforcement actions. For example, this latest settlement explicitly requires YouTube to implement a system for channel owners to designate whether their content is directed at children, rather than simply prohibiting YouTube from violating the COPPA Rule again in the future. We can expect the Commission to continue this trend. Regulators Are Taking Enforcement Actions Based on Highly Technical Aspects of Privacy Compliance – Another noteworthy aspect of the YouTube settlement is that it demonstrates regulators’ ability and willingness to assess highly technical aspects of privacy compliance—such as persistent identifiers—as part of their investigations and enforcement efforts. This is a stark change from several years ago, when enforcement actions tended not to implicate such technical aspects of a company’s products and services. In light of this trend, companies should ensure close coordination among their in-house counsel, IT team, and outside counsel experienced with technical issues, in order to meaningfully evaluate and adopt controls to address and mitigate potential compliance risks. The complaint against Google and YouTube can be accessed at: https://www.ftc.gov/system/files/documents/cases/youtube_complaint.pdf. The proposed settlement with Google and YouTube can be accessed at: https://www.ftc.gov/system/files/documents/cases/172_3083_youtube_coppa_consent_order.pdf Gibson Dunn’s 2019 U.S. Cybersecurity and Data Privacy Outlook and Review can be accessed at: https://www.gibsondunn.com/us-cybersecurity-and-data-privacy-outlook-and-review-2019/ ______________________ [1] 16 C.F.R. § 312.2. [2] 15 U.S.C. § 6502(c); 15 U.S.C. § 57(a)(d)(3). [3] Susan Wojcicki, An update on kids and data protection on YouTube, YouTube Official Blog (Sept. 4, 2019) https://youtube.googleblog.com/2019/09/an-update-on-kids.html. [4] Statement of Joseph J. Simons & Christine S. Wilson Regarding FTC and People of the State of New York v. Google LLC and YouTube, LLC (Sept. 4, 2019), here. [5] Separate Statement of Commissioner Noah Joshua Phillips, United States of America and People of the State of New York v. Google LLC and YouTube, LLC (Sept. 4, 2019), here. [6] Dissenting Statement of Commissioner Rohit Chopra, In the Matter of Google LLC and YouTube, LLC (Sept. 4, 2019), here; Dissenting Statement of Commissioner Rebecca Kelly Slaughter, In the Matter of Google LLC and YouTube, LLC (Sept. 4, 2019), here. [7] LabMD, Inc. v. FTC, No. 16-16279, slip op. at 17-18 (11th Cir. June 6, 2018). The following Gibson Dunn lawyers prepared this client update: Alexander Southwell, Rich Cunningham, Olivia Adendorff, Ryan Bergsieker, Ashley Rogers and Lucie Duvall. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following leaders and members of the firm’s Privacy, Cybersecurity and Consumer Protection practice group: United States Alexander H. Southwell – Co-Chair, PCCP Practice, New York (+1 212-351-3981, asouthwell@gibsondunn.com) M. Sean Royall – Dallas (+1 214-698-3256, sroyall@gibsondunn.com) Debra Wong Yang – Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com) Olivia Adendorff (+1 214-698-3159, oadendorff@gibsondunn.com) Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com) Richard H. Cunningham – Denver (+1 303-298-5752, rhcunningham@gibsondunn.com) Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com) Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, jjessen@gibsondunn.com) Kristin A. Linsley – San Francisco (+1 415-393-8395, klinsley@gibsondunn.com) Karl G. Nelson – Dallas (+1 214-698-3203, knelson@gibsondunn.com) Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Benjamin B. Wagner – Palo Alto (+1 650-849-5395, bwagner@gibsondunn.com) Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650-849-5393, mwong@gibsondunn.com) Europe Ahmed Baladi – Co-Chair, PCCP Practice, Paris (+33 (0)1 56 43 13 00, abaladi@gibsondunn.com</abr /> James A. Cox – London (+44 (0)207071 4250, jacox@gibsondunn.com) Patrick Doris – London (+44 (0)20 7071 4276, pdoris@gibsondunn.com) Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com) Jean-Philippe Robé – Paris (+33 (0)1 56 43 13 00, jrobe@gibsondunn.com) Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com) Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com) Sarah Wazen – London (+44 (0)20 7071 4203, swazen@gibsondunn.com) Vera Lukic – Paris (+33 (0)1 56 43 13 00, vlukic@gibsondunn.com) Alejandro Guerrero – Brussels (+32 2 554 7218, aguerrero@gibsondunn.com) Asia Kelly Austin – Hong Kong (+852 2214 3788, kaustin@gibsondunn.com) Jai S. Pathak – Singapore (+65 6507 3683, jpathak@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 9, 2019 |
Dodd-Frank 2.0: U.S. Agencies Revise the Volcker Rule on Proprietary Trading

Click for PDF Since it was enacted in July 2010, the Dodd-Frank Act’s Volcker Rule has challenged banks and their regulators alike.  This is particularly the case with respect to its restrictions on proprietary trading.  It has been one thing for former Federal Reserve Chairman Volcker to state that “you know it when you see it,” quite another to formulate a regulation that accurately defines proprietary trading and implements a broad statutory directive across complex business operations. On August 20, 2019, the Office of the Comptroller of the Currency and the Board of Directors of the Federal Deposit Insurance Corporation, Director Gruenberg dissenting, approved an expected rewrite of the regulation on proprietary trading, along with some minor amendments to the provisions governing private equity funds and hedge funds (Revised Rule).  The preamble stated that a new proposal to revise the funds’ provisions more broadly would be forthcoming.  The other Agencies charged with implementing the Volcker Rule are expected to follow. As with most of the revisions to Dodd-Frank since 2016, the revision – proposed in somewhat different form in June 2018 (2018 Proposal) – is a moderate approach that recalibrates the original regulation (Original Rule) and removes certain unworkable excesses.  This “Volcker 2.0” approach also focuses more intelligently on risk than the Original Rule and is more faithful to the statutory text.  At the same time, it still aligns with the most defensible reason for the Volcker Rule, maintaining the nature of banking institutions as customer-serving businesses.  The result is a pruning of some of the excesses of the Original Rule, while leaving the regulation targeted at banks with the largest trading operations. New Risk-Based Approach The Revised Rule, like the 2018 Proposed Rule, applies the statutory provisions differently depending on the size of a banking entity’s trading assets and liabilities.  It adopts a three-tiered approach, under which compliance obligations under the Rule’s market-making, underwriting, and risk-mitigating hedging exemptions, as well as overall compliance program requirements, differ based on the tier in which tier a banking entity finds itself. Tier Trading Assets/Liabilities[1] Significant $20 billion or more Moderate $1 billion to $20 billion Limited Less than $1 billion For non-U.S. banks, the final rule looks to the bank’s combined U.S. operations only, and not its worldwide operations, when determining in which tier to place the non-U.S. bank. The tiering revision alone is a substantial improvement.  The Original Rule deemed a banking entity worthy of heightened compliance obligations based on total asset size, and set that threshold at an irrationally low number – $50 billion.  Being based on amounts of trading assets and liabilities, the new tiers align more closely to the risks posed.  The Agencies raised the threshold of the “Significant” tier from $10 billion in the 2018 Proposal to $20 billion, but they declined to make changes to the other tiers. In addition, under the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, a banking entity is completely exempt from the proprietary trading restrictions if: It has, and is not controlled by a banking entity that has, total consolidated assets of $10 billion or less; and It has total trading assets and liabilities of 5% or less of total assets. New Definition of Proprietary Trading – Closer to the Statute The Dodd-Frank Act defined “proprietary trading,” as well as the associated term “trading account,” very obscurely: “[P]roprietary trading” . . . means engaging as principal for the trading account of the banking entity . . . in any transaction to purchase or sell, or otherwise acquire of dispose of, [Volcker covered financial instruments]. “[T]rading account” means any account used for acquiring or taking positions in [Volcker covered financial instruments] principally for the purpose of selling in the near term (or otherwise with the intent to resell in order to profit from short-term price movements), and any such other accounts [as determined by regulation].[2] The interpretive issue under these definitions is the concept of the “trading account.”  This is not a recognized term under prior banking law, nor do banking institutions organize their operations around such accounts.  For this reason, the Volcker Agencies originally took considerable leeway with the statutory text in expanding these definitions, with the result that most principal activity in covered financial instruments was brought within the trading prohibition, and then was required to find an exempted “permitted activity” like underwriting or market making to justify itself. Specifically, the Original Rule had three tests for determining what was proprietary trading, and one presumption that was rebuttable in theory, but not in fact: Purpose Test: a purchase and sale is principally for the purpose of short-term resale, benefiting from actual or expected short-term price movements, realizing short-term arbitrage profits, or hedging one or more such positions. Market-Risk Capital Test: the banking entity is subject to the market-risk capital rule and the financial instruments are both market-risk covered positions and trading positions (or hedges thereof). Status Test: the banking entity is licensed/registered as a dealer, swap dealer or security-based swap dealer, or the banking entity engages in any such business outside the U.S.; and the covered financial instrument is purchased and sold in connection with such activities. Rebuttable presumption that a short-term resale purpose exists if an instrument is held for fewer than 60 days, or its risk is substantially transferred within 60 days. The Revised Rule, by contrast, has two principal tests that will bind most institutions subject to the Revised Rule – the Market-Risk Capital Test and the Status Test.  The former has been slightly modified so as not to apply to a banking entity that is not consolidated with an affiliate that calculates risk-based capital ratios under the market risk capital rule for regulatory reporting purposes; the latter was substantively unchanged.  The Purpose Test is retained for those institutions that are not required to calculate market-risk capital, and do not elect to do so for Volcker purposes.  (Such an election must be for a banking entity and all its wholly-owned subsidiaries.)  The Revised Rule also reverses the Original Rule’s presumption so that, with respect to the Purpose Test, a position that is held for 60 days or more and where the risk is not substantially transferred within 60 days is presumed not to be proprietary trading. This simplification of the Original Rule is welcome and is a more reasonable construction of the statute.  First, the Purpose Test – which looked to a banking institution’s intent in purchasing and selling a Volcker instrument – is in many cases duplicative of the Market-Risk Capital Test.  It was also not unreasonably characterized by JPMorgan Chief Executive Officer Jamie Dimon as requiring “a lawyer and a psychiatrist” to analyze every trade.  Second, the Volcker Agencies never had enough staff to engage with banks on rebutting the 60-day presumption – this avenue of compliance was thus effectively read out of the Original Rule.  Finally, for reasons that were never persuasive, the Original Rule did not provide any indication of what period of time would suffice for a banking entity to have certainty that it was not proprietary trading. Expanded Exclusions from Proprietary Trading Certain purchase and sale transactions are wholly outside the Volcker Rule, some statutorily, some under the Original Rule.  The Revised Rule expands the number of regulatory exclusions to include: Purchases and sales of foreign exchange swaps and forwards, and cross-currency swaps (including nondeliverable cross-currency swaps), under the Liquidity Management Plan exclusion. Purchases and sales to correct bona fide trade errors; unlike the 2018 Proposal, there is no requirement that instruments bought or sold in such transactions be transferred to a special “trading error” account. For banking entities that are not dealers, swap dealers or security-based swap dealers, matched swap transactions entered into in connection with customer-driven swaps, such as a back-to-back swap entered into at the same time as a fixed-to-floating interest rate swap with a customer. Hedges of mortgage servicing rights or assets in connection with a documented hedging strategy. Purchases and sales of instruments that are not “trading assets” or “trading liabilities” under regulatory reporting forms. Revised Definition of “Trading Desk” For purposes of the conditions to the permitted activities of market-making and underwriting, the Original Rule included a definition of “trading desk,” the place where many of the conditions were measured.  In keeping with interpreting the statute’s restrictions broadly, the Original Rule defined the term as “the smallest discrete unit of organization of a banking entity that purchases or sells financial instruments for the trading account of the banking entity or an affiliate thereof.”[3]  This definition did not align with the manner in which banking entities generally organized their businesses for operational, management or compliance purposes. The Revised Rule adopts a more flexible definition, which should align better with banks’ organizational structures and result in fewer compliance costs: “A unit of organization of a banking entity that purchases or sells financial instruments for the trading account of the banking entity or an affiliate thereof” that is either: Structured to implement a well-defined business strategy, organized to ensure appropriate setting, monitoring, and review of the desk’s limits, loss exposures and strategies, and characterized by a clearly defined unit that engages in coordinated trading activity with a unified approach to its key elements; operates subject to a common and calibrated set of risk metrics, risk levels and joint trading limits; submits compliance reports and other information as a unit for monitoring by management; and books its trades together; or For a banking entity that calculates risk-based capital ratios under the market risk capital rule, or a consolidated affiliate for regulatory reporting purposes of such a banking entity, established by the banking entity or its affiliate for purposes of market risk capital calculations under the market risk capital rule. Underwriting and Market-Making: RENTD Compliance Through Internal Limits The Volcker statute distinguishes permitted underwriting and market-making activities from impermissible proprietary trading in that the former are “designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties” (RENTD).[4]  The Original Rule required “demonstrable analysis” of complex and opaque conditions as a means of satisfying the RENTD requirement, and in so doing, imposed considerable compliance obligations on banking entities.  In addition, studies since the enactment of the Volcker Rule found that liquidity in certain financial markets had been constrained[5] – itself a cause of supervisory concern. The Revised Rule seeks to reduce these obligations and increase market liquidity by permitting banking entities to make use of their own risk limits in showing compliance with the RENTD condition.  It therefore contains a rebuttable presumption of compliance with the Rule if a banking entity has established and implements, maintains, and enforces internal limits for the relevant trading desk designed to not to exceed RENTD.  The relevant supervisor may rebut the presumption of compliance if it believes that a banking entity’s trading desk is exceeding RENTD, after notice to the banking entity. With respect to underwriting, the internal limits must address, based on the nature and amount of the trading desk’s underwriting activities: the amount, types, and risk of its underwriting position; the level of exposures to relevant risk factors arising from its underwriting position; the period of time a security may be held; and the liquidity, maturity, and depth of the market for the relevant types of securities. With respect to market making, the internal limits must address: the amount, types, and risks of the trading desk’s market-maker positions; the amount, types, and risks of the products, instruments, and exposures the trading desk may use for risk management purposes; the level of exposures to relevant risk factors arising from its financial exposure; the period of time a financial instrument may be held; and the liquidity, maturity, and depth of the market for the relevant types of financial instruments. These limits are not required to be approved in advance, but they are subject to supervisory review and oversight on an ongoing basis.  Unlike the 2018 Proposal, the Revised Rule does not require banking entities to report limit breaches, but they must maintain and make available to their supervisors on request records regarding any limit that is exceeded and any temporary or permanent increase to a limit. If a banking entity breaches or increases a limit, the presumption of compliance will continue to be available only if the banking entity takes action as promptly as possible after a breach to bring the trading desk into compliance, and follows established written authorization procedures regarding the breach or increase, including demonstrable analysis of the basis for any temporary or permanent increase to a trading desk’s limit. In addition, the Revised Rule eliminates the specific compliance program requirements for the underwriting and market-making exemptions for banking entities that do not have significant trading assets and liabilities. Simplification of Hedging Permitted Activity; Risk-Tailored Compliance Like underwriting and market making, risk-mitgating hedging is an activity permitted by the statute even if it involves a purchase and sale of an instrument in the short term.  The Original Rule imposed substantial conditions on this activity, however, in an effort to guard against abuse.  These original conditions imposed a significant compliance burden and were not easily monitored in practice.  In particular, the requirements that the banking entity conduct a correlation analysis and continuously show that the hedge was demonstrably reducing or significantly mitigating identifiable risks was a significant challenge. The Revised Rule simplifies the conditions to risk-mitigating hedging and gives banking entities more flexibility in demonstrating compliance.  It removes the Original Rule’s requirements that a banking entity undertake a correlation analysis and show that the hedge was demonstrably reducing or significantly mitigating identifiable risks.  Instead, and more closely following the statute, the hedging must be “designed to reduce or otherwise significantly mitigate one or more specific, identifiable risks” being hedged and be “subject, as appropriate, to ongoing calibration” to ensure that the hedging does not become prohibited trading. In addition, for banking entities that have only moderate trading activities (greater than $1 billion in trading assets/liabilities but less than $20 billion), the Revised Rule reduces the scope of the required compliance program.  For such firms, the requirement for a separate internal compliance program for hedging has been eliminated, as well as certain specific requirements,[6] limits on compensation arrangements for persons performing risk-mitigating activities, and documentation requirements. For banking entities that have significant trading activities, the Revised Rule moderates the Original Rule’s requirement for maintaining additional documentation for hedges and hedging techniques not established by a trading desk’s policies and procedures.  The requirement does not apply to purchases and sales of financial instruments for hedging activities that are identified on a written list of financial instruments pre-approved by the banking entity that are commonly used by the trading desk for the specific types of hedging activity, if the banking entity complies with appropriate pre-approved limits for the trading desk when doing the hedging. Relaxation of Trading Outside the United States (TOTUS) Requirements Unlike many statutes, the Bank Holding Company Act of which the Volcker Rule is a part applies extraterritorially, subject to specific exemptions for non-U.S. banking organizations.  The Revised Rule relaxes the conditions that the Original Rule applied to the permitted activity of a non-U.S. bank trading “outside the United States,” the so-called TOTUS permitted activity.  In so doing, the Revised Rule focuses more clearly on potential risks to the United States caused by TOTUS activity. Under the new conditions, a trade qualifies for TOTUS if: the banking entity engaging as principal in the purchase or sale (including relevant personnel) is not located in the United States or organized under the laws of the United States or of any State; the banking entity (including relevant personnel) that makes the decision to purchase or sell as principal is not located in the United States or organized under the laws of the United States or of any State; and the purchase or sale, including any transaction arising from risk-mitigating hedging related to the instruments purchased or sold, is not accounted for as principal directly or on a consolidated basis by any branch or affiliate that is located in the United States or organized under the laws of the United States or of any State. Unlike the Original Rule, the trade can be with a U.S. counterparty and financing for the trade can be provided by the U.S. offices of the non-U.S. banking entity.  A non-U.S. banking entity may also use a non-affiliated U.S. investment adviser in the trade as long as the actions and decisions of the banking entity as principal occur outside of the United States. Modest Revisions to Covered Fund Provisions The Revised Rule makes only minor revisions to the Volcker funds restriction; the preamble states a new proposal on this subpart will be forthcoming.  In particular, the thorny question of whether a foreign excluded fund should be exempted from the definition of “banking entity” is left for another day, with some indication that the Agencies may still believe this is a question for Congress.[7]  The only amendments are the following: The Revised Rule removes the Original Rule’s requirement that banking entities include for purposes of the aggregate fund limit and capital deduction the value of any ownership interests of a third-party covered fund (i.e., covered funds that the banking entity does not advise or organize and offer) acquired or retained in accordance with the underwriting or market-making exemptions. The Revised Rule permits a banking entity to acquire or retain an ownership interest in a covered fund as a hedge when acting as intermediary on behalf of a customer that is not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the covered fund (as in a fund-linked note). The Original Rule’s prohibition of such activities had no clear statutory basis. The Revised Rule removes the Original Rule’s condition to the SOTUS fund exemption that no financing be provided by U.S. offices. The Revised Rule codifies the Agency staff interpretation that the SOTUS marketing restriction applies only to funds sponsored by – and not to third-party funds invested in – by non-U.S. banking entities.[8] Tiered, Risk-Base Compliance Regime Consistent with its approach to risk, the Revised Rule substantially modifies the required compliance regime for banking entities with moderate and limited trading assets and liabilities.  Significantly, the CEO certification, which the Original Rule had required for banking entities with $50 billion or greater in total consolidated assets, is eliminated for all such banking entities.  This in itself is significant regulatory relief.  In addition, the six-pillar compliance regime of the Original Rule applies only to banking entities with significant trading assets and liabilities.  Banking entities with only moderate trading assets and liabilities may include in their existing compliance policies and procedures appropriate references to the Volcker Rule and its implementing regulation, with adjustments as appropriate given the activities, size, scope, and complexity of the banking entity.  Entities with limited trading assets and liabilities benefit from a rebuttable presumption of compliance with the Volcker Rule. Effective Date The Revised Rule will be effective on January 1, 2020.  In order to give banking entities a sufficient amount of time to comply with the changes adopted, banking entities will not be required to comply with the Revised Rule until January 1, 2021.  Because the Revised Rule relaxes the Original Rule’s requirements, the Agencies are permitting banking entities to comply voluntarily, in whole or in part, with the Revised Rule prior to January 1, 2021, subject to the Agencies’ completion of necessary technical changes, principally with respect to metrics reporting.[9] Conclusion Ultimately, the fundamental issue with the Volcker Rule is the statute Congress passed.  In an effort to cover every activity that could be proprietary trading, while at the same time using opaque and imprecise language, Congress ensured a “hard slog” for both banking entities and their supervisors.  The Original Rule compounded this problem by interpreting the statute to expand its reach in virtually all close cases.  The Revised Rule appropriately takes a different approach, focusing on what is the overall purpose of Dodd-Frank:  the reduction of risk to banking entities and the financial system more broadly.  By streamlining overall requirements, and focusing most stringently on the banking entities with the largest trading portfolios, “Volcker 2.0” provides better guidance to banking entities and will be easier for regulators to enforce. [1]   For purposes of these thresholds, the amount of trading assets and liabilities are calculated as the “average gross sum” of assets and liabilities on a trailing 4-quarter basis, and the following obligations are excluded:  U.S. government- and U.S. government agency-issued and -guaranteed securities, and securities issued or guaranteed by certain government-sponsored enterprises. [2]   12 U.S.C. §§ 1851(h)(4), (h)(6). [3]   12 C.F.R. § 248.3(e)(13). [4]   12 U.S.C. § 1851(d)(1)(B). [5]   See, e.g., J. Bao, M. O’Hara & A. Zhou, “The Volcker Rule and Market-Making in Times of Stress,” Finance and Economics Discussion Series 2016-102, Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2016.102, at 3 (“Our results show that bond liquidity deterioration around rating downgrades has worsened following the implementation of the Volcker Rule. We find such adverse effects whether we benchmark to the pre-crisis period or to the period just before the Volcker Rule was enacted, and we find that the relative deterioration in liquidity around these stress events is as high during the post-Volcker period as during the Financial Crisis. Given how badly liquidity deteriorated during the Financial Crisis, this finding suggests that the Volcker Rule may have serious consequences for corporate bond market functioning in stress times.”). [6]   These requirements include the requirements that at inception, the hedging position not give rise to significant new or additional risk that is not hedged contemporaneously and that hedging activity be subject to continuous review, monitoring and management. [7]   Stating that “[c]ertain concerns raised by commenters may need to be addressed through amendments to section 13 of the BHC Act,” the preamble notes how community banks were statutorily excluded from the definition of “banking entity” in 2018. [8]   The Revised Rule also clarifies that the SOTUS exemption does not preclude a non-U.S. banking entity from engaging a non-affiliated U.S. investment adviser as long as the actions and decisions of the banking entity to invest in a fund occur outside of the United States. [9]   In a formal acknowledgment of what Agency staff had previously unofficially stated, the Revised Rule relaxes the metrics that banking entities with significant trading assets and liabilities have to report. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Financial Institutions practice group, or the following: Matthew L. Biben – New York (+1 212-351-6300, mbiben@gibsondunn.com) Arthur S. Long – New York (+1 212-351-2426, along@gibsondunn.com) Michael D. Bopp – Washington, D.C. (+1 202-955-8256, mbopp@gibsondunn.com) Jeffrey L. Steiner – Washington, D.C. (+1 202-887-3632, jsteiner@gibsondunn.com) James O. Springer – New York (+1 202-887-3516, jspringer@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 9, 2019 |
Law360 Names Seven Gibson Dunn Lawyers as 2019 Rising Stars

Seven Gibson Dunn lawyers were named among Law360’s Rising Stars for 2019 [PDF], featuring “attorneys under 40 whose legal accomplishments transcend their age.”  The following lawyers were recognized: Washington D.C. partner Chantal Fiebig in Transportation, San Francisco partner Allison Kidd in Real Estate, Washington D.C. associate Andrew Kilberg in Telecommunications, New York associate Sean McFarlane in Sports, New York partner Laura O’Boyle in Securities, Los Angeles partner Katherine Smith in Employment and Century City partner Daniela Stolman in Private Equity. Gibson Dunn was one of three firms with the second most Rising Stars. The list of Rising Stars was published on September 8, 2019.

September 9, 2019 |
Gibson Dunn Adds M&A Partner David C. Lee in Orange County

Gibson, Dunn & Crutcher LLP is pleased to announce that David C. Lee will join the firm as a partner in the Orange County office.  Lee, formerly with Latham & Watkins, will continue his mergers and acquisitions, capital markets and venture capital practice at Gibson Dunn. “David is a terrific addition to the firm,” said Ken Doran, Chairman and Managing Partner of Gibson Dunn.  “David’s M&A, venture, capital markets and cross-border practice will strengthen our corporate practice in Southern California.  His experience in the life sciences, health care, pharmaceutical, biotechnology, cleantech, digital media and energy sectors will add to our depth.” “We’re thrilled to have David join us,” said Michael Flynn, Partner in Charge of the Orange County office.  “David is very well regarded in the local legal community.  He also has strong relationships in the Chinese and Chinese-American business communities.  His extensive experience across an array of sectors, ranging from healthcare to cleantech to energy, will make him a valuable addition to our corporate department.” “I am looking forward to beginning the next chapter of my career at Gibson Dunn,” Lee said.  “I have long admired the firm and am eager to join a team of attorneys known for delivering exceptional results and service.” About David C. Lee Lee has a broad corporate practice, with a particular focus on domestic and cross-border M&A.  He also has significant experience with capital markets, private equity, emerging companies, and venture capital, including debt offerings, initial public offerings and follow-on offerings, private placements, recapitalizations, take-private transactions and venture capital and private equity investments in public companies.  He regularly advises companies in the healthcare, pharmaceutical, biotechnology, cleantech, digital media and energy sectors. Prior to joining the firm, he practiced with Latham & Watkins since 2004.  He has also previously served as Certified Public Accountant in the audit and valuations department of Price Waterhouse and as Controller and Vice President of Finance of a subsidiary of a Fortune 500 energy company. Lee graduated magna cum laude in 2004 from Northwestern University’s Pritzker School of Law where he received the Raoul Berger Prize and was Order of the Coif.  He also earned his MBA with distinction from Northwestern’s Kellogg School of Management in 2004.

September 3, 2019 |
Hillary Holmes Named Among Texas Lawyer’s 2019 Most Effective Dealmakers

Texas Lawyer named Houston partner Hillary Holmes among four lawyers featured as the “Most Effective Dealmakers” in its 2019 Professional Excellence Awards, an annual list of “fantastic lawyers who have dedicated themselves to building exceptional careers” and “advancing the profession as a whole.” The report was published on September 3, 2019. Hillary Holmes is Co-Chair of the firm’s Capital Markets practice group. Her practice focuses on securities offerings and securities regulation and governance counseling in all sectors of the oil & gas industry. She represents public companies, private companies, MLPs, investment banks, management teams and private equity in all forms of capital raising transactions, including IPOs, registered offerings of debt and equity securities, private placements of debt and equity securities, preferred equity investments, joint ventures and private equity investments.

September 3, 2019 |
Olivia Adendorff Named Among Texas Lawyer’s 2019 On the Rise Honorees

Texas Lawyer named Dallas partner Olivia Adendorff among 25 lawyers featured as the 2019 “On the Rise” honorees in its Professional Excellence Awards, an annual list of “fantastic lawyers who have dedicated themselves to building exceptional careers” and “advancing the profession as a whole.” The report was published on September 3, 2019. Olivia Adendorff has handled a wide assortment of antitrust, consumer protection, and general litigation matters, with particular expertise in managing complex commercial class actions. She has practiced in federal district and appellate courts across the country, including appearing before the Fifth, Sixth, Seventh, Ninth, and Eleventh circuit courts of appeal.

September 3, 2019 |
New York Court of Appeals Round-Up & Preview (September 2019)

The New York Court of Appeals Round-Up & Preview summarizes key opinions in civil cases issued by the Court over the past year and highlights a number of civil cases of potentially broad significance that the Court will hear during the coming year, beginning in September 2019.  The cases are organized by subject. From September 2018 through August 2019, the Court issued 106 decisions.  Looking ahead, the Court has scheduled 12 cases for argument in September 2019 (both civil and criminal) — with the session’s first cases being argued on the afternoon of September 4 — and 13 cases for argument in October 2019 (both civil and criminal). The Court has not yet scheduled argument for the remaining cases currently on its docket. To view the Round-Up, click here. New York-based members of the firm’s renowned Appellate and Constitutional Law Group have deep experience in front of New York State and federal courts of appeal, and a record of success in constitutional and other challenges to government action. They are often brought into a case at the onset to help craft the legal strategy, working seamlessly with our trial lawyers to take a matter from its inception all the way to the U.S. Supreme Court, if necessary. This integrated approach distinguishes Gibson Dunn from its competitors and is key to the wide recognition the firm receives. *   *   *  * Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the New York Court of Appeals, or any other state or federal appellate courts in New York.  Please feel free to contact any member of the firm’s Appellate and Constitutional Law practice group, or the following lawyers in New York: Mylan L. Denerstein (+1 212-351-3850, mdenerstein@gibsondunn.com) Akiva Shapiro (+1 212-351-3830, ashapiro@gibsondunn.com) Genevieve B. Quinn (+1 212-351-5339, gquinn@gibsondunn.com) Patrick Hayden (+1 212-351-5235, phayden@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

September 3, 2019 |
Gibson Dunn Adds Competition Partner Christian Riis-Madsen to Brussels Office

Gibson, Dunn & Crutcher LLP is pleased to announce that Christian Riis-Madsen will join the firm’s Brussels office as a partner in the firm’s Antitrust and Competition Practice Group.  Riis-Madsen joins the firm from O’Melveny & Myers. “We are delighted that Christian is joining us,” said Ken Doran, Chairman and Managing Partner of Gibson Dunn.  “He is highly regarded in the Brussels legal and business communities and is well-known to many of our partners and several of our clients.  He has a well-rounded competition practice with deep experience with top multinational technology companies. Moreover, he has demonstrated strong leadership qualities and will complement the strengths of our global Antitrust and Competition Practice Group.” “Christian is a super fit to our existing Brussels practice, both in terms of his great legal skills and his personality,” said Peter Alexiadis, Partner in Charge of the Brussels office.  “Christian has been on our radar for some time.  His reputation in the high tech sector fits very well with our existing client base, while significant synergies also present themselves in the growth of our existing Scandinavian/Nordic practice.” “I am looking forward to working with my new colleagues at Gibson Dunn,” said Riis-Madsen.  “The firm’s premier competition practice and technology clientele are a perfect platform to continue to grow my practice.” About Christian Riis-Madsen Riis-Madsen has a broad competition law practice, advising on antitrust and regulatory matters before the European Commission.  He has advised companies in a variety of industries and has significant experience in the technology sector, including issues related to two-sided markets, online platforms and intellectual property rights. Before joining Gibson Dunn, Riis-Madsen practiced with O’Melveny & Myers from 2004 to 2019 and most recently served as head of the Brussels office.  Prior, he practiced with Norton Rose in Brussels and Kromann Reumert in Copenhagen.  He is admitted to practice in Denmark and Belgium.  He is fluent in Danish, English, French, German, Norwegian and Swedish. He received his B.A. in law in 1998 and his LL.M. in law in 2000 from the University of Copenhagen.

August 28, 2019 |
USPTO Requests Public Comments on Patenting Artificial Intelligence Inventions

Click for PDF Following up on the release of eligibility guidelines for AI-related inventions earlier this year, the United States Patent and Trademark Office (Patent Office) published yesterday a request for public comments on a series of patent-related issues regarding AI inventions. Request for Comments on Patenting Artificial Intelligence Inventions, 84 Fed. Reg. 44889, 44889 (Aug. 27, 2019). The Patent Office hopes that with the input it receives in response to this request for comments from the innovation community and experts in AI, the Patent Office will be in a strong position to evaluate whether further patent examination guidance is needed to (1) “promote the reliability and predictability of patenting artificial intelligence inventions,” and (2) “ensure that appropriate patent protection incentives are in place to encourage further innovation.” Id. The office’s request poses twelve questions covering “a variety of topics from patent examination policy to whether new forms of intellectual property protection are needed.” Id. For example, the questions cover topics such as: Inventorship – Should current inventorship laws and regulations be revised to account for entities other than a natural person contributing to the conception of an invention? What are the different ways in which a natural person can contribute to the conception of an AI invention? Ownership – Who owns an AI invention? Is it the company who trains the AI process that creates the invention? Should entities other than a natural person or the company to which it is assigned be able to own an AI invention? And Patent Application Requirements – Does AI impact the level of a person of ordinary skill in the art? Are there disclosure-related considerations unique to AI inventions, such as written description? Are new forms of intellectual property protections needed for AI inventions? This is an important opportunity for individuals and companies active in AI technologies to provide their perspective on how U.S. intellectual property law and patent office procedures should address some of the unique issues raised by AI inventions. Written comments may be sent by email to AIPartnership@uspto.gov, and must be received on or before October 11, 2019. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Artificial Intelligence and Automated Systems or Intellectual Property practice groups, or the following authors: H. Mark Lyon – Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Jessica A. Hudak – Orange County (+1 949-451-3837, jhudak@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Artificial Intelligence and Automated Systems Group: H. Mark Lyon – Chair, Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) J. Alan Bannister – New York (+1 212-351-2310, abannister@gibsondunn.com) Lisa A. Fontenot – Palo Alto (+1 650-849-5327, lfontenot@gibsondunn.com) David H. Kennedy – Palo Alto (+1 650-849-5304, dkennedy@gibsondunn.com) Ari Lanin – Los Angeles (+1 310-552-8581, alanin@gibsondunn.com) Robson Lee – Singapore (+65 6507 3684, rlee@gibsondunn.com) Carrie M. LeRoy – Palo Alto (+1 650-849-5337, cleroy@gibsondunn.com) Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Eric D. Vandevelde – Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Michael Walther – Munich (+49 89 189 33 180, mwalther@gibsondunn.com) Intellectual Property Group: Wayne Barsky – Co-Chair, Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt – Co-Chair, New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter – Co-Chair, Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 31, 2019 |
Dropping the Pilot – DOJ’s Toned-Down Corporate Enforcement Policy Reduces the Burden on Business and Could Improve Information Sharing

Washington, D.C. partners F. Joseph Warin, M. Kendall Day and Daniel P. Chung, and associate Laura R. Cole are the authors of “Dropping the Pilot – DOJ’s Toned-Down Corporate Enforcement Policy Reduces the Burden on Business and Could Improve Information Sharing,” [PDF] published in Global Investigations Review’s Practitioner’s Guide to Global Investigations Half-Year Update in July 2019.