Richard Manfredi, Author at Gibson Dunn

May ‘26 – like May ‘25 but with GLP-1. Lots of sugar-coated proposals, but is there the appetite?

May highlights

This time last year was a deal banquet with half of the total transactions for 2025 launched across May and June and 11 firm offers announced in May alone. There was plenty on the menu again this year but is anyone ordering?

Starter

What else but EQT’s improved and final £9.4bn indicative proposal for Intertek Group plc on 12 May. The Intertek board is “minded to recommend” it. However, as potentially the second largest P2P ever, it might cause indigestion.

Mains – there is a choice of:

Ingredion Incorporated’s £2.65bn indicative approach to Tate & Lyle plc announced on 14 May 2026. This one may be held in the kitchen while competition authorities taste-test.
Toscafund’s non-binding £1bn proposal for Spire Healthcare Group plc also announced on 14 May 2026 (another of the month’s specials which the Spire board is “minded to recommend”). Toscafund’s clearly hungry to upsize its existing 18% shareholding.
Back on the menu (following previous discussions with TA Associates and Montagu Private Equity both of which were returned to the kitchen) is AIM listed Advanced Medical Solutions Group plc, announcing on 21 May it had received an all-cash indicative approach from H.B. Fuller Company.

For dessert – there is:

the Gamma Communications plc special, with potential bidders served three different ways (Providence Equity Partners L.L.C., Eiris LLP or a consortium of Oakley Capital and Giacom) for the c.£900m potential target; or
a double “TREIT” of Glenstone REIT plc’s possible offer for Alternative Income REIT plc announced on 15 May and LondonMetric Property plc and Schroder Real Estate Investment Trust Limited’s announcement on 12 May of agreed key terms in relation to a non-binding all share offer for Picton Property Income Limited.

The May Data

Offers Announced

Offers by Sector (YTD)

Bid Premia	Financial Advisor Fees (% deal value)

What’s Happened?

A proposal with no price

Price discovery through multiple revised and increased proposals has become a common feature of recent bids, in particular bigger ticket ones (see EQT’s approach to Intertek). A request for due diligence access without naming a price (with that price dependent on the diligence findings) is more unusual. However, that is what Glenstone REIT plc has put forward in connection with its announcement that it is considering a possible cash offer for Alternative Income REIT plc, in which it is the largest shareholder (24%).

Glenstone’s request follows the announcement by AEW UK REIT plc in April that it would not make an offer for Alternative Income REIT plc as “although indicative heads of terms were reached at an early stage of the process, it was established during the course of due diligence that agreement on certain key matters could not be concluded”.

Offers that were launched took AIM

Three formal offers were launched in May. Each was for an AIM listed target and there were other common themes (such as the parties being well known to each other and the bidder giving a cost coverage agreement) which may have helped in getting these across the line.

The largest of these was AMG Critical Minerals N.V.’s recommended £57m cash and share offer for Zinnwald Lithium plc announced on 14 May. Dutch based AMG (producer of speciality materials and provider of furnace systems) is currently the largest shareholder (29.3%) in Zinnwald, which has an interest in one of Europe’s major lithium reserves that straddles the German-Czech border.

The German connection continued with Vossloh AG’s recommended £29m cash offer for Cordel Group plc announced on 13 May. Rail infrastructure maintenance provider Vossloh, similarly is no stranger, having participated in a pilot project in Continental Europe last year with rail network monitoring specialist Cordel.

Like AMG Critical Minerals, NEO NEXT+ Energy Upstream UK Limited agreed to a cost coverage agreement in respect of its £7.2m recommended cash offer for Deltic Energy plc announced on 7 May.

The even longer long stop date

Last November, Harwell Private Equity announced a recommended £64m cash offer for Frenkel Topping Group plc with a novel alternative offer of part cash and part stapled units (each unit comprising a mix of ordinary shares, loan notes and preference shares in different entities in the acquisition structure).

In a reminder of the potential additional complexities in offering alternative share consideration for an FCA regulated entity, the parties had to extend the long stop date for the transaction from 29 March to 29 May. The Scheme is conditional upon FCA change of control approval for each of the proposed controllers (including through the alternative share consideration). As the parties were continuing to engage with the FCA to ensure Bidco’s capital structure meets the changes to the capital adequacy requirements which came into effect on 1 April, the long stop date needed to be extended again to 29 July. FCA approval has since been obtained following structural amendments to the stapled units to replace the preference share component with additional ordinary shares and certain of the companies in the acquisition structure being replaced by newly established Jersey entities.

Looking Ahead

Holiday season

Back in November, PPHE Hotel Group Ltd commenced a formal sale process following the announcement by its two main shareholders (who collectively hold 44%) that they were considering a range of options in relation to their investment.

On 27 May 2026 PPHE announced it had received an indicative proposal from the Tel Aviv listed hospitality group Fattal Hotel Group. The indicative cash proposal values PPHE at £930m. Fattal has said that it is discussing potential structures for the transaction with PPHE with a view towards announcing a firm offer within the next 4 weeks. To be seen if PPHE’s major shareholders can be booked in before summer.

P2P Financing

There were no debt-financed bids for UK public companies in May, but for prospective bidders eyeing the availability of debt the signs were very promising. The geopolitical issues (Middle East conflict and elevated fuel prices) and sectoral issues (AI disruption to software businesses) which have subdued the debt markets since February remain unresolved. Nevertheless, May saw a decided uptick in the number of borrowers raising debt, with around €6.6 billion of loans launched in the first two weeks alone. And almost every loan that came to the syndicated market tightened its pricing guidance or accelerated the deadline for responses, reflecting deep demand from lenders.

The standout event was a €2.02 billion dual currency syndicated loan to back Carlyle’s €7.7 billion buyout of BASF’s Coatings division. This was underwritten at the end of 2025 but was held back to avoid the dislocation in the markets. However, the underwriters need not have worried. Despite concerns around heavily adjusted EBITDA and the energy-intensive business model, the Euro portion of the loan was upsized during syndication to €1 billion and priced at E+375, in line with the reported underwritten margin.

The private credit market remained equally resilient, proving itself once again a reliable source of acquisition financing in disrupted times. Apollo’s acquisition of Forvia’s auto interior business, originally expected to head to the bond market, was ultimately backed by a €700 million unitranche loan provided by HPS, alongside a €100 million capex and acquisition facility to fund future growth. Industrial businesses (in a pivot away from software) remain popular with private credit investors, with Oaktree reportedly among lenders backing Tikehau and Mubadala’s €700 million buyout of aerospace maintenance firm Revima.

Documentation terms also remain very borrower friendly, with few reports of successful lender pushback in syndication and flexible features like portability increasingly common. All indications are that fresh M&A supply will be received with great interest by the loan markets in the short term. The coming weeks may reveal whether this proves to be a limited window of opportunity for P2P bidders or a prolonged recovery after recent disruptions. Watch this space!

Equity Capital Markets

This month, the National Investment Fund of the Republic of Uzbekistan JSC saw its Global Depositary Receipts (each representing 64,700 ordinary shares) admitted to the Official List and to trading on the LSE’s Main Market, making it the first company from Uzbekistan to list equity on the LSE. UzNIF’s market capitalisation on admission was approximately £1.44 billion.

May also saw The Beauty Tech Group plc (which completed its IPO in October 2025) announce a secondary placing of ordinary shares by existing shareholders by way of an accelerated bookbuild to institutional investors. Certain pre-IPO shareholders sold, in aggregate, ordinary shares – representing approximately 7.9% of TBTG’s issued share capital – at a price of £3 per share (slightly above the IPO share price of £2.71 per share), generating gross proceeds of £26,389,605 for the selling shareholders.

From June 2026, the minimum free float requirement for inclusion in the FTSE UK Index Series will be reduced to 10% for non-UK incorporated companies, subject to all other inclusion criteria being met. This is a notable change for non-UK incorporated companies, for which the current minimum free float threshold is 25%, and will mean the threshold aligns across both UK and non-UK incorporated companies.

Key Contacts:

Will McDonald Partner, Corporate	Chris Haynes Partner, Corporate	David Irvine Partner, Finance	Kavita Davis Partner, Finance
James Addison Of Counsel, Corporate	Thomas Barker Of Counsel, Corporate	Lauren Richardson Associate, Corporate	Pete Usher Associate, Corporate

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

On June 6, 2026, a federal district court vacated IRS Notice 2025-42 in full, holding that the IRS acted arbitrarily and capriciously in eliminating the “Five Percent Safe Harbor” for certain tax credit-eligible wind and large solar projects seeking a longer completion deadline. Unless stayed or reversed on appeal, the decision restores that safe harbor for all such projects — though substantial uncertainty remains ahead of the OBBBA’s July 4, 2026 grandfathering deadline.

On June 6, 2026, the U.S. District Court for the District of Columbia issued its decision in Oregon Environmental Council v. Internal Revenue Service (the Decision), vacating Notice 2025-42 (the Notice) in full and remanding to the IRS.[1] The court held that the Notice, which made “physical work of a significant nature” the only way most wind and solar projects could “begin construction” after 2024 before becoming subject to a more stringent statutory completion deadline, was arbitrary and capricious under the Administrative Procedure Act (the APA).

Background

Under current federal tax law, qualifying solar and wind energy facilities that begin construction after 2024 are eligible for either a 10-year production tax credit (rate based on kWh of electricity produced) or an investment tax credit (ranging from 30 to 70 percent of qualifying costs).[2] The One Big Beautiful Bill Act (the OBBBA) accelerated the termination of these credits: For facilities on which construction begins after July 4, 2026, the facility must be placed in service by December 31, 2027 to be eligible for credits.[3] Projects that begin construction on or before July 4, 2026 (i.e., in the next 27 days), on the other hand, rely on IRS guidance indicating that a project’s beginning of construction date will be respected as long as the facility is placed in service by the end of the fourth calendar year after the year in which construction began.

For over a decade, under IRS guidance interpreting prior identical statutory credit termination deadlines, a taxpayer could establish the “beginning of construction” either by performing physical work of a significant nature (the Physical Work Test) or by paying or incurring at least five percent of qualifying costs to construct the facility (the Five Percent Safe Harbor), and then placing the facility in service by the end of the fourth calendar year after the calendar year in which construction began.[4]

In August 2025, implementing Executive Order 14315, the IRS issued the Notice, making the Physical Work Test the exclusive method for beginning construction on wind and solar facilities (except solar facilities of 1.5 MW or less) and eliminating the Five Percent Safe Harbor for those facilities, in each case, for purposes of the OBBBA’s new credit termination deadline.[5] In the Notice, the IRS stated that the purpose of the guidance was “to prevent taxpayers from circumventing the statutory credit termination date, prevent the artificial manipulation of eligibility for the [tax credits] for applicable wind and solar facilities, and ensure that a substantial portion of any applicable wind or solar facility not subject to the credit termination date is built by the beginning of construction deadline.” The practical impact of the Notice was that it made it more challenging for wind or solar facilities to establish that construction had begun, therefore making it more challenging to benefit from the extended placed in service deadline.

The Court’s Decision

After resolving the government’s threshold objections as to jurisdictional and standing matters, holding that five of the seven plaintiffs had standing, the court reached the merits.

On the merits, the court held the Notice arbitrary and capricious. An agency reversing a longstanding position must acknowledge the change, weigh the serious reliance interests its prior policy created, and explain its reasons. The court found the Notice’s lone explanatory paragraph inadequate: it did not explain how Five Percent Safe Harbor facilities were “circumventing” the statute, why the IRS rejected the narrower anti-abuse alternatives commenters proposed (such as barring safe-harbor purchases from prohibited foreign entities), or why wind and large solar facilities were singled out.

The court ordered the ordinary APA remedy — vacatur in full and remand to the IRS — declining both to remand without vacating and to limit relief to the plaintiffs, because only universal vacatur could fully redress injuries flowing from the Notice’s effect on third-party developers.

What This Means

The Five Percent Safe Harbor for the OBBBA’s July 4, 2026 deadline is restored — if the IRS agrees. With the Notice vacated, the pre-Notice beginning-of-construction guidance, including the Five Percent Safe Harbor, again governs wind and large solar (small solar of 1.5 MW or less was never affected). But a government appeal and a stay request are likely, the court warned that appellate review will probably outlast the July 4, 2026 deadline, and the IRS may re-issue guidance on remand, meaning that market participants must plan for continued uncertainty. Absent immediate IRS acquiescence to the Decision, the resulting uncertainty means the availability of the Five Percent Safe Harbor is likely of little practical use.
Document both methods. Any developers considering relying on the Five Percent Safe Harbor should also document satisfaction of the Physical Work Test, so eligibility does not turn on which rule ultimately prevails.

[1]Oregon Env’t Council v. IRS, No. 1:25-cv-04400-CKK (D.D.C. June 6, 2026). All references to the “IRS” and the “Treasury” are to the U.S. Internal Revenue Service and the U.S. Department of the Treasury, respectively.

[2] Facilities for which construction begins before 2025 are eligible for different (albeit similar) credits that are not affected by the Notice.

[3]Pub. L. No. 119-21, §§ 70512–70513 (2025).

[4]See Notice 2013-29 and its successor notices (each method subject to a continuity requirement). The IRS completion deadlines are longer for certain more complex facilities and facilities constructed during the Covid-19 pandemic.

[5]Notice 2025-42, 2025-36 I.R.B. 351; Exec. Order No. 14315, 90 Fed. Reg. 30821 (July 7, 2025). Our prior alert on the Notice can be found here.

The following Gibson Dunn lawyers prepared this update: Josiah Bethards, Michael Q. Cannon, and Matt Donnelly.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding this decision. To learn more about these issues or discuss how they might impact your business, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member of the firm’s Tax and Tax Controversy and Litigation practice groups:

Tax:
Dora Arash – Los Angeles (+1 213.229.7134, darash@gibsondunn.com)
Michael Q. Cannon – Dallas (+1 214.698.3232, mcannon@gibsondunn.com)
Matt Donnelly – New York/Washington, D.C. (+1 212.351.5303, mjdonnelly@gibsondunn.com)
Evan M. Gusler – New York (+1 212.351.2445, egusler@gibsondunn.com)
James Jennings – New York (+1 212.351.3967, jjennings@gibsondunn.com)
Kathryn A. Kelly – New York (+1 212.351.3876, kkelly@gibsondunn.com)
Rachel D. Kleinberg – Palo Alto (+1 650.849.5207, rkleinberg@gibsondunn.com)
Brian W. Kniesly – New York (+1 212.351.2379, bkniesly@gibsondunn.com)
Pamela Lawrence Endreny – Co-Chair, New York (+1 212.351.2474, pendreny@gibsondunn.com)
Gregory V. Nelson – Houston (+1 346.718.6750, gnelson@gibsondunn.com)
Jennifer Sabin – New York (+1 212.351.5208, jsabin@gibsondunn.com)
Eric B. Sloan – Co-Chair, New York/Washington, D.C. (+1 212.351.2340, esloan@gibsondunn.com)
Edward S. Wei – New York (+1 212.351.3925, ewei@gibsondunn.com)
Lorna Wilson – Los Angeles (+1 213.229.7547, lwilson@gibsondunn.com)

Tax Controversy and Litigation:
Saul Mezei – Washington, D.C. (+1 202.955.8693, smezei@gibsondunn.com)
Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, sstark@gibsondunn.com)
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, tussing@gibsondunn.com)

The Bavarian Highest Regional Court has held that a foreign State may not invoke sovereign immunity to resist the recognition and enforcement of an arbitral award arising from a commercial arms-supply contract, and that a State which participates in the arbitration – all the more so where it brings a counterclaim – is precluded from later challenging the arbitration agreement before the German courts.

I. Introduction

In a decision of 19 December 2025 (case no. 101 Sch 61/24e), the Bavarian Highest Regional Court (Bayerisches Oberstes Landesgericht, BayObLG) declared an ICC award enforceable against a foreign State, rejecting the State’s reliance on sovereign immunity, its challenge to the validity of the arbitration agreement, and its application for security for costs. The ruling reaffirms Germany’s standing as an enforcement-friendly jurisdiction and addresses three issues that recur in the enforcement of awards against sovereign States: the scope of State immunity, the treatment of security for costs following Brexit, and the preclusion of jurisdictional objections raised for the first time at the enforcement stage. A Rechtsbeschwerde (appeal on points of law) is pending before the Federal Court of Justice (Bundesgerichtshof, BGH; case no. I ZB 107/25).

II. Background

The claimant, a company domiciled in the United Kingdom, contracted in 2008 with the procurement authority of a foreign State for the supply and installation of tactical communication systems in the vehicles of that State’s armed forces, together with associated training. The contract contained an ICC arbitration clause providing for a seat in Geneva and the application of Swiss substantive law.

After unrest broke out in the State in 2011, the claimant terminated the contract, and a dispute arose over the lawfulness and consequences of that termination. The claimant commenced ICC arbitration in 2013; the State defended on the merits and brought a substantial counterclaim. In its 2016 award, the tribunal ordered the State to pay a principal sum in respect of the State’s unjustified call on standby letters of credit, plus interest, and to bear the bulk of the costs of the arbitration.

The claimant sought partial recognition and enforcement (Vollstreckbarerklärung) of the award before the BayObLG, relying on the fact that the State owns two plots of land within the court’s district. The State asserted immunity, contested the validity of the arbitration agreement, and applied for an order requiring the claimant to provide security for costs.

III. Key Holdings

1. State immunity

The court reaffirmed that, proceedings for a declaration of enforceability (Vollstreckbarerklärung) of an arbitral award are not enforcement proceedings (Zwangsvollstreckung) but a recognition proceeding sui generis (Erkenntnisverfahren eigener Art). The applicable test is therefore the one under the law of jurisdictional immunity, not the (narrower) law of enforcement immunity.

Germany adheres to the restrictive (as opposed to absolute) theory of sovereign immunity. Under the doctrine of restrictive immunity, a State enjoys immunity only for sovereign acts (acta iure imperii), not for conduct it undertakes like a private party (acta iure gestionis). The distinction turns on the nature of the act or legal relationship, not on its motive or purpose. Critically, the court held that, although national defense and the maintenance of armed forces are sovereign functions, this does not prevent contracts connected with the sale of arms and munitions from being concluded on a private-law footing. By entering into the contract and calling on the guarantees, the State had acted like a private party; the fact that the goods were destined for military use, or that contract was said to form part of bilateral defense cooperation between the two governments, did not alter the private-law nature of the transaction.

Although jurisdictional immunity governed the merits, the State also invoked enforcement immunity to dispute the court’s local jurisdiction, which rested on the land the State owns in the district (the asset-based venue under Section 1062 ZPO). As a matter of general international law, enforcement against a foreign State’s assets is barred where those assets are dedicated to sovereign purposes (Zweckbestimmung) and such property is placed beyond the reach of execution. This protection does not require the asset to be already in actual sovereign use; it is enough that a competent organ of the State attests a sovereign dedication. On the facts, the court ruled that the planned offices for “economic” and “technical cooperation” on the plots of land in question were not by their nature a sovereign activity and were not comparable to the representation of culture and science abroad; the State had also failed adequately to attest a sovereign dedication of the land. The Federal Foreign Office had moreover noted that exercising sovereign functions on German soil would require Germany’s consent, which the State had not obtained. The court therefore found no enforcement immunity, and the asset-based venue – and with it German jurisdiction – held.

2. Security for costs

The court confirmed that the rules on security for costs (cautio iudicatum solvi, Section 110 of the German Code of Civil Procedure (ZPO)) apply by analogy to proceedings for a declaration of enforceability of an arbitral award, and that, following Brexit, a claimant seated in the United Kingdom is in principle no longer relieved of the obligation as an EU/EEA party.

That said, the court concluded that the claimant was nonetheless exempt under the exception in Section 110(2) No. 2 ZPO, because an international treaty – the German-British Convention of 14 July 1960 on the reciprocal recognition and enforcement of judgments in civil and commercial matters – secures the enforcement of any cost order in the claimant’s home State. Notably, the court treated this as independent of Brexit. That is because, the EU regime (the 1968 Brussels Convention and the Brussels I and Brussels Ia Regulations) has always excluded arbitration from its scope, so the 1960 Convention was never superseded in arbitration-related matters and simply remained in force throughout. The court therefore did not need to resolve the disputed question whether the Convention “revived” for other civil and commercial matters after Brexit, and it rejected the argument that enforcement of the costs order had to be “beyond doubt”: it suffices that enforcement is secured, and the abstract risk of divergent interpretation does not defeat a treaty that is in force and has not been terminated.

3. Validity of the arbitration agreement: preclusion of the objection

The State also argued that the procurement authority had lacked capacity under its domestic law to conclude an arbitration agreement without ministerial approval, rendering the clause invalid. In deciding whether the State was entitled to raise this point at the recognition stage, the court distinguished two situations:

Failure to seek annulment at the seat is not preclusive. The State was not barred from raising it merely because it had not brought set-aside proceedings against the award in Switzerland; a party does not forfeit grounds for resisting recognition simply by declining to use a (time-barred) remedy in the State of origin.
Participation without objection is preclusive. The State was, however, barred because it had not raised the invalidity of the arbitration agreement in the arbitration itself and had even advanced a counterclaim. While the New York Convention contains no express preclusion rule, the prohibition of contradictory conduct (venire contra factum proprium) – rooted in good faith and recognized as a principle inherent in the Convention – applies. By bringing a counterclaim, the State signaled that it treated the arbitration agreement as binding and would not later contest it before national courts; it thereby deprived the tribunal of the opportunity to rule on its own jurisdiction and deprived the claimant of the chance to resort to the national courts instead. The objection could not be revived at the recognition and enforcement stage, and barring it did not offend international public policy (ordre public international).

IV. Practical Takeaways

The decision is a robust signal to award creditors that German courts will not allow sovereign respondents to escape recognition through immunity arguments where the underlying transaction is commercial in nature – even in the sensitive field of defense procurement.

The character of transaction determines State immunity. Counterparties contracting with States or State entities should not assume that a connection to defense, security, or other sovereign functions automatically confers immunity; what matters is whether the State acted like a private party. Conversely, a State seeking to preserve immunity from execution over its assets must be prepared to demonstrate a genuine sovereign dedication of the asset and, where relevant, to obtain host-State consent for any sovereign use.

Raise jurisdictional objections in the arbitration or forfeit them. A respondent that intends to contest the existence or validity of an arbitration agreement must do so within the arbitration itself. Participating in arbitral proceedings without challenging jurisdiction – and especially counterclaiming – will, as a rule, preclude the objection at the recognition and enforcement stage. This is a powerful tool for award creditors and a trap for respondents that participate without reserving the point, since failure to raise it may forfeit the objection.
Security for costs is unlikely for UK-seated claimants enforcing awards. The court held that the 1960 German-British Convention applies to arbitration-related recognition and enforcement applications regardless of Brexit, since arbitration was always carved out of the EU regime. UK-seated award creditors enforcing in Germany can therefore expect, as a rule, not to be required to post security for costs.

The ruling consolidates Germany’s standing as a reliable forum for the enforcement of arbitral awards, including against sovereign debtors, and rewards parties that conduct their arbitrations consistently and in good faith.

The following Gibson Dunn lawyers prepared this update: Dr. Finn Zeidler, Dr. Annekathrin Schmoll, Marc Kanzler, and Simon Ruhland.

Finn Zeidler – Frankfurt (+49 69 247 411 530, fzeidler@gibsondunn.com)

Annekathrin Schmoll – Frankfurt (+49 69 247 411 533, aschmoll@gibsondunn.com)

Marc Kanzler – Munich (+49 89 189 33 269, mkanzler@gibsondunn.com)

Simon J. Ruhland – Frankfurt (+49 69 247 411 527, sruhland@gibsondunn.com)

Christopher Harris KC – Global Co-Chair, Judgment & Arbitral Award Enforcement / International Arbitration Groups, Zurich / London (+41 44 382 5490, charris@gibsondunn.com)

Miguel A. Estrada – Co-Chair, Judgment & Arbitral Award Enforcement Group,
Washington, D.C. (+1 202.955.8257, mestrada@gibsondunn.com)

Robert Weigel – Co-Chair, Judgment & Arbitral Award Enforcement Group,
New York (+1 212.351.3845, rweigel@gibsondunn.com)

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center.

Key Developments

On June 4, U.S. Equal Employment Opportunity Commission (“EEOC”) Chair Andrea Lucas issued a National Enforcement Plan (“NEP”) for the agency for fiscal years 2025–2029, which replaces the prior Strategic Enforcement Plan issued for fiscal years 2024–2028. The NEP establishes new “global principles” for how the agency will deploy its resources, which include operating as a nationwide enforcement agency, broad enforcement of the laws in the EEOC’s jurisdiction, aligning with Administration priorities and executive orders, and prioritizing disparate treatment claims over disparate impact claims. The NEP also identifies categories of substantive enforcement priorities, including cases involving overt or repeated discrimination (including job advertisements focused on diverse candidates or visa holders, fellowship programs that exclude individuals based on race or other protected characteristics, and “mass denials of accommodations”) and challenges to broad employment policies (with specific attention to programs that preference visa holders as well as DEI-related programs that may constitute race- or sex-based preferences). The NEP identifies for targeting—“[d]epending on the specific facts”—DEI practices including aspirational goals; limited-access training, mentoring, and events; diverse slates, diverse panels, and diversity statements; sharing demographic data with managers, the public, or others outside of HR and legal departments; and tying compensation to diversity goals. The NEP also focuses on development of the law (a) regarding DEI programs, religious accommodation, and sex and gender identity following recent seminal cases including Ames, Muldrow, SFFA, Groff, and Bostock; (b) regarding voluntary affirmative action programs, foreshadowing an effort to reverse Weber and Johnson; and (c) regarding the relatively new Pregnant Workers Fairness Act. In addition, the NEP prioritizes protecting vulnerable workers such as teenagers, low-wage earners, survivors of sexual assault, and individuals with disabilities. Lucas also designated four Chair priorities: addressing DEI-related discrimination; protecting American workers from national origin discrimination; defending women’s rights to single-sex spaces at work; and safeguarding workers’ religious liberty rights. The NEP takes effect immediately and supersedes all prior district-level enforcement plans.

On June 4, the Department of Justice’s Civil Rights Division announced that it opened investigations into potential race discrimination in admissions at fifteen medical schools. The announcement follows the Department’s recent determinations that UCLA and Yale University used race as a factor in admissions to their medical schools in violation of Title VI of the Civil Rights Act of 1964, as interpreted by the Supreme Court in SFFA v. Harvard. In announcing the new investigations, Assistant Attorney General Harmeet K. Dhillon of the Civil Rights Division stated that “[m]any of America’s top medical schools appear more concerned about the demographics of their incoming classes than training students to succeed in the profession” and that the Division “will continue to protect American students from discriminatory and illegal preferences in admissions — especially in professions as critical as medicine.”

On May 29, the Office of Management and Budget (“OMB”) proposed sweeping revisions to the federal financial assistance guidance codified at 2 CFR Part 200. Among other things, the proposed rule seeks to prohibit federal agencies and pass-through entities (organizations that receive federal funds then pass those funds on to other entities) from using federal awards to “fund, promote, encourage, subsidize, or facilitate” DEI initiatives that “violate any applicable Federal anti-discrimination laws.” This includes, specifically, “racial preferences or other forms of racial discrimination,” as well as activities where “race or intentional proxies for race are used as selection criteria for employment or program participation.” Additionally, OMB proposes a new Section 200.218 that would prohibit the use of federal awards to promote or support theories of disparate-impact liability based on federally protected characteristics such as race, sex, or age “including by not issuing terms, conditions, or guidance that would advance theories of disparate-impact liability.” The rule would also require senior political appointees at federal agencies to conduct pre-issuance reviews of discretionary awards to ensure that proposed funding decisions are consistent with applicable law, agency priorities, and the national interest, including by assessing whether the awards comply with, among other things, the prohibition on DEI-related discrimination. Where recipients are found to have engaged in prohibited DEI practices, the government may seek to recover funds or terminate the award. The public has 45 days to comment on the proposed regulations.

On May 27, the EEOC submitted a proposal to OMB to rescind its interpretive rule, “Affirmative Action Appropriate Under Title VII of the Civil Rights Act of 1964,” a 1979 regulation that provides guidance to private employers on how to implement voluntary affirmative action plans without violating Title VII of the Civil Rights Act of 1964. The existing rule allows employers to conduct a self-analysis of whether their employment practices have had an adverse impact on protected groups and, if so, to adopt reasonable corrective measures—such as goals and timetables—to address discriminatory patterns under certain circumstances.

On May 26, in a per curiam decision, the Ninth Circuit affirmed in part and reversed in part the district court’s preliminary injunction ordering the Environmental Protection Agency, the National Science Foundation, and the National Endowment for the Humanities to reinstate certain grants on behalf of two provisional classes of University of California researchers whose grants had been terminated pursuant to certain Executive Orders issued by the Trump Administration. The Ninth Circuit held that the district court likely lacked jurisdiction over the so-called “Form Termination Class”—researchers whose grants were terminated by form letter without grant-specific explanation. According to the court, under the Supreme Court’s ruling in National Institutes of Health v. American Public Health Association, 145 S. Ct. 2658 (2025), claims based on research grants that seek to enforce an obligation to pay money are contractual in nature and, under the Tucker Act, fall within the jurisdiction of the Court of Federal Claims, not federal district courts. At the same time, the court affirmed the preliminary injunction for the “DEI Termination Class”—researchers whose grants were terminated because of DEI-specific Executive Orders. The court explained with respect to the DEI Termination Class that these researchers were likely to succeed on a First Amendment viewpoint discrimination claim. The court reasoned that even in the provision of subsidies, the government may not aim to suppress disfavored viewpoints, and that the agencies had selected grants for termination based on recipients’ perceived ideology rather than redefining the scope of a program. The case was remanded for further proceedings. The case is Thakur et al. v. Donald J. Trump, et al., No. 25-4249 (9th Cir. 2026).

On May 18, non-profit group Protect the Public’s Trust filed a complaint with the U.S. Department of Education (“DOE”), Department of Health and Human Services (“HHS”), and Department of Justice (“DOJ”), alleging violations of Titles VI, VII, and IX by Penn State University’s Dickinson Law School. The complaint focuses on the law school’s 2026 “Strategic Plan Update,” a document intended to guide the law school’s admissions and employment practices for the next five years, which, among other things, articulates the law school’s goal to “[p]romot[e] diversity in legal education and the profession to achieve equity in society.” Specifically, the complaint alleges that the Strategic Plan Update unlawfully directs consideration of diversity and inclusion in hiring and admissions. It also challenges the Strategic Plan Update’s alleged requirement that all first-year students take a course on race and the law, claiming that the course requires students to “affirm activist talking points” such as the need to “eradicate patriarchy” and that white students specifically are asked to “reflect on their perceived wrongs.” The complaint repeatedly references a former Penn State student who is a white male and who claims he was forced to withdraw from the law school after refusing to participate in the course. According to the complaint, the student viewed required participation in the course as a form of “compelled speech.” The complaint asks DOE, HHS, and DOJ to investigate Penn State in relation to these allegations.

On May 15, the EEOC sent OMB a proposed rule that would rescind employers’ legal obligations to collect and report workforce demographic data. The proposal seeks to rescind EEO-1 reporting requirements, which require private-sector employers with 100 or more employees and federal contractors with over 50 workers to submit to the EEOC annual reports on workforce demographics. The proposed rule also would eliminate the EEO-3, EEO-4, and EEO-5 data collections from unions, state and local governments, and public schools, respectively. According to reporting by Law360, former EEOC Chair Jenny R. Yang criticized the proposal, calling it a move “in the wrong direction” at a time when “data-driven decision-making is more important than ever.” The EEOC has not responded or made any public statement on the proposal.

Also on May 15, Representative Jerrold Nadler of New York and 11 other Democratic members of Congress sent a letter to EEOC Chair Andrea Lucas, expressing concern that the agency had not yet opened its annual EEO-1 data collection cycle for 2026. The letter notes that large private employers have been required to submit workforce demographic data since 1966, that the collection portal typically opens in the spring, and that the pending regulation (described above) suggests the Commission may be considering rescinding the EEO-1 requirement altogether. The letter further expresses concern that the EEOC apparently had not renewed its contract with third-party vendor Westat, which was set to expire at the end of fiscal year 2025, thereby “call[ing] into question the agency’s preparedness to carry out this year’s [EEO-1] collection.” The letter also flags that OMB’s approval for the EEO-1 collection expires on November 30, 2026, and it states that “[w]e expect the EEOC to initiate the process to renew this clearance in a timely manner to ensure there is no interruption in data collection.” The letter concludes by posing questions about the EEO-1 process, including the reporting deadline, contracting status, any steps to suspend or modify the collection, and plans for renewed OMB approval for EEO-1 collection.

On May 7, 2026, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York permanently enjoined the National Endowment for the Humanities (“NEH”) from terminating over 1,400 grants that were eliminated at the direction of the Department of Government Efficiency (“DOGE”) in early 2025. The case is American Council of Learned Societies, et al. v. National Endowment for the Humanities, et al., No. 1:25-cv-03657 (S.D.N.Y. 2025). The plaintiffs filed the suit on May 1, 2025, against the NEH, DOGE, and numerous individual government defendants, asserting that the over 1,400 grant eliminations violated the separation of powers doctrine, the Administrative Procedure Act, the First Amendment, and the Fifth Amendment. On March 6, 2026, the plaintiffs moved for summary judgment, arguing that DOGE personnel targeted grants with descriptors that used terms like “BIPOC” and “gay” to identify DEI-related NEH grants for termination. The plaintiffs argued that the terminations constituted unconstitutional viewpoint discrimination under the First Amendment, violated the Fifth Amendment by employing classifications based on race, sex, and sexual orientation, and lacked authority from Congress. On March 27, 2026, the defendants filed a cross-motion for summary judgment, contending that the court lacked jurisdiction because the claims were contract disputes belonging in the Court of Federal Claims under the Tucker Act.

On May 7, 2026, the court granted the plaintiffs’ motion for summary judgment and denied the defendants’ cross-motion. The court held that, as a matter of law, (1) the grant terminations were ultra vires (“beyond the [agency’s] powers”) because DOGE lacked statutory authority to identify, select, or direct terminations of NEH grants; (2) the grant terminations violated the First Amendment because DOGE’s processes reflected viewpoint discrimination; and (3) the terminations violated the Equal Protection Clause of the Fifth Amendment because DOGE used protected characteristics as criteria for selecting grants for termination, and the government’s asserted interests of administrative convenience, merit, and waste reduction “[did] not come close to satisfying strict scrutiny or heightened scrutiny.” With respect to the defendants’ cross-motion, the court held that the Tucker Act did not divest the court of jurisdiction over the plaintiffs’ claims, which rested on independent constitutional and statutory grounds. The government has not yet indicated whether it intends to appeal.

On May 5, OMB, the Office of Federal Procurement Policy, the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration published a request for comments regarding information to be collected in connection with Executive Order 14398, including information and reports required to ascertain compliance with the EO such as books, records, and accounts, reports of subcontractor violations, and reports of subcontractor suits that put the EO’s validity at issue. (EO 14398 prohibits certain “racially discriminatory DEI activities” and requires that government contractors make available records to verify compliance.) The notice solicits comments on four specific questions: (1) whether the proposed collection is necessary for the proper performance of federal acquisition functions, including the practical utility of the proposed collection; (2) the accuracy of the burden estimate; (3) ways to enhance the quality, utility, and clarity of the information collected; and (4) ways to minimize the burden on respondents, including through automation. The notice also states that the Federal Acquisition Regulatory (“FAR”) Council intends to issue separate rulemaking, providing the public an opportunity to comment on the substantive policy implementation of EO 14398 in the FAR. Comments are due by July 6, 2026.

Media Coverage and Commentary

Below is a selection of recent media coverage and commentary on these issues:

Law.com, “Federal Judge to Law Grads: DEI Is ‘Absolutely Intrinsic’ to Equal Justice” (May 21, 2026): Avalon Zoppo of Law.com reports on remarks by U.S. District Judge Mustafa Kasubhai of the District of Oregon at a commencement address at the University of Oregon School of Law, in which he defended DEI as “absolutely intrinsic” to the pursuit of equal justice and the rule of law. According to Zoppo, Judge Kasubhai emphasized that diversity of background and lived experience in the legal profession will “make the law better.” The article notes that the remarks come amid the Trump Administration’s continued scrutiny of DEI policies and as companies have rolled back such programs in response. Zoppo also reports that the scrutiny may be affecting diversity commitments at law firms, citing National Association for Law Placement data showing a decline in racial and ethnic diversity at law firms in 2025 and a drop in survey participation from firms and lawyers compared to prior years.
Law360, “ABA Section Votes To Scrap Law School DEI Standards” (May 15, 2026): Emma Cueto of Law360 reports that on May 15, the American Bar Association’s (“ABA”) Council of the Section of Legal Education and Admissions to the Bar voted 10-4 to repeal Standard 206, which required law schools to “demonstrate by concrete action a commitment to diversity and inclusion” and to commit to maintaining a student body “diverse with respect to gender, race and ethnicity.” The decision followed recommendations from the section’s Standards Committee, which concluded that the standard could jeopardize the ABA’s role as a nationwide accreditor because the DOE and several states had interpreted applicable law to prohibit enforcing such diversity requirements as minimum accreditation standards. The ABA received 50 public comments on the proposal, 48 of which opposed the repeal, with many arguing for the constitutionality of Standard 206 and urging the ABA not to capitulate to political pressure. As reported by Cueto, the Standards Committee acknowledged these comments, stating that it “understands the dedication of the commenters to diversity and inclusion” and noting that “law schools, affiliate organizations and bar associations are free to further these goals consistent with their missions and the law.” The recommendation will next proceed to the ABA House of Delegates for a vote in August.
Law360, “As DEI Challenges Rise, Circuits Sketch Out Boundaries” (May 14, 2026): Law360’s Anne Cullen reports that recent decisions from the Tenth and Second Circuits have clarified that a single DEI training is insufficient to support a harassment claim, but a series of such trainings, combined with tangible workplace consequences for refusing to participate, may support such a claim. As Ms. Cullen reports, on May 11, 2026, the Tenth Circuit rejected a white corrections officer’s hostile work environment claim based on a single mandatory racial sensitivity training, finding that the one-time session was insufficient to meet Title VII’s “severe or pervasive” standard. Conversely, in September 2025, the Second Circuit reinstated a white supervisor’s harassment suit where the employer’s DEI programming allegedly involved repeated mandatory workshops, an overnight retreat, and consequences for pushback, including loss of supervisory responsibilities. Cullen quotes Gibson Dunn partner Jason Schwartz, who observed that “[c]ourts are drawing a line between training alone and training plus . . . . A one-time training is generally not enough to create a hostile work environment, but courts have found that training plus follow-on comments or conduct, depending on how serious and frequent, could cross the line.” Other practitioners quoted in the article added that certain DEI practices, such as broadening recruiting pipelines, tracking workforce demographics, and publishing diversity reports remain legally sound, provided that individual employment decisions are not made on the basis of protected characteristics.
Bloomberg Law, “Trump’s Anti-DEI Efforts Struggle Under Federal Judges’ Scrutiny” (May 6, 2026): Bloomberg Law’s Chris Marr and Khorri Atkinson report that the Trump Administration’s anti-DEI policies have met repeated resistance in federal courts, with judges finding various enforcement mechanisms unconstitutional on First Amendment, vagueness, and separation-of-powers grounds. The fight has taken on what one interviewed attorney described as a “whack-a-mole” quality, meaning that when one avenue is blocked, the Administration pivots to another. The authors describe the various methods the Administration has used to advance its policy goals in relation to DEI, including implementing executive orders, terminating grants, imposing funding conditions, withholding regulatory licenses, and conditioning merger approvals. At the same time, Marr and Atkinson report, many rulings related to federal DEI policy remain at the preliminary injunction stage and are pending appeal, meaning the courts’ orders are not permanent. As a result, they conclude that the boundaries of permissible DEI activity remain unsettled.
Reuters, “Are Companies Quiet Quitting DEI?” (April 28, 2026): Reuters’ Sharon Kits Kimathi reports that DEI policies “are falling down the list of priorities for companies.” As Kimathi writes, a recent report by the Thomson Reuters Foundation drew data from nearly 3,000 global companies and found that DEI commitments remain most common for gender representation, while targets related to ethnicity and disability are comparatively limited. According to the report, 53% of companies surveyed publicly disclosed any DEI-related commitments, which were primarily focused on gender. The report found that 8% of companies reported setting ethnicity-related goals, while 5% set disability-related goals. Fewer than half of all companies reported having time-limited DEI targets. The report also found that public reporting on workforce ethnicity data had declined. According to the report, stronger adoption of DEI incentives did not necessarily correlate with narrower pay gaps.
AP News, “DeSantis Signs Florida Law Banning Local DEI Funding, Says White Men Are ‘Disfavored’” (April 22, 2026): AP’s Mike Schneider reports that Florida Governor Ron DeSantis signed legislation that prohibits Florida counties and cities from funding or promoting DEI initiatives. The new law permits residents to sue local governments for violations, and officials found to have funded DEI programs in contravention of the law can be removed from office. The article includes DeSantis’s commentary on the new law, as well as his opinion that DEI programs “disfavor” white men, Asian Americans, and other groups. As Schneider reports, the law builds on DeSantis’s anti-DEI record during his two terms in office, such as trying to restrict how race and sex are taught in schools through the “Stop WOKE Act.”

Case Updates

Below is a list of updates in new and pending cases:

1. Employment discrimination and related claims

EEOC v. Coca-Cola Beverages Ne., Inc., No. 1:26-cv-00115 (D.N.H. 2026): The EEOC sued Coca-Cola Beverages Northeast on February 17, 2026, alleging it engaged in unlawful employment practices on the basis of sex in violation of Title VII. The complaint alleges that Coca-Cola invited only female employees to an “employer-sponsored trip and networking event” at a casino resort, which featured a “social reception, team-building exercises and recreational activities,” excusing them from their regular work duties and paying their normal wages. The complaint alleges that Coca-Cola’s exclusion of male employees from the event constitutes a “denial of equal compensation, terms, conditions, or privileges of employment on the basis of sex.” On April 20, 2026, Coca-Cola moved to dismiss the complaint, arguing that its employer-sponsored event was a lawful attempt to expand the company’s pool of qualified candidates among its existing employees without impacting the selection process for advancement, and that its actions complied with Title VII and Executive Order 11246, which was in effect at the time of the networking event.
- Latest update: On May 4, 2026, the EEOC filed its opposition to the motion to dismiss, arguing that it had pled facts sufficient to show that male employees who were excluded from the networking event suffered an adverse employment action. On the law, the EEOC argued that the U.S. Supreme Court’s recent decision in Muldrow v. City of St. Louis only requires “some harm”—which need not be “economic or tangible”—for an employer’s activity to rise to the level of an adverse action. On the facts, the EEOC contended that it had shown that men were excluded from the networking event, which “render[ed] male employees worse off than their female counterparts” in part by “deny[ing] them the same paid time off that the female employees received to attend the event.” The EEOC further argued that a Rule 12(b)(6) motion to dismiss is not an appropriate vehicle to attack its prayer for relief, and that the court should decline to dismiss the EEOC’s request for punitive damages.
Steffens v. Walt Disney Co., No. 25NNCV00944 (Cal. Sup. Ct. Los Angeles Cnty. 2025): On February 11, 2025, a white former executive for Marvel Entertainment sued Disney, alleging the company discriminated against him on the basis of race, sex, and age. He alleged he was denied a promotion because of his race and age, and that the Company failed to promote him as retaliation for his objection to “effort[s] to promote presidents to senior vice presidents based on their race and a memorandum that would have referred to employees with the racial signifier ‘BIPOC.’”
- Latest update: On March 30, 2026, the plaintiff filed a request for dismissal with prejudice of all parties and all causes of action, citing no reason for the dismissal.
Vaughn v. CBS Broadcasting, Inc., et al., No. 2:24-cv-05570 (C.D. Cal. 2024): On July 1, 2024, former Los Angeles news anchor Jeff Vaughn filed suit against CBS Broadcasting, alleging that CBS-affiliated Los Angeles stations terminated him because he is “an older, white, heterosexual male.” Vaughn claims that CBS replaced him with a “younger minority news anchor” in violation of Section 1981, Title VII, and the Age Discrimination in Employment Act. The complaint points to public statements by CBS expressing its commitment to diversity, including statements discussing various representation goals. Vaughn, who is represented by America First Legal, is seeking over $5 million in damages. On October 31, 2025, the defendants moved for summary judgment, arguing that the termination was based on legitimate, nondiscriminatory grounds, the plaintiff lacked evidence of pretext or but-for causation, and the plaintiff failed to establish individual liability against the individual defendants under Section 1981. The defendants further contended that CBS’s conduct, even if found discriminatory, would still be protected by the First Amendment because CBS, a private company engaged in expressive activity, has a First Amendment right to choose who channels that expression.
- Latest update: On April 7, 2026, the court granted the defendants’ motion for summary judgment. The court held that the plaintiff’s race discrimination claims under Section 1981 and Title VII fail as a matter of law under both the McDonnell Douglas burden-shifting and mixed-motive frameworks. Under McDonnell Douglas, the court found that the defendants had articulated a legitimate, non-discriminatory reason for the plaintiff’s termination—namely, longstanding performance deficiencies supported by negative evaluations and low viewer recognition—and that the plaintiff had failed to show that the termination was pretextual with “specific and substantial” evidence. Under the mixed-motive framework, the court found no direct or circumstantial evidence that race was a motivating factor in the termination. Ultimately, the court determined that no reasonable jury could find discriminatory intent on the record presented. On April 20, 2026, the plaintiff filed a notice of appeal to the Ninth Circuit.
Young v. Colorado Dep’t of Corrections, No. 23-cv-01688-NYW-SBP (D. Colo. 2023), No. 25-1068 (10th Cir. 2023): On June 30, 2023, a white former Colorado Department of Corrections officer, Joshua Young, filed suit against his former employer, the Colorado Department of Corrections, and individual directors in the Department, asserting hostile work environment claims under Title VII and Section 1981. Young alleged that a mandatory DEI training he completed in March 2021 contained racially discriminatory content targeting white employees and created a hostile work environment, compelling his resignation in July 2021. On January 27, 2025, the district court granted a motion to dismiss, holding that Young’s allegations regarding a single training session lacked “any well-pleaded factual allegations detailing how the [] training affected the workplace or how the workplace was otherwise infected with racial animus” and thus were insufficient to allege a hostile work environment based on race. The Tenth Circuit heard oral argument on Young’s appeal on January 22, 2026, on which we reported in our February 2026 newsletter.
- Latest update: On May 11, 2026, the Tenth Circuit affirmed the dismissal, reasoning that Young’s allegations regarding the single training session did not cross the “extremely high” threshold for a hostile work environment claim and that Young’s fears about future diversity training could not save his claim.

2. Challenges to statutes, agency rules, executive orders, and regulatory decisions

City of Seattle v. Trump, et al., No. 2:25-cv-01435 (W.D. Wash. 2025): On July 31, 2025, the City of Seattle sued the Trump Administration, challenging EOs 14173 and 14168, which voided affirmative action requirements for government contractors and outlined the federal government’s policy to “recognize two sexes,” respectively. Seattle alleges that the EOs violate principles of separation of powers, the Fifth and Tenth Amendments, and the Spending Clause of the U.S. Constitution, and that they are arbitrary and capricious in violation of the Administrative Procedure Act. Seattle asserts that enforcement of the EOs will result in the loss of “committed federal grants and contracts if” Seattle does not abide by “improperly imposed (and impossibly vague) funding conditions.” On October 31, 2025, the court granted Seattle’s motion for a preliminary injunction, finding that Seattle was likely to succeed on the merits because EOs 14173 and 14168 likely violate the separation of powers doctrine. Additionally, the court found that the harm to Seattle in the absence of a preliminary injunction would be irreparable and certain because Seattle would lose government grants that support a wide array of public safety, law enforcement, and other services. On December 29, 2025, the defendants filed a notice of appeal of the district court’s order granting a preliminary injunction.
- Latest update: On April 7, 2026, Seattle filed an amended complaint, adding as plaintiffs the cities of Cleveland, Columbus, Durham, and Portland, as well as the counties of Allegheny, Hennepin, Prince George’s, and Ramsey. The amended complaint also added various federal agencies as defendants. The causes of action remain the same. On May 1, 2026, the plaintiffs filed a second motion for preliminary injunction, seeking to extend to the additional plaintiffs the injunctive relief granted to Seattle.
Fell v. Trump, No. 1:25-cv-04206 (D.D.C. 2025): On December 3, 2025, four former federal employees who had separated from the federal government pursuant to EOs 14151 and 14173 sued President Trump and numerous federal agencies and officials, challenging the executive orders and their implementing directives as violating the First Amendment, Title VII, and the Civil Service Reform Act. On March 3, 2026, the plaintiffs moved to certify a class of “potentially thousands” of federal employees who were allegedly separated from their positions under EOs 14151 and 14173. The plaintiffs also sought to certify two sub-classes: a Title VII Gender Subclass that includes female or non-binary federal employees, and a Title VII Race/Ethnicity Subclass that includes African American/Black, Hispanic/Latino, Asian American/Pacific Islander, and/or Native American/Indigenous federal employees. On April 6, 2026, the defendants filed their opposition to class certification, as well as a motion to dismiss, arguing that the plaintiffs (i) lack standing to sue agencies and agency heads that never employed them, (ii) failed to exhaust administrative remedies, and (iii) failed to state viable claims for relief.
- Latest update: On May 11, 2026, the plaintiffs filed an opposition to the defendants’ motion to dismiss, arguing that standing exists because the defendants functioned as a “single entity” executing a common presidential directive to “purge” federal employees in DEI-related positions. On the merits, the plaintiffs contend they have plausibly alleged that the Trump Administration publicly equated DEI with its political opponents and then targeted DEI-associated employees for removal—giving rise to First Amendment retaliation claims, and Title VII claims under advocacy, motivating-factor, and pattern-or-practice theories of liability.
Flinn et al. v. City of Evanston, No. 1:24-cv-04269 (N.D. Ill. 2024): On May 23, 2024, a putative class action complaint was filed against the City of Evanston challenging Evanston’s Restorative Housing Program, which compensates Black residents for housing discrimination they or their ancestors may have faced between 1919 and 1969. The program assists eligible applicants with buying or improving their homes, and in some cases, qualifies households for direct payments of up to $25,000. The plaintiffs allege that the program violates Section 1983 because it is limited to only Black residents or their ancestors. The suit seeks to certify a class of “all individuals who are able and ready to apply for the program and are eligible for a $25,000 payment but for the program’s race-based eligibility requirement.” On March 27, 2026, the court denied a motion to dismiss filed by the City.
- Latest update: On May 8, 2026, the City answered the complaint, denying liability and asserting six affirmative defenses: (1) failure to state a claim upon which relief can be granted; (2) statute of limitations; (3) laches; (4) lack of standing; (5) failure to satisfy the requirements for class certification under Rule 23; and (6) governmental immunity for legislative acts.
Nat’l Ass’n of Diversity Officers in Higher Educ., et al. v. Trump, et al., No. 1:25-cv-00333 (D. Md. 2025), No. 25-1189 (4th Cir. 2025): On February 3, 2025, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore, Maryland brought suit against the Trump Administration, challenging EOs 14151 and 14173. The plaintiffs contend that the EOs exceed presidential authority, violate the separation of powers and the First Amendment, and are unconstitutionally vague. On February 21, 2025, the Court granted in part a preliminary injunction to prevent the Administration from enforcing the EOs. On March 14, 2025, the Fourth Circuit stayed the injunction. On February 6, 2026, the Fourth Circuit vacated the preliminary injunction and remanded to the lower court, finding that the plaintiffs lacked standing to challenge the Enforcement Threat Provision and failed to show that they were likely to succeed on their claims that the Termination Provision and Certification Provision are facially unconstitutional.
- Latest update: On April 30, 2026, in district court, the defendants filed a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. In the motion, the defendants argue that the plaintiffs lack standing to challenge the Enforcement Threat Provision because it is an intra-governmental action and does not create an imminent danger of injury. They alternatively argue that the allegations are moot because “[t]he at-issue report has already been ‘submitted … to the President,” that the plaintiffs’ First Amendment argument fails because the plaintiffs have no protected speech interest in operating unlawful programs, and that the plaintiffs’ Fifth Amendment vagueness challenge to the Termination Provision fails because courts tend to defer to government funding decisions and bar challenges based on facial vagueness where the government is “acting as a patron, rather than as sovereign.” Finally, the defendants assert that the plaintiffs’ Spending Clause and separation-of-powers claims fail because the EOs do not impose new funding conditions or usurp Congress’s authority.
Nat’l Ass’n of Diversity Officers in Higher Educ., et al. v. Trump, et al., No. 8:26-cv-01532 (D. Md. 2026): On April 20, 2026, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the United Academics of Maryland-University of Maryland, College Park, Prince George’s County, Maryland, the National Association of Minority Contractors, and the National Association of Minority Contractors, DMV Chapter brought suit against the Trump Administration, challenging EO 14398. The plaintiffs contend that the EO exceeds presidential authority and violate the First Amendment’s prohibitions on content-based restrictions, free speech, and free association. The plaintiffs seek preliminary and permanent injunctive relief preventing implementation or enforcement of the EO.
- Latest update: On May 22, the plaintiffs amended the complaint to now challenge the constitutionality of both EO 14398 and the FAR Council Guidance, dated April 20, 2026, issued to implement EO 14398. The Amended Complaint contends that the FAR Council guidance violates the Administrative Procedure Act because it is unconstitutional, arbitrary and capricious, and not issued in accordance with procedural requirements. It also adds a challenge to EO 14398 under the Fifth Amendment contending the EO is void for vagueness because it “does not provide fair notice of what is prohibited and encourages and authorizes discriminatory enforcement because it fails to adequately define the scope of the circumstances when it applies.”
Oregon Council for the Humanities, et al. v. DOGE, No. 3:25-cv-00829 (D. Or. 2025): On May 15, 2025, the Oregon Council for the Humanities and the Federation of State Humanities Councils sued DOGE, the NEH, and the National Council on the Humanities, among others, alleging the NEH under DOGE’s control unlawfully terminated nearly all grants to humanities councils in violation of the Administrative Procedure Act, the NEH authorizing statute, the Impoundment Control Act, and constitutional separation of powers principles.
- Latest update: On April 17, 2026, the plaintiffs filed a motion for summary judgment, arguing that the defendants violated the constitutional separation of powers doctrine by refusing to spend funds that Congress appropriated to the Federal State Partnership and instead following EOs that it contends conflict with Congress’s priorities as expressed in the National Foundation on the Arts and Humanities Act. The plaintiffs further argue that the grant terminations violated the Administrative Procedure Act because the defendants ignored statutory funding formulas and termination procedures and instead terminated grants en masse, and that the defendants’ actions were arbitrary and capricious because the administrative record contains no satisfactory explanation for the terminations. Finally, the plaintiffs argue that the defendants failed to consider the plaintiffs’ reliance interests after sixty years of unbroken funding.
AI LLC v. Philip J. Weiser, No. 1:26-cv-01515 (D. Colo. 2026): On April 9, 2026, X.AI LLC filed suit against Colorado Attorney General Philip Weiser to enjoin enforcement of Colorado Senate Bill 24-205. The law, effective June 30, 2026, would prevent “algorithmic discrimination” by requiring developers and deployers of “high‑risk” AI systems to mitigate reasonably foreseeable risks of algorithmic discrimination and to publicize disclosures about those efforts to the Attorney General and the public. X.AI alleges that the law violates the First Amendment, the Commerce Clause, and the Equal Protection Clause, and is unconstitutionally vague. On April 24, the court granted the DOJ’s unopposed motion to intervene as a plaintiff in the case.
- Latest update: On April 24, 2026, the parties filed a joint motion to vacate the scheduling conference, suspend all pending case deadlines, and temporarily stay enforcement of Senate Bill 24-205. On April 27, 2026, the court granted the parties’ motion and stayed the proceedings. Under the terms of the stay, Colorado cannot enforce the law until the court rules on X.AI’s forthcoming motion for a preliminary injunction.

3. Actions against educational institutions

Kleinschmit v. Univ. of Chicago, No. 1:25-cv-01400 (N.D. Ill. 2025): On February 10, 2025, a former professor at the University of Illinois Chicago sued the university, alleging that it unlawfully discriminated against white male faculty candidates and discriminated and retaliated against the plaintiff by firing him after he objected to the school’s “racial hiring programs.” On May 27, 2025, the plaintiff filed an amended complaint, adding new defendants from the university’s administration and adding allegations that the university, as a recipient of federal funds, violated Title VI by intentionally discriminating on the basis of race, color, and ethnicity. On December 17, 2025, the court granted in part and denied in part a motion to dismiss, dismissing the plaintiff’s Section 1981 and 1983 damages claims as barred by the Eleventh Amendment, which prohibits suits for damages in federal court against states and their agencies, and holding that the plaintiff lacked standing for injunctive relief because he was a former university employee who did not seek reinstatement or otherwise express a desire to return to work at the university. The court, however, allowed the discrimination claim under Title VI to proceed. On March 2, 2026, the plaintiff filed a third amended complaint, again bringing claims of racial discrimination and retaliation under Section 1981, as well as claims of racial discrimination under Section 1983 and Title VI.
- Latest update: On April 20, 2026, the university moved to dismiss the plaintiff’s third amended complaint, arguing that it failed to cure the defects identified in the court’s prior order, including the plaintiff’s lack of standing to seek injunctive relief, the defendants’ entitlement to Eleventh Amendment immunity, and the absence of a cognizable basis for liability. On May 12, 2026, the plaintiff opposed the motion, arguing that he had adequately pled standing for prospective injunctive relief based on an ongoing threat of retaliation and continuing discriminatory practices, and that the defendants are not entitled to Eleventh Amendment immunity because the complaint alleges ongoing violations of federal law. The plaintiff further argued that his Title VI claim is properly pled, including because the court upheld the claim in its previous order.

Legislative Updates

R. 8379: On April 20, 2026, U.S. Representative Julia Letlow (R-LA) introduced House Bill 8379, the “Freedom from Ideological Requirements in Employment (‘FIRE’) Act.” The bill would (1) prohibit DEI trainings or endorsement of statements reflecting DEI principles as a condition for Federal hiring or employment and (2) prohibit implementing training courses for the Federal workforce that relate to DEI, “critical theory relating to race and gender,” “intersectionality, sexual orientation, or gender identity,” or any “assertion that a particular race, color, ethnicity, religion, biological sex, or national origin is inherently or systemically superior, inferior, oppressive, oppressed, privileged or underprivileged.” The Act defines DEI as “any practice, training, statement, or principle that asserts” “how systemic racism is embedded in legal systems, policies, and societal structures rather than being solely a product of individual prejudice.”

R. 8445: On April 22, 2026, U.S. Representatives Young Kim (R-CA), Tim Burchett (R-TN), and Byron Donalds (R-FL) introduced House Bill 8445, called the “Stop DEI Act.” The Act would prohibit federal funds from being made available to institutions of higher education that consider race, sex, ethnicity, color, or national origin “in ways that violate the Nation’s civil rights laws.”

R. 8495: On April 24, 2026, U.S. Representative David Joyce (R-OH) introduced House Bill 8495, a broad appropriations bill which, among other things, would prohibit appropriated funds from being used to “implement, administer, apply, or enforce” programs or activities “for the purposes of diversity, equity, and inclusion training or implementation.” The bill also prohibits funds from being used to carry out any program, project, or activity that promotes or advances Critical Race Theory.

Illinois B. 3731: On February 6, 2026, Illinois State Senator William Cunningham (D) and State Representative Robyn Gabel (D) introduced Illinois Senate Bill 3731, the “First 2026 General Revisory Act.” The Act would require cultural diversity and racial and ethnic sensitivity training for State police officers and would amend the Manufacturing Illinois Chips for Real Opportunity (“MICRO”) Act to require employers with at least 100 employees to submit diversity reports on their workforce, board of directors, and vendors. Employers would also be required to submit a vendor diversity report detailing actual contractual spending for minority-owned and women-owned businesses and employers’ goals for the next fiscal year to contract with diverse vendors.

Since the start of 2026, several states have introduced Proxy Advisor Transparency Acts, requiring proxy advisors to disclose when they recommend casting a vote for nonfinancial reasons including diversity, equity, and inclusion. Several of these bills were recently passed into law.
- On April 9, 2026, Kansas Senate Bill 375 became law after the legislature overrode the Kansas governor’s veto. We reported on this legislation in our March 2, 2026 newsletter. The law requires proxy advisors to disclose when they make recommendations “against company management” without conducting financial analysis, such as recommendations based on ESG, DEI, and social credit or sustainability scores.
- On April 10, 2026, Kansas also passed House Bill 2513, partially overriding the governor’s veto. Similar to S.B. 375, the law requires proxy advisors to provide clear, factual disclosures when recommending casting a vote for nonfinancial reasons such as DEI or ESG. Its stated purpose is to prevent fraudulent and deceptive practices.
- On May 4, 2026, Oklahoma House Bill 4429, sponsored by Oklahoma State Representative Kyle Hilbert (R) and Senator Julie Daniels (R)—which we also reported on in our March 2, 2026 newsletter—passed into law. Similar to the Kansas legislation, the law requires proxy advisors to “provide clear, factual disclosures when they recommend casting a vote for a nonfinancial reason,” in order to “prevent fraudulent or deceptive acts and practices.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Anna McKenzie, Cynthia Chen McTernan, Zakiyyah Salim-Williams, Molly Senger, Katherine Smith, Cate McCaffrey, Sameera Ripley, Anna Ziv, Benjamin Saul, Amy Pan, David Offit, Olympia Karageorgiou, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokrolla, Angelle Henderson, Lauren Meyer, Kameron Mitchell, Taylor Bernstein, Jerry Blevins, Chelsea Clayton, Sonia Ghura, Samarah Jackson, Shanelle Jones, Elvyz Morales, Allonna Nordhavn, Felicia Reyes, Eric Thompson, Laura Wang, Taylor-Ryan Duncan, Sam Moan, Shreya Sarin, and Rachel Schwartz.

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 Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Gibson Dunn announces release of Edition 16 of Lexology In-Depth: International Investigations.

Gibson Dunn is pleased to announce the release of Edition 16 of Lexology In-Depth: International Investigations. Gibson Dunn partner Stephanie L. Brooker is the Contributing Editor of the publication, which explores the scope of corporate and individual liability and the regulatory and criminal investigations process in the United States and United Kingdom.

Ms. Brooker, partner David C. Ware, of counsel Bryan H. Parr, and associate Kio Bell co-authored the jurisdiction chapter on the United States.

In addition, partners Patrick Doris, Allan Neil, and associate solicitor Victor Tong co-authored the jurisdiction chapter on the United Kingdom.

You can view these informative and comprehensive chapters via the links below:

CLICK HERE to view Lexology In-Depth: International Investigations

CLICK HERE to view the United States chapter

CLICK HERE to view the United Kingdom chapter

The following Gibson Dunn lawyers contributed to this publication: Stephanie Brooker, David C. Ware, Bryan Parr, and Kio Bell on the U.S. chapter; and Patrick Doris, Allan Neil, and Victor Tong on the United Kingdom chapter.

Gibson Dunn has deep experience with investigations, corporate compliance, and white collar defense.

About the Authors:

Stephanie Brooker, a partner in the Washington, D.C. office of Gibson Dunn, is Co-Chair of the firm’s Global White Collar Defense and Investigations, Anti-Money Laundering, and Financial Institutions Practice Groups. Stephanie served as a prosecutor at DOJ, including serving as Chief of the Asset Forfeiture and Money Laundering Section, investigating a broad range of white-collar and other federal criminal matters, and trying 32 criminal trials. She also served as the Director of the Enforcement Division and Chief of Staff at FinCEN, the lead U.S. anti-money laundering regulator and enforcement agency. Stephanie has been consistently recognized by Chambers USA for enforcement defense and BSA/AML compliance as an “excellent attorney,” who clients rely on for “important and complex” matters, and for providing “excellent service and terrific lawyering.” She has also been named a National Law Journal White Collar Trailblazer and a Global Investigations Review Top 100 Women in Investigations.

David C. Ware is a partner in the Washington, D.C. office of Gibson Dunn. He is a member of the firm’s White Collar Defense and Investigations, Securities Enforcement, Securities Litigation, Anti-Money Laundering, and Accounting Firm Advisory and Defense Practice Groups. David’s practice focuses on government investigations and enforcement actions, internal investigations, and litigation in the areas of auditing and accounting, securities fraud, and related aspects of federal regulatory and criminal law. He also counsels clients concerning compliance with SEC and PCAOB rules and standards. Prior to joining Gibson Dunn, David spent nearly six years at the PCAOB’s Division of Enforcement and Investigations, rising to the position of Associate Director. While at the PCAOB, David was responsible for numerous complex and high-profile investigations, including acting as the lead attorney in some of the PCAOB’s most significant enforcement actions.

Patrick Doris is a partner in Gibson Dunn’s Dispute Resolution Group in London, where he specialises in global white-collar investigations, commercial litigation and complex compliance advisory matters. Patrick’s practice covers a wide range of disputes, including white-collar crime, internal and regulatory investigations, transnational litigation, class actions, contentious antitrust matters and administrative law challenges against governmental decision-making. Patrick handles major cross-border investigations in the fields of bribery and corruption, fraud, sanctions, money laundering, financial sector wrongdoing, antitrust, consumer protection and tax evasion. Patrick is recognised by The Legal 500 UK 2025 in the field of Regulatory Investigations and Corporate Crime. He is also ranked as a leading individual in the field of Administrative and Public Law.

Allan Neil is an English qualified partner in the dispute resolution group of Gibson Dunn’s London office. His recent work involves large-scale multi-jurisdictional disputes and investigations (both regulatory and internal investigations) in the financial institutions sector. His work covers investment banking, asset management and compliance matters. Allan was called to the Bar by the Middle Temple in 2001, having been awarded the Queen Mother Scholarship in consecutive years, and named a Blackstone Entrance Exhibitioner. Allan is recognised by The Legal 500 UK 2025 for Commercial Litigation, Banking Litigation: Investment and Retail and Regulatory investigations and corporate crime (advice to corporates), and has been awarded the Client Choice Award 2015 in recognition of his excellence in client service in the area of UK Litigation. He is also recognised in the 2016 Legal Week Rising Stars in Litigation list, which profiles the up-and-coming litigation stars at UK top 50 and top international firms in London. He speaks French and German.

Bryan H. Parr is of counsel in the Washington, D.C. office of Gibson Dunn and a member of the White Collar Defense and Investigations, Anti-Corruption & FCPA, and Litigation Practice Groups. His practice focuses on white-collar defense and regulatory compliance matters around the world. Bryan has extensive expertise in government and corporate investigations, including those involving the Foreign Corrupt Practices Act (FCPA) and anticorruption. He has defended a range of companies and individuals in U.S. Department of Justice (DOJ), SEC, and CFTC enforcement actions, as well as in litigation in federal courts and in commercial arbitrations. He is recognized as a leading corporate crime and investigations lawyer by Chambers & Partners Latin America for his significant activity and experience in the region. He is proficient in Portuguese, French, and Spanish, and works professionally in all three languages.

Victor Tong is an associate in the London office of Gibson Dunn and a member of the firm’s Dispute Resolution Group. He has a broad practice across all areas of commercial dispute resolution, with particular focus on financial services litigation, internal and regulatory investigations and white collar crime. He acts for global financial institutions, listed companies and multinational corporates on complex, high-value and often cross-border matters, including significant commercial and banking litigation, contentious restructuring and insolvency, and investigations before the principal UK and US authorities such as the Financial Conduct Authority, the Serious Fraud Office and the Department of Justice.

Kio Bell is an associate in the Los Angeles office of Gibson Dunn. He is a member of the firm’s White Collar Defense and Investigations, Anti-Money Laundering, and Anti-Corruption & FCPA Practice Groups.

Contact Information:

For assistance navigating these issues, please contact the Gibson Dunn lawyer with whom you usually work, the leaders or members of the firm’s White Collar Defense and Investigations practice group, or the authors:

Stephanie L. Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
David C. Ware – Washington, D.C. (+1 202.887.3652, dware@gibsondunn.com)
Patrick Doris – London (+44 20 7071 4276, pdoris@gibsondunn.com)
Allan Neil – London (+44 20 7071 4296, aneil@gibsondunn.com)
Bryan H. Parr – Washington, D.C. (+1 202.777.9560, bparr@gibsondunn.com)
Victor Tong – London (+44 20 7071 4054, vtong@gibsondunn.com)
Kio Bell – Los Angeles (+1 213.229.7461, kbell@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC rescinded a policy stating that it will not accept settlement offers where the defendant continues to deny the allegations in the complaint or administrative order.

New Developments

CFTC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions. On June 3, the CFTC rescinded a policy, codified in Appendix A to Part 10, stating that it will not accept settlement offers where the defendant continues to deny the allegations in the complaint or administrative order. According to the CFTC, rescinding this policy aligns the Commission with the overwhelming majority of federal agencies and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors. [NEW]

CFTC Staff Issues No-Action Position Related to Designated Contract Market Procedures. On June 3, the CFTC’s Division of Market Oversight announced it has issued a no-action letter to Cboe Digital Exchange, LLC, a designated contract market, which addresses certain procedures related to dormancy. The no-action position is time-limited and subject to the terms and conditions in the letter. [NEW]

CFTC Implements Technical Enhancements to Streamline Product Self-Certification Process. On June 1, the CFTC announced the launch of enhancements to its electronic filing system for product self-certifications. According to the CFTC, Exchanges are now able to submit a single set of product certification documents applicable to multiple closely related contract certifications in one consolidated submission. Updated submission instructions regarding this new functionality are available here. [NEW]

CFTC Chairman Selig Announces Dr. Patrick J. Schorno as Chief Economist. On June 1, CFTC Chairman Michael S. Selig announced that Dr. Patrick J. Schorno has been named the agency’s chief economist to serve as economic adviser to the Commission and integrate rigorous economic analysis, regulatory cost-benefit analysis, and research into the CFTC’s mission. Dr. Schorno joins the CFTC from the Public Company Accounting Oversight Board where he served as the deputy chief economist. [NEW]

CFTC Issues Policy Statement Concerning the Listing of Perpetual Contracts. On May 29, the CFTC issued a policy statement describing the views of the Commission concerning the listing of perpetual contracts. This policy statement was issued contemporaneously with an order permitting the listing of a perpetual contract, which references the spot price of bitcoin, by a DCM as a futures contract.

Commission Staff Confirms the Categorization of Certain Crypto Asset Perpetuals as Foreign Futures and Issues No-Action Letter Regarding FCM Transfers of Customer Crypto Assets to Foreign Brokers as Margin. On May 29, the CFTC’s Market Participants Division announced it has issued an interpretation and a no-action position in response to a request from Coinbase Financial Markets, Inc., a registered futures commission merchant. The positions relate to CFM’s plan to offer certain digital commodity derivatives products listed on CFM’s affiliated foreign board of trade, Deribit FZE.

CFTC Approves BTCPERP Contract Submitted by KalshiEX, LLC. On May 29, the CFTC announced it has issued an Order for Approval to KalshiEX, LLC, a designated contract market, for the listing of the BTCPERP Contract, a perpetual contract that references the spot price of bitcoin, as a futures contract. Kalshi submitted the BTCPERP Contract pursuant to Commission Regulation 40.3 for Commission review and approval on May 29, 2026.

CFTC Staff Issues Advisory on 24/7 Trading, Clearing, and Settlement. On May 29, the CFTC’s Division of Clearing and Risk, Division of Market Oversight, and Market Participants Division issued a staff advisory regarding 24/7 trading, clearing, and settlement. According to the CFTC, the divisions seek to encourage responsible innovation in these markets while reminding designated contract markets, swap execution facilities, derivatives clearing organizations, and futures commission merchants of their regulatory obligations pursuant to the Commodity Exchange Act and Commission regulations thereunder.

CFTC Sues to Block State Enforcement in Rhode Island Amid Ongoing Efforts to Preserve Jurisdiction. On May 28, the CFTC moved to intervene in a lawsuit in the U.S. District Court for the District of Rhode Island to halt the state’s efforts to apply state gambling laws against CFTC-registered contract markets. In response to a complaint filed by a CFTC-registered designated contract market threatened with impending unlawful enforcement by the state, Rhode Island filed a complaint of its own in a parallel state case seeking significant civil penalties.

CFTC Joins Gemini Trust Company LLC in Motion for Relief from Judgment. On May 27, the CFTC announced it has joined Gemini Trust Company LLC in a motion for relief from judgment in CFTC v. Gemini Trust Company LLC, originally filed in the U.S. District Court for the Southern District of New York in June 2022. The parties entered into a consent order in January 2025.

CFTC and National Hockey League Sign MOU Related to Integrity in Professional Hockey. On May 21, the CFTC and the National Hockey League (NHL) announced their signing of a Memorandum of Understanding (MOU) intended to protect the integrity of professional hockey and maintain fair and transparent prediction markets. According to the CFTC, under the terms of the MOU, the CFTC and NHL have solidified their intent to share information and coordinate to protect the integrity of both professional hockey and related event contracts offered on CFTC-regulated exchanges.

New Developments Outside the U.S.

ESAs Publish the First Report on DORA Major ICT-related Incidents. On June 3, the European Supervisory Authorities (ESAs) published their first annual overview of major information and community technology (ICT) incidents in the EU financial sector based on a reporting mechanism established by the Digital Operational Resilience Act (DORA). ESMA said that the report shows that ICT risks are increasingly borderless and interconnected. The ESAs also noted that the recent evolution of highly capable AI-driven tools should encourage financial entities to strengthen cybersecurity measures going forward. [NEW]

GMTF Presents its Findings on EU Gas and Gas Derivative Markets. On June 2, the Gas Market Task Force (GMTF) published a report on the functioning of EU gas and gas derivatives markets. ESMA said that the report suggests further work in several areas to ensure that European gas and gas derivatives markets continue performing as expected and to the benefit of European competitiveness and consumers. [NEW]

ESMA’s Annual Data Report Shows Increased Quality, Wider Use, and Digital Progress. On May 29, ESMA published its annual report on the quality and use of regulatory data. According to ESMA, the report shows that improvements in data quality and data use reinforce each other in a virtuous cycle, and supports more effective supervision and market monitoring across the EU.

ESMA Consults on Revised Guidelines to Support Smoother Allocations and Confirmations under T+1. On May 26, ESMA launched a consultation on the updated guidelines on standardized procedures and messaging protocols. According to ESMA, this review is part of ESMA’s work to support market participants in preparing for the transition to a T+1 settlement cycle.

ESMA Publishes Shortlist of Candidates for Position of Chair. On May 20, ESMA published the shortlist of candidates for the position of Chair: Karen Dortea and Abelskov Carlo Comporti. ESMA has sent the shortlist to the Council of the European Union and the European Parliament. The Council will appoint the Chair following confirmation by the Parliament.

New Industry-Led Developments

ISDA and the Credit Derivatives Governance Committee Select S&P Global as DC Administrator. On June 4, ISDA and the Credit Derivatives Governance Committee announced that S&P Global Market Intelligence has been selected as the administrator for the Credit Derivatives Determinations Committees (DCs). According to ISDA, the DCs were introduced in 2009 as a centralized decision-making body to enable a standardized auction settlement process and ensure central clearing could be implemented for credit derivatives. [NEW]

ISDA, GDF Respond to the Central Bank of Ireland on DLT and Tokenization. On June 3, ISDA and Global Digital Finance responded to the Central Bank of Ireland’s discussion paper on distributed ledger technology (DLT) and tokenization in financial services. ISDA said the response focused on the potential role of DLT and tokenization within wholesale markets, including their use in collateral and liquidity management, and that the paper also emphasized that any regulatory framework for DLT and tokenization should be assessed through the lens of prudent risk management, with particular attention to liquidity, credit risk, operational resilience and legal certainty. [NEW]

IOSCO Publishes Final Report on Valuing Collective Investment Schemes. On June 1, IOSCO published its Final Report on Valuing Collective Investment Schemes (CIS). According to IOSCO, the paper sets out a comprehensive and updated set of recommendations to further enhance the reliability, consistency, and transparency of valuation practices across global investment funds and updates and consolidates IOSCO’s earlier principles on valuation for collective investment schemes and hedge funds. [NEW]

ISDA, AFME Respond to Dutch Ministry of Finance Consultation on Dividend Stripping. On May 28, ISDA and the Association for Financial Markets in Europe (AFME) responded to the Dutch Ministry of Finance’s consultation on additional anti-dividend stripping measures. ISDA said the associations argued that some proposed measures would add uncertainty, duplicate existing protections, and risk harming liquidity and efficiency in the Dutch equity market. [NEW]

ISDA Letter to EC and ESMA on Technical Issues with Revised Derivatives Transparency Framework. On May 27, ISDA sent a letter to the European Commission and ESMA to highlight several technical issues arising from the interaction between the delegated regulation 2025/1003 on identifying reference data to be used for over-the-counter derivatives for the purposes of public transparency and the draft regulatory technical standards for derivatives transparency (RTS 2) and from areas of the draft RTS 2 that lack clarity.

IOSCO Publishes AI Supervisory Toolkit. On May 25, IOSCO published a Supervisory Toolkit for AI Use in Capital Markets. IOSCO stated that this report provides regulators with a practical toolkit to support the supervision and oversight of AI based systems used by regulated entities.

ISDA, GFXD Respond to ASIC on Proposed Changes to Derivative Transaction Rules. On May 22, ISDA and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association submitted a joint response to the Australian Securities and Investments Commission’s (ASIC) consultation on proposed changes to the ASIC Derivative Transaction Rules 2024.

IOSCO Publishes Reports on Market Liquidity for Equity Markets and on Extended Trading Hours for Equity Venues. On May 21, IOSCO published its Consultation Report regarding Regulatory Considerations and Good Practices on the Evolution of Market Liquidity during the Trading Day and its Report on Extended Trading Hours.

ISDA, FIA and SIFMA Submit Joint Letter on Sunset of Swaps LTR Rules. On May 20, ISDA, the Futures Industry Association (FIA), and the Securities Industry and Financial Markets Association (SIFMA) submitted a joint letter to the CFTC to request the CFTC to sunset large trader reporting rules (LTR) rules for physical commodity swaps pursuant to Regulation 20.9.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Karin Thrasher, and Alice Wang.

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 Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus, New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com )

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Alice Yiqian Wang, Washington, D.C. (202.777.9587, awang@gibsondunn.com)

Sripetch v. Securities and Exchange Commission, No. 25-466 – Decided June 4, 2026

Today, the Supreme Court unanimously held that the SEC may obtain an order directing a defendant to disgorge ill-gotten gains to investors without proving that investors suffered pecuniary harm.

“Whatever else traditional equitable principles demand, they do not require a showing of pecuniary loss before a court may issue an award of unjust profits.”

Justice Gorsuch, writing for the Court

Background:

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Petitioner Ongkaruck Sripetch for securities-law violations arising from schemes involving penny-stock companies. The SEC alleged that Sripetch and his associates obtained shares, promoted the companies without disclosing their roles or planned stock sales, engaged in manipulative-matched trading, and obtained millions of dollars in proceeds from the schemes. Sripetch ultimately entered into a consent judgment on liability. The SEC then sought approximately $4 million in disgorgement to the investors involved in Sripetch’s schemes. The district court awarded the disgorgement over Sripetch’s objection.

The Ninth Circuit affirmed the disgorgement order. The court held that the SEC is not required to show pecuniary loss to investors as a precondition to a court ordering disgorgement. In doing so, the Ninth Circuit joined the First Circuit and disagreed with the Second Circuit, which had required such a showing.

Issue:

Whether the SEC must show that an investor suffered a pecuniary loss before it may secure a disgorgement remedy under either 15 U.S.C. §78u(d)(5) or 15 U.S.C. §78u(d)(7).

Court’s Holding:

No. The SEC need not prove investor pecuniary harm to obtain disgorgement of a defendant’s net profits or unjust enrichment in a civil enforcement action, because equitable remedies have long permitted stripping wrongdoers of ill-gotten gains without a showing of pecuniary loss to victims.

What It Means:

The decision preserves one of the SEC’s most powerful monetary remedies. The SEC may continue to seek disgorgement tied to a defendant’s net profits even where identifying individual investors or quantifying their losses would be difficult.
The Court’s ruling limits defendants’ ability to resist disgorgement by arguing that the SEC must prove the same type of economic loss required in private securities-fraud suits. The focus remains on whether the defendant received unjust enrichment as a result of the securities-law violation and whether the disgorgement award is properly limited to that enrichment.
Because the Court only assumed without deciding that disgorgement under Section 78u(d)(7) is an equitable remedy, defendants can still challenge SEC disgorgement requests seeking to provide the funds to the U.S. Treasury, instead of to investors, on the grounds that they constitute a penalty that implicates Seventh Amendment jury-trial concerns—a concern highlighted in Justice Thomas’s concurrence.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com	Jeffrey B. Wall +1 202.955.8533 jwall@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Securities Enforcement

Mark K. Schonfeld
+1 212.351.2433
mschonfeld@gibsondunn.com

This alert was prepared by Salah Hawkins, Benjamin Rice, and Rebecca Roman.

Hikma Pharmaceuticals USA Inc. v. Amarin Pharma, Inc., No. 24-889 –
Decided June 4, 2026

The Supreme Court unanimously held today that a pharmaceutical company failed to plausibly allege that a generic manufacturer had actively induced patent infringement, rejecting the argument that active inducement may be shown based on neutral statements that may be understood as instructions to infringe.

“[T]he key question is whether a defendant actively encouraged infringement through its statements, not merely how others may understand those statements.”

Justice Jackson, writing for the Court

Background:

Patents often protect some but not all of a drug’s uses rather than the entire drug. Under the Hatch-Waxman Act, generic drug manufacturers may obtain approval to sell such drugs only for their unpatented uses (in what is often called “skinny” labeling). The generic manufacturers are not liable if third parties use their generic drugs off-label for patented indications unless the manufacturers “actively induc[e]” the third parties to do so. 35 U.S.C. § 271(b).

Amarin Pharma holds patents that protect some uses of icosapent ethyl, which Amarin sells under the brand name Vascepa. Generic manufacturer Hikma Pharmaceuticals obtained approval to sell icosapent ethyl for unpatented uses under a “skinny” label. Amarin sued, claiming that Hikma had actively induced third parties to infringe Amarin’s patents by prescribing Hikma’s generic version of icosapent ethyl for patented uses. The district court granted Hikma’s motion to dismiss, ruling that Amarin had not plausibly alleged that Hikma actively encouraged third parties to infringe Amarin’s patents. But the Federal Circuit reversed, emphasizing that Hikma’s skinny label did not expressly disclaim using the drug for patented uses; that Hikma publicly described its drug as “generic Vascepa”; and that Hikma’s marketing materials touted the total sales of Vascepa, the vast majority of which derive from patented uses.

The Supreme Court granted certiorari to resolve whether a plaintiff can plausibly plead active inducement of patent infringement where a drugmaker “calls its product a ‘generic version’” and “cites public information about the branded drug” but does not expressly “encourag[e], or even mentio[n], the patented use.”

Issue:

Whether a company plausibly alleges that a generic drug manufacturer actively induced patent infringement without expressly mentioning or encouraging the patented use.

Court’s Holding:

Generally no: Although active inducement may be implicit as well as explicit, a party claiming active inducement must plausibly allege that the defendant took clear, affirmative steps to encourage infringement, not merely that the defendant’s statements plausibly could be understood that way.

What It Means:

The Court’s opinion emphasizes that active inducement of patent infringement, at the motion-to-dismiss stage, requires allegations that the defendant took affirmative steps to encourage others to infringe the patent.
Although the Court cautioned that active inducement need not be express, “the necessary inducement must be ‘clear’ to the relevant audience and ‘affirmative.’” Knowledge that others will employ a product for infringing uses, omissions or inaction, and suggestive statements that are merely consistent with inducing infringement do not suffice.
In directing dismissal of the complaint, the Court underscored that the “well-established federal pleading standards” from Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), were enough to resolve the case. The Court’s opinion provides a helpful datapoint for litigation on Rule 12(b)(6) motions to dismiss, illustrating how Twombly and Iqbal should be applied and reinforcing that allegations must nudge the complaint across the line from possible to plausible.
The Court also reiterated recent decisions, including Twitter, Inc. v. Taamneh, 598 U.S. 471 (2023), in which it has cautioned that ordinary business activities should not lightly give rise to legal liability. Here, for instance, the Court emphasized that patent law should avoid “trenching on regular commerce” and afford generic manufacturers “breathing room” when they comply with skinny-labeling laws and undertake “‘ordinary acts incident to product distribution.’”
The Court’s opinion illustrates that, both in active-inducement patent-infringement cases and more broadly, motion-to-dismiss analysis is highly fact-specific and requires close attention to all the allegations and the broader context.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com	Jeffrey B. Wall +1 202.955.8533 jwall@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Intellectual Property

Kate Dominguez +1 212.351.2338 kdominguez@gibsondunn.com	Josh Krevitt +1 212.351.2490 jkrevitt@gibsondunn.com	Jane M. Love, Ph.D. +1 212.351.3922 jlove@gibsondunn.com	Robert W. Trenchard +1 212.351.3942 rtrenchard@gibsondunn.com
Charlotte Jacobsen +1 212.351.3961 cjacobsen@gibsondunn.com

This alert was prepared by Matt Aidan Getz, Aaron Gyde, and Noah Delwiche.

The Circular follows the SFC’s review of account opening practices at 12 licensed securities brokers, highlighting key deficiencies identified in the Review and setting out the SFC’s expected standards, particularly in relation to the opening and managing accounts of Chinese Mainland investors.

On 22 May 2026, the Securities and Futures Commission of Hong Kong (the SFC) issued a circular to licensed corporations outlining its expected controls for account opening and the maintenance of client relationships (the Circular).[1] The Circular follows the SFC’s review of account opening practices at 12 licensed securities brokers (the Review), highlighting key deficiencies identified in the Review and setting out the SFC’s expected standards, particularly in relation to the opening and managing accounts of Chinese Mainland investors.

I. Background

The Circular was issued on the same day the announcement by China Securities Regulatory Commission (CSRC) of its high-profile enforcement action to penalize three securities brokers and their related domestic and offshore affiliates for offering mainland Chinese investors trading access to overseas securities without licenses. On the same day, the CSRC and seven other government departments issued the Implementation Plan for the Comprehensive Rectification of Illegal Cross-border Securities, Futures and Fund Business Activities (the Implementation Plan). The Implementation Plan expressly targets offshore institutions conducting securities, futures and fund business in Mainland China without approval, as well as onshore affiliates, cooperating entities, internet platforms and other intermediaries that facilitate such activities in Mainland China. Under the Implementation Plan, firms are required to wind down existing illegal businesses, and all existing non-compliant accounts may not undertake new purchases or inward transfers during this two-year period. Firms are also required to remove Mainland-targeted websites, trading applications, and supporting servers.

The SFC’s Circular specifically reminds licensed corporations to take note of the Implementation Plan, and not engage in or facilitate any illegal activities when providing services to investors outside Hong Kong. Licensed corporations which fail to comply with all relevant legal and regulatory requirements in jurisdictions outside Hong Kong may constitute non-compliance with the Code of Conduct, and may result in supervisory or enforcement actions taken by the SFC.

II. Key findings from the SFC’s Review

The SFC’s review identified a range of deficiencies among brokers in their due diligence and ongoing monitoring of the account opening process and cross‑border correspondent relationships (CBCR) with overseas intermediaries. Notably, the SFC found that some brokers accepted questionable or forged client documentation during account opening.[2] The SFC has expressed serious concerns over these practices and indicated that it will take supervisory or even enforcement action against non-compliant brokers.

Key deficiencies identified	Expected standards
Inadequate due diligence on account opening documentation: The Review identified weaknesses in conducting adequate due diligence on documents collected from clients during the account opening process. Certain brokers accepted account opening applications despite irregularities in know-your-client (KYC) documentation (such as utility bills) such as impossible dates, or discrepancies in asset movements. These applications should have been rejected.	The SFC expects licensed corporations to implement procedures to prevent and detect record falsification. In particular: account opening should only be approved only after completion of all KYC and customer due diligence (CDD) procedures and a comprehensive management review; licensed corporations should not establish, or should promptly terminate, business relationships where KYC and CDD procedures cannot be satisfactorily completed, or where document authenticity is in doubt; licensed corporations should warn prospective clients of the serious consequences of submitting forged documents.
Deficiencies in due diligence and ongoing monitoring of CBCR with overseas intermediaries: The Review found that some brokers relied on overseas introducers or agency arrangements without conducting adequate due diligence or maintaining effective ongoing oversight. In some cases, brokers relied on responses provided by overseas intermediaries for assessing the intermediary’s KYC and AML/CFT controls, despite discrepancies between the responses and the actual circumstances of the intermediary.	The SFC expects licensed corporations to mitigate risks arising from incomplete information on overseas intermediaries’ underlying clients and transactions by applying additional, risk‑based due diligence measures, such as requesting information about underlying transactions or clients, imposing limits on or restricting certain transactions. All CBCRs must be subject to ongoing monitoring.
Deficiencies in client identity verification process: The SFC observed that some brokers failed to conduct adequate client identity verification for online onboarding via initial deposits from Hong Kong bank accounts or through remote onboarding of overseas clients. For example, one broker relied solely on initial deposits from overseas bank accounts and did not deploy appropriate technologies to authenticate identification documents or verify client identities, as required for remote onboarding.	Licensed corporations are reminded to take all reasonable steps to establish the true and full identity of each client, and comply with the SFC’s requirements for acceptable account opening approaches.
Inadequate controls in collecting client identification data: The Review identified failures to implement adequate controls to comply with the “waterfall” requirements for collecting client identification data, which prioritize Hong Kong identity cards, followed by other identification documents and passports. For example, some brokers permitted account openings using passports even where clients were from jurisdictions that issue national identification documents.	Licensed corporations are expected to implement proper controls to ensure full compliance with waterfall requirements, including obtaining representations and warranties from clients to confirm that no identification documents of a higher priority in the waterfall are in their possession.
Deficiencies in review of client address: The Review found that brokers generally lacked controls to assess the reasonableness of clients’ residential addresses and to identify anomalies, such as commercial or government addresses or multiple clients sharing the same address.	The SFC expects licensed corporations to obtain and verify clients’ residential addresses, assess their reasonableness, and follow up on any identified anomalies.

III. Additional measures for opening and managing investment accounts of Chinese Mainland Investors

The SFC observed that most of the questionable or forged documents identified in the Review related to accounts held by Mainland Chinese investors — namely, individuals who use either or both a People’s Republic of China (PRC) resident identity card and passport as identification documents in a licensed corporation’s records or when opening an investment account.

In light of this, and the associated business, regulatory, and reputational risks faced by licensed corporations, the SFC has introduced additional requirements for licensed corporations when opening and managing such accounts, as summarized below. These measures should be read in conjunction with the SFC’s published frequently asked questions.[3]

Measure 1: Closure of investment accounts that were opened using questionable or forged documents

Upon the SFC’s request, licensed corporations are required to conduct a review of account opening activities to:

identify accounts opened since January 2023 (or such period specified by the SFC) that involved questionable or forged documents, including proof of identity and account statements from other licensed corporations;
for each such account, identify the party(ies) responsible for providing the documents and the individual(s) responsible for control failings;
ensure the review is carried out by an independent external consultant in accordance with SFC‑prescribed scope and methodology, and completed within three months;
review the transactions in the identified accounts for any red flags of suspicious activities and make appropriate reports to law enforcement agencies where necessary;
prohibit the clients of the identified accounts from opening any investment accounts with the licensed corporation or any of its affiliated firms in the future;
act in accordance with client agreements and ensure that all client assets (if any) are properly safeguarded until the accounts are formally closed; and
allocate sufficient resources to handle any client enquiries and complaints

(the Account Opening Review).

Licensed corporations are expected to close any accounts identified as involving questionable or forged documents within six months of completing the Account Opening Review. They should also provide advance written notice to affected clients of (i) the suspension of any new client‑initiated transactions (other than those necessary to close existing positions or reduce account balances for settlement purposes) and (ii) the intended closure of the accounts.

Licensed corporations should allow reasonable time for clients to manage the assets in their accounts, such as unwinding their positions and transferring funds to their bank accounts. Once all client assets have been withdrawn or disposed of, licensed corporations should close the accounts as soon as practicable.

Measure 2: Closure of zero-balance dormant investment accounts

A zero-balance dormant investment account refers to an investment account held by a Chinese Mainland investor that has no asset balance as at 22 May 2026 or any other date specified by the SFC (Reference Date) and has had no client-initiated activity in the 12 months preceding the Reference Date. Upon the SFC’s request, licensed corporations should implement measures to mitigate risks associated with the zero-balance dormant investment accounts, including:

conducting a review to identify all such accounts within three months of the SFC’s request (Dormant Account Review);
providing advance notice to affected clients and suspending all new transactions unless and until the licensed corporation (a) confirms that the client’s KYC and due diligence information is current and relevant, and (b) completes the applicable declaration and bank account verification measures under Measure 3, as explained below;
closing the identified accounts within six months of the SFC’s request if these steps cannot be satisfactorily completed, unless exceptional circumstances apply (e.g. client‑specific extenuating factors);
acting in accordance with client agreements and ensure that all client assets (if any) are properly safeguarded until the accounts are formally closed; and
allocating sufficient resources to handle any client enquiries and complaints.

If the client accounts identified in the Dormant Account Review involved the use of questionable or forged documents, licensed corporations should terminate the business relationship with these clients by following steps set out under Measure 1 above for the closure of accounts.

Measure 3: Opening new investment accounts

Effective immediately, where Chinese Mainland investors approach licensed corporations for opening investment accounts, licensed corporations should implement the following measures, irrespective of the account opening approaches used by licensed corporation for onboarding them:

obtain a written declaration from the Chinese Mainland investor:
- confirming that all funds which support the investment activities and related settlements are from lawful sources outside of the Chinese Mainland;
- confirming that the investor does not have an account that was previously closed or suspended by any licensed corporations or banks due to the use of questionable or forged documents;
- undertaking that the investor will notify the licensed corporation within 7 business days in the event of any changes in the information in the investor’s written declaration; and
- confirming that the investor understands that upon requests from law enforcement agencies or regulatory authorities, the licensed corporation may disclose the investor’s personal and other relevant information.
require the investor to use bank accounts held in the investor’s own name with banks licensed in Hong Kong or supervised by banking regulators in eligible jurisdictions[4] for settlement purposes, and ensure all future deposits and withdrawals are made exclusively through such accounts.
close the client investment account if the client’s funding sources are subsequently found to be unlawful or in violation of Mainland China’s capital control regulations, in accordance with Measure 1.
maintain proper records for each client’s account opening process in a manner that is readily accessible for compliance checks and audit purposes.
provide information to the SFC upon request, including the number and details of new accounts opened during a specified period and the corresponding client declarations.

IV. Conclusion

The SFC highlighted that senior management are ultimately responsible for ensuring appropriate standards of conduct and robust internal control systems for account opening and maintaining relationships with clients. Both licensed corporations and their senior management should take note of the issues raised in the SFC’s Circular. Failure to fulfil these responsibilities may call into question the fitness and properness of the licensed corporation and its senior management, and may result in supervisory or enforcement action taken by the SFC.

[1] “Circular to licensed corporations – Expected controls for account opening and maintaining relationships with clients” published by the SFC on May 22, 2026, available here.

[2] The provision of securities dealing services (including subscription for initial public offerings), futures contracts dealing, or leveraged foreign exchange trading to investors through overseas intermediaries, whether affiliated or unaffiliated, constitutes a CBCR.

[3] See here.

[4] See here.

The following Gibson Dunn lawyers prepared this update: William Hallatt, Becky Chung, and Jane Lu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following members in Hong Kong:

William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)

Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)

Arnold Pun (+852 2214 3838, apun@gibsondunn.com)

Becky Chung (+852 2214 3837, bchung@gibsondunn.com)

Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

It will be important to the comment process for commenters to submit their views on the Proposal. A well-developed administrative record—including from those who support the Proposal—helps inform the Commission’s deliberations and supports the durability of any final action.

Background

On May 29, 2026, the Securities and Exchange Commission (SEC or Commission) formally proposed (the Proposal) to rescind the Commission’s climate-related disclosure rules adopted in March 2024, the Enhancement and Standardization of Climate-Related Disclosures for Investors (the Climate Rules or the Final Rules).[1] The Climate Rules were among the Gensler Commission’s most consequential rulemakings, both in terms of their breadth and the litigation they generated.

The Climate Rules were first proposed on March 21, 2022 and finalized on March 6, 2024.[2] As adopted, the Climate Rules established a climate-related disclosure framework for registration statements and annual reports, including disclosures regarding climate-related risks, governance and oversight, and risk-management processes, as well as financial statement requirements for recording the effects of severe weather events and other natural conditions.[3]

The Climate Rules have been highly contentious and have generated significant litigation.[4] Litigation challenging the validity of the Climate Rules began almost immediately following their adoption, and in April 2024, the Commission stayed the effectiveness of the rules pending completion of consolidated litigation in the U.S. Court of Appeals for the Eighth Circuit.[5] In March 2025, the Commission voted to abandon its defense of the rules. The Eighth Circuit then issued an order holding the case in abeyance until the SEC either “reconsider[ed] the challenged [rules] by notice-and-comment rulemaking or renew[ed] its defense of the [rules].”[6] On May 7, 2026, the SEC notified the Eighth Circuit of its decision to propose rescission of the Climate Rules by notice-and-comment rulemaking.[7]

The Proposal itself does not terminate the Climate Rules. Instead, since the Proposal is subject to the Administrative Procedure Act’s notice-and-comment requirements, the Proposal initiates a comment process through which the Commission will consider public input on whether to rescind the Climate Rules in the manner proposed by the Commission. The Proposal was published in the Federal Register on June 3, 2026, and comments are due on or before August 3, 2026.[8]

Proposed Rescission and Rationale

The Proposal reflects the Commission’s view of the scope of its rulemaking and disclosure authority under the federal securities laws. In support of the proposed rescission, the Commission identifies concerns that had been raised by commenters and litigants challenging the Climate Rules. The Proposal also notes that “[t]he court has not made any decision on the merits of any arguments presented by any petition for review of the Final Rules.”[9]

The Commission identifies the following principal rationales for proposing rescission of the Climate Rules in their entirety:

the Climate Rules exceed the Commission’s statutory authority;
the Climate Rules are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure, which serves the interests of registrants and investors;
the Climate Rules stray beyond the policy concerns of the federal securities laws and address divisive social or political issues;
the Climate Rules would impose significant costs on public companies and their shareholders that are not justified by the informational benefits they provide to some investors; and
the high costs of the Climate Rules are inconsistent with the Commission’s policy objectives of facilitating capital formation and promoting public company status.

Additionally, the Proposal estimates that the annualized cost savings if the Climate Rules are rescinded is approximately $4.9 billion per year over 10 years across all affected registrants.[10]

What’s Next and What to Do

Comments on the Proposal are due on or before August 3, 2026.

Companies and other affected market participants should consider whether to submit comments addressing the practical, legal, and economic implications of the Proposal to help inform the Commission’s deliberative process.[11]

Comments may be particularly useful where they provide quantitative and qualitative data on the effects associated with the Climate Rules.

Commenters may wish to address, among other things:

the costs and burdens associated with preparing for, implementing, and maintaining compliance with the Climate Rules;[12]
whether the Climate Rules would have required disclosures beyond information material to investors under traditional securities-law principles;
the extent to which existing SEC disclosure requirements, voluntary disclosures, investor engagement, or other regulatory regimes already address climate-related information considered material by registrants and investors;
the reasons for or against a full rescission of the Climate Rules and any alternatives;[13] and
whether compliance burdens associated with the Climate Rules could affect decisions about whether to become or remain a public company.[14]

Conclusion

It will be important to the comment process for commenters to submit their views on the Proposal. A well-developed administrative record—including from those who support the Proposal—helps inform the Commission’s deliberations and supports the durability of any final action. Gibson Dunn’s Securities Regulation and Corporate Governance team is available to assist companies and other market participants in evaluating the Proposal, assessing potential implications, and preparing comments.

[1] See The Enhancement and Standardization of Climate-Related Disclosures for Investors, available at https://www.sec.gov/rules-regulations/2024/03/s7-10-22#33-11275final.

[2] See, e.g., Summary of and Considerations Regarding the SEC’s Proposed Rules on Climate Change Disclosure – Gibson Dunn (April 15, 2022), and Energy Industry Reacts to SEC Proposed Rules on Climate Change – Gibson Dunn (August 10, 2022), available at https://www.gibsondunn.com/summary-of-and-considerations-regarding-the-sec-proposed-rules-on-climate-change-disclosure/ and https://www.gibsondunn.com/energy-industry-reacts-to-sec-proposed-rules-on-climate-change/.

[3] See, e.g., SEC Adopts Sweeping New Climate Disclosure Requirements for Public Companies – Gibson Dunn (March 8, 2024), available at https://www.gibsondunn.com/sec-adopts-sweeping-new-climate-disclosure-requirements-for-public-companies/.

[4] See generally our March 2025, April 2025, June 2025, and August 2025 ESG Updates, which outline the history of the SEC’s posture regarding the climate disclosure rules as well as developments domestically and abroad.

[5] See Securities and Exchange Commission, In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors (Order Issuing Stay), Release No. 33-11280 (Apr. 4, 2024), available at https://www.sec.gov/files/rules/other/2024/33-11280.pdf.

[6] See Iowa v. SEC, No. 24-1522 (8th Cir. Sept. 12, 2025).

[7] See Letter from the SEC to the Clerk of Court, U.S. Court of Appeals for the Eighth Circuit, Iowa v. SEC, No. 24-1522 (8th Cir. May 7, 2026). See also Securities Regulation and Corporate Governance Monitor blog posts: Long-Awaited SEC Rule Proposal on Climate Change Disclosure (March 22, 2022); Fifth Circuit Stay of the SEC’s Climate Disclosure Rule Dissolved (March 22, 2024); Eighth Circuit Establishes Briefing Schedule for SEC Climate Disclosure Rules Litigation (May 24, 2024); SEC Signals Potential Strategy Shift in Climate Disclosure Rule Litigation (February 14, 2025).

[8] See Rescission of Climate-Related Disclosure Rules, 91 FR 33296 (proposed June 3, 2026), available at https://www.federalregister.gov/documents/2026/06/03/2026-11091/rescission-of-climate-related-disclosure-rules.

[9] See Proposal at 15.

[10] See Proposal at 43.

[11] See Proposal at 67.

[12] See, e.g., our alert outlining developments in various US and foreign jurisdictions regarding sustainability reporting and GHG emissions reporting, available at https://www.gibsondunn.com/gibson-dunn-esg-monthly-update-april-2026.

[13] See Proposal at 67.

[14] See generally Proposal, Request for Comment, Part IV.F for more specific questions.

The following Gibson Dunn lawyers prepared this update: Mellissa Campbell Duru, Elizabeth Ising, Thomas J. Kim, Ronald O. Mueller, Lori Zyskowski, and Jack Strachan.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the SEC’s proposal, or federal securities laws and regulations more generally. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member or leader of the firm’s Securities Regulation & Corporate Governance practice group:

Securities Regulation & Corporate Governance:
Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Michael Scanlon – Washington, D.C.(+1 202.887.3668, mscanlon@gibsondunn.com)
Michael A. Titera – Orange County (+1 949.451.4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202-887-3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Preston v. Nationstar Mortgage LLC (In re Preston), Case No. 24-21009 (JJT), Adv. No. 24-02016 (JJT) (Bankr. D. Conn. Apr. 16, 2025) – Decided April 16, 2025

The Connecticut Bankruptcy Court has held that a properly conducted, court-approved judicial foreclosure sale may be avoidable as a preference in a subsequent bankruptcy case by the borrower if the amount bid by the secured lender is less than the fair market value of the property—even though the U.S. Supreme Court has unequivocally held that such sales cannot be avoidable as fraudulent transfers.

The U.S. Supreme Court’s decision in BFP v. Resol. Tr. Corp., 114 S. Ct. 1757 (1994) “does not present an unequivocal, per se bar to a claim that foreclosure may be a preference under § 547.”

Caselaw Context:

In 1994, the U.S. Supreme court held that properly conducted mortgage foreclosure sales cannot be avoided as constructively fraudulent transfers under section 548 of the Bankruptcy Code[1] because such sales inherently cannot be for “less than a reasonably equivalent value” as required by section 548. The court reasoned that “a fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with.”[2] In so holding, the court recognized that the “fair market value” of the property “cannot—or at least cannot always—be the benchmark” for the “reasonably equivalent value” analysis in the forced sale context, because “‘fair market value’ presumes market conditions that, by definition, simply do not obtain in the context of a forced sale.”[3] Underpinning the court’s holding was a consideration of policy interests regarding the rights of secured lenders and the balance of state and federal law: The court was concerned that that allowing bankruptcy courts to avoid properly conducted foreclosure sales after their conclusion would “disrupt” the “harmony” of state foreclosure law and bankruptcy law and generate a “federally created cloud” on the title to real property purchased at foreclosure sales.[4].

In the decades since BFP, courts across the United States have been asked to apply the reasoning of BFP to prohibit the avoidance of foreclosure sales and analogous forced sales[5] as preferential transfers under section 547 of the Bankruptcy Code. Although section 547 does not require an assessment of whether the debtor received “reasonably equivalent value” in exchange for the transfer as in section 548, in order to be preferential a transfer must enable the creditor “to receive more than such creditor would receive” in a chapter 7 liquidation bankruptcy case.[6] Section 547’s comparison of the value the creditor received from the transfer to the value of the distribution the creditor would have received in the context of a hypothetical chapter 7 bankruptcy invites consideration of essentially the same question posed in the “reasonably equivalent value” analysis: Did the foreclosing secured lender obtain a windfall at the expense of the debtor’s other creditors?

Courts have reached differing conclusions as to whether BFP’s reasoning applies in the preference context. Some courts have held that BFP is inapplicable in the preference context because section 547 does not contain the “reasonably equivalent value” language interpreted by the U.S. Supreme Court in BFP.[7] However, other courts have found that BFP is controlling and that its underlying policy rationale—that allowing bankruptcy courts to avoid properly conducted foreclosure sales would create an untenable level of uncertainty in title to foreclosed properties—applies equally in the preference context.[8] In Preston, the Connecticut Bankruptcy Court weighed in on this split of authorities.

Facts:

In December 2023, Nationstar Mortgage LLC filed a foreclosure action against individual Erica Preston in the Superior Court of Connecticut.[9] After Ms. Preston failed to appear, the Superior Court authorized a foreclosure auction sale of Ms. Preston’s residential property in Woodstock, Connecticut.[10] In accordance with the requirements of Connecticut’s foreclosure statute, a court-appointed appraiser filed an appraisal asserting that the property’s value was $285,000.[11]

At the auction, Nationstar’s winning bid for the property was for $146,853—just over half of the property’s appraised value.[12] The Superior Court entered an order approving the sale in July 2024 and Nationstar acquired title to the property shortly thereafter.[13] Several months later, on October 21, 2024, Nationstar filed a motion in the Superior Court requesting entry of a supplemental judgment order ratifying and confirming the sale in accordance with Connecticut’s judicial foreclosure procedures.[14]

Just two days after Nationstar filed a motion seeking the supplemental judgment,[15] Ms. Preston filed for chapter 13 bankruptcy protection and commenced an adversary proceeding seeking avoidance of the foreclosure sale as a preferential transfer.[16] Nationstar sought dismissal of the adversary complaint for failure to state a claim based on the Supreme Court’s reasoning in BFP, asserting that debtors cannot avoid properly conducted prepetition mortgage foreclosure sales because such sales establish the property’s “forced sale” value—meaning that creditors cannot receive more as a result of the foreclosure sale than they would have received in a hypothetical chapter 7 liquidation.[17]

Issue:

Does the U.S. Supreme Court’s decision in BFP categorically bar claims asserting that a foreclosure is an avoidable a preference under section 547 of the Bankruptcy Code?

Court’s Holdings:

No—a foreclosure sale can be a preferential transfer under section 547. In BFP, the Supreme Court interpreted the meaning of “reasonably equivalent value”—a term not appearing in section 547 and therefore not relevant to the preference analysis. Instead, “allegedly preferential transfers under § 547 require inquiry into the specific facts underlying the transfer to determine whether a creditor received more as a result of the transfer than it would have received in a hypothetical Chapter 7 liquidation, as this is the standard Congress has imposed.”[18] The bankruptcy court in Preston did not invalidate the foreclosure sale: it simply denied a motion to dismiss the preference actions.

What It Means:

The bankruptcy court in Preston joined a line of cases, most of which do not involve foreclosure auction sales, that purport to adopt a plain-language reading of section 547 of the Bankruptcy Code notwithstanding the obvious public policy concerns with allowing bankruptcy courts to invalidate properly conducted foreclosure sales ex post facto.[19]
The result in Preston is more troubling from a policy perspective, because it indicates that a procedurally compliant, court-approved foreclosure auction sale at which competing bids were permitted and the court expressly ordered the consummation of the sale to the highest bidder may be avoidable solely because of the difference between the appraised fair market value of the property and the highest bid.[20]
The Preston decision also fails to address the U.S. Supreme Court’s reasoning in BFP that the “forced sale” value of a property is inherently lower than the “fair market value” of the property.[21] Although the Supreme Court applied this reasoning for purposes of reaching the conclusion that the value received at a foreclosure sale is necessarily “reasonably equivalent value” for purposes of the fraudulent transfer analysis, the same reasoning should apply in the preference context because a sale of the property in a chapter 7 case would more closely resemble a “forced sale” at a discounted price than full “fair market value” of the property.[22]
Preston may be distinguishable in bankruptcy cases involving debtors that are special purpose entities (SPEs). It would be logically unlikely, if not impossible, for an SPE to be insolvent for purposes of the preference analysis (i.e., for the SPE’s debts to exceed the value of its property[23]) and at the same time for the secured lender to have received more from a foreclosure sale than it could have received in a chapter 7 case for the SPE. For most SPEs, the sole material debt is the mortgage and the sole material asset is the collateral. The property is either worth more than the value of the debt (in which case the SPE debtor was not insolvent), or the secured lender did not receive a windfall when it purchased the property at a foreclosure sale (in which case the creditor did not receive more than it would have in the chapter 7 bankruptcy context). Accordingly, courts analyzing forced sales of a SPE debtor’s property may hold that such foreclosures could not possibly be a preference absent very unusual facts.

[1] See 11 U.S.C. § 548.

[2] BFP v. Resol. Tr. Corp., 114 S. Ct. 1757, 1765 (1994).

[3] BFP, 114 S. Ct. at 1761. The court further explained that “‘fair market value’ could show what similar property would be worth if it did not have to be sold within the time and manner strictures of state-prescribed foreclosure. But property that must be sold within those strictures is simply worth less. No one would pay as much to own such property.” Id. at 1762 (emphasis in original).

[4] BFP, 114 S. Ct. at 1764-65.

[5] In BFP, the court noted that its opinion “covers only mortgage foreclosures of real estate” and that the “considerations bearing upon other foreclosures and forced sales (to satisfy tax liens, for example) may be different.” Id. at 1761 n.3. However, courts have been asked to apply BFP to tax lien sales, both in the context of the section 548 fraudulent transfer analysis and the section 547 preference analysis. See, e.g., In re Hackler & Stelzle-Hackler, 938 F.3d 473, 479-80 (3d Cir. 2019) (collecting cases).

[6] 11 U.S.C. § 547(b)(5). Generally, “a transfer may be voided as preferential if it (1) was made to or for the benefit of a creditor, (2) was made for an antecedent debt, (3) was made while the debtor was insolvent, (4) was made on or within 90 days before filing for bankruptcy, and (5) enabled the creditor to receive more than it would have received in a Chapter 7 liquidation proceeding.” Hackler, 938 F.3d at 477.

[7] See, e.g., In re Villarreal, 413 B.R. 633, 642 (Bankr. S.D. Tex. 2009) (“Section 547, in straightforward language, requires the avoidance of transfers that allowed the creditor to receive more than the creditor would have received in a hypothetical chapter 7 liquidation. There is nothing in § 547 equivalent to § 548’s ambiguous use of ‘value’” (quoting 11 U.S.C. § 548)); In re Andrews, 262 B.R. 299, 304 (Bankr. M.D. Pa. 2001) (determining that “BFP has absolutely no bearing on the instant issue concerning whether the Defendant in this prepetition Sheriff’s sale has received ‘more’ than that creditor would have received without the foreclosure sale and in a liquidation under Chapter 7 as contemplated by 11 U.S.C. § 547(b)(5)”); In re Whittle Dev., Inc., 463 B.R. 796, 801 (Bankr. N.D. Tex. 2011) (“the application of the Supreme Court’s reasoning in BFP to section 547 appears misplaced. The Supreme Court’s analysis of section 548(a)(2)(A) concerned what, as a matter of law, ‘reasonably equivalent value’ meant. No such legal issue presents itself in avoidance actions under section 547(b)(5)(A)” (citations omitted)).

[8] See, e.g., In re FIBSA Forwarding, Inc., 230 B.R. 334, 340-41 (Bankr. S.D. Tex.) (BFP “controls this decision because its principal rationale is applicable. . . . To hold this foreclosure to be a preferential transfer would create the same problems with state real property title records that would have been created by classifying the transaction as a fraudulent transfer”), aff’d, 244 B.R. 94 (S.D. Tex. 1999); In re Cottrell, 213 B.R. 378, 383 (Bankr. M.D. Ala. 1996) (“the court finds that [BFP] is equally applicable to both kinds of avoiding powers”); In re Pulcini, 261 B.R. 836, 844 (Bankr. W.D. Pa. 2001) (“Although BFP dealt with § 548(a), not § 547(b), we believe that the rationale of BFP applies . . . with equal force. . . . What is at stake is the essential sovereign interest in the security and stability of title to land”).

[9] Preston v. Nationstar Mortgage LLC (In re Preston), Adv. No. 24-02016 (JJT) (Bankr. D. Conn. Apr. 16, 2025) (hereinafter “Preston”) at 2.

[10] Id.

[11] Id. at 2.

[12] Id. at 2.

[13] Id. at 2-3.

[14] Id. at 3.

[15] Notwithstanding the pending adversary proceeding, the Superior Court entered the supplemental judgment ratifying and confirming the sale on November 4, 2024. Id. at 3.

[16] Id. at 1. Ms. Preston also sought avoidance of the foreclosure sale as a fraudulent transfer, but the bankruptcy court dismissed the fraudulent transfer claims for the reasons stated in BFP. See id. at 19-20. Further, Ms. Preston asserted a claim against Nationstar for unjust enrichment in connection with the foreclosure sale, but the bankruptcy court dismissed the claim on the basis that it did not have subject matter jurisdiction to review the state court’s order authorizing the foreclosure sale. See id. at 9-12.

[17] Id. at 4.

[18] Id. at 24-25.

[19] Id. at 24-25 (acknowledging “the public policy concern that permitting noncollusive foreclosures conducted in accordance with state law to be avoided as preferential transfers will result in calamity” but observing that “Congress can certainly rectify such a calamity”); see also, e.g., Villarreal, 413 B.R. at 642 (observing that “the Court may not ignore Congressional language in favor of judicial policy”).

[20] By comparison, many of the other decisions that read BFP narrowly involved nonjudicial foreclosures (which do not involve the same level of court oversight as in the Connecticut judicial foreclosure at issue in Preston) or tax foreclosure sales pursuant to state laws that do not require public auctions. See, e.g., Villarreal, 413 B.R. at 633 (nonjudicial foreclosure in which there was no appraisal of the property’s value until after the sale concluded); In re Smith, 811 F.3d 228, 238 (7th Cir. 2016) (court observing that in the context of an Illinois tax sale with bidding limited solely to the penalty interest rate on the lien, rather than the value of the property, there was no correlation between the sale price and the value of the property and so BFP was not applicable).

Additionally, judicial foreclosures should theoretically have a lower likelihood of being avoidable than other types of forced sales due to the possibility that the Rooker-Feldman doctrine or principles of res judicata and collateral estoppel would apply to prohibit the bankruptcy court from second-guessing a prior state court’s order—but the Preston court considered and rejected these arguments with respect to Ms. Preston’s fraudulent transfer and preference claims, finding that the avoidance action claims brought in Ms. Preston’s adversary proceeding were not the same claims at issue in the state court judicial foreclosure proceeding. See Preston at 9, 14, and 18.

[21] See BFP at 1762.

[22] Cf. Cottrell, 213 B.R. at 383 (Bankr. M.D. Ala. 1996) (noting that “the value at foreclosure by [the secured creditor] establishes the ‘forced sale’ price, a price which would undoubtedly be duplicated by a trustee in a ‘forced sale’ in bankruptcy” and also observing that under the circumstances a chapter 7 trustee would have elected to abandon, rather than sell, the property and the secured lender would have foreclosed anyways); but see Villareal, 413 B.R. at 639 (asserting that “a chapter 7 liquidation does not have the same constraints as a foreclosure sale. A chapter 7 liquidation affords the trustee the time to orchestrate an orderly sale that produces a greater value than would be received at a foreclosure sale.”). Villareal involved a nonjudicial foreclosure sale, however, and thus the sale was not required to follow the same level of value-preserving procedural protections as the Connecticut judicial foreclosure sale at issue in Preston.

[23] For purposes of the preference analysis, “insolvency” is defined in section 101(32)(A) of the Bankruptcy Code using a “balance sheet” test: The “sum of such entity’s debts” must be “greater than all of such entity’s property, at a fair valuation.” 11 U.S.C. § 101(32)(A); see also 5 Collier on Bankruptcy ¶ 547.03[5] (discussing the solvency analysis for preference avoidance actions). Insolvency is measured at the time of the alleged preferential transfer. See id. (“It is clear from the terms of 11 U.S.C. § 547(b) that the determination of insolvency must be directed to the time when the alleged preferential transfer was made”). By contrast, a transfer for less than reasonably equivalent value may be avoidable as a constructive fraudulent transfer if the debtor is insolvent, undercapitalized or unable to meet its debts when they come due. Therefore, a transfer by a balance sheet solvent debtor for less than reasonably equivalent value may be a constructive fraudulent transfer if the debtor possessed “unreasonably small capital” or would incur “debts that would be beyond the debtor’s ability to pay as such debts matured.” See 11 U.S.C. § 548(a)(1)(B)(ii).

The following Gibson Dunn lawyers prepared this update: Jeffrey C. Krause, Suzanne Span, and Kriti Hannon.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Business Restructuring and Reorganization practice group:

Jeffrey C. Krause – Partner, Los Angeles (+1 213.229.7995, jkrause@gibsondunn.com)

Kriti Hannon – Associate, Orange County (+1 949.451.4030, khannon@gibsondunn.com)

Suzanne Span – Associate, Orange County (+1 949.451.3863, sspan@gibsondunn.com)

Scott J. Greenberg – Global Chair, New York (+1 212.351.5298, sgreenberg@gibsondunn.com)

The release of the Consultation Conclusions signal that the FSTB and SFC are moving ever closer to introducing their proposed legislative framework for a broad suite of virtual asset related activities to the Legislative Council.

On May 26, 2026, the Hong Kong Financial Services and the Treasury Bureau (FSTB) and Securities and Futures Commission (SFC) published consultation conclusions setting out the proposed licensing regime for virtual asset (VA) advisory and management regimes (Consultation Conclusions).[1] The Consultation Conclusions follow the FSTB and the SFC’s launch of a consultation on VA advisory and VA management regimes on December 24, 2025 (Further Consultation), as discussed in our previous client alert.[2]

We have set out below a detailed overview of the key takeaways for the industry from the Consultation Conclusions. Importantly, the release of the Consultation Conclusions signal that the FSTB and SFC are moving ever closer to introducing their proposed legislative framework for a broad suite of virtual asset related activities to the Legislative Council.

I. VA Advisory Regime

A. Scope and coverage

The Consultation Conclusions reaffirm the definition of “advising on VA” proposed under the Further Consultation, namely, covering any person who carries on a business in Hong Kong in:

giving advice on whether; which; the time at which; or the terms of conditions on which, VAs should be acquired or disposed of; or
issuing analyses or reports, for the purposes of facilitating the recipients of the analyses or reports to make decisions on whether; which; the time at which; or the terms or conditions on which, VAs are to be acquired or disposed of.

The Consultation Conclusions clarify that whether an activity constitutes advice on VA is assessed based on its substance rather than its form. Accordingly, an activity will fall within scope irrespective of how it is described, labelled or disguised (for instance, as educational content, general commentary or trading signals), if, in substance, it involves providing advice on the acquisition or disposal of VA. Persons carrying on a business involving such activities will therefore be required to obtain a VA advisory licence, unless an exemption applies.

The Consultation Conclusions provide important colour regarding the scope of the proposed regime, including the following:

Mirror / copy trading will generally require a VA advisory licence: Importantly for the industry, the Consultation Conclusions state clearly that mirror or “copy” trading will generally require a VA advisory licence, given that the provision of these services generally involve providing information, trading signals or alerts on when to buy, sell, or hold particular VAs for others to replicate or track trading strategies. Where the provision of copy or mirror trading services extends to executing trades in VAs on behalf of clients, this may additionally constitute dealing in VAs requiring a separate VA dealing licence. Further, where such execution is carried out on a discretionary basis, the activity may also amount to VA management, as discussed below.
The regime is intended to be “technology neutral”: The Consultation Conclusions establish that the key consideration is whether advice concerning the acquisition or disposal of VAs is provided, regardless of the means through which it is delivered. Given this, the provision of technology tools (including algorithms or AI language models) that generate specific recommendations on VA (for example, recommendations tailored to a user’s investment profile) will constitute the provision of VA advisory services. By contrast, activities confined to the provision of generic, factual information about VAs or the VA market will generally fall outside the scope of the VA Advisory Regime. This includes, for example, research tools that objectively filter such factual information. Similarly, VA custodial or dealing service providers that, in the course of their services, merely provide clients with information (such as details of voting rights attached to the clients’ VAs or notification of hard forks or airdrop events) will generally not require a VA advisory licence, notwithstanding that such hard fork or airdrop events may result in additional VAs being distributed to clients.
Relationship between “advising on VA” and “advising on securities”: As expected, the definition of ‘advising on VA’ closely mirrors the definition of ‘advising on securities’ for Type 4 regulated activity (RA4) under the Securities and Futures Ordinance (Cap. 571) (SFO). Importantly, given that securities and futures contracts are specifically excluded from the definition of VA pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), advising solely on tokenized securities does not fall within the VA Advisory Regime, and instead, falls within RA4. The Consultation Conclusions also note that advising on derivatives and structured products referencing VA will generally fall within RA4, Type 5 regulated activity (advising on futures contracts) and/or Type 11 regulated activity (dealing in OTC derivatives products or advising on OTC derivative products) under the SFO.

B. Exemptions

The Consultation Conclusions also provide the following guidance regarding exemptions in relation to VA advisory activities:

Advice provided through a generally available publication or broadcast will be exempt: The scope of this exemption will be the same as the scope of the corresponding exemption under the SFO. However, given the increasing role of finfluencers in influencing investor behaviour, the SFC will also separately review the existing regime under the SFO as well as the proposed VA service provider licensing regime to ensure that these regimes are appropriate for current market conditions. This may lead to further consultations in the future regarding the regulation of finfluencers.
Advice provided solely to a wholly owned group company will be exempt: The scope of this exemption will similarly mirror the scope of the corresponding exemption under the SFO – i.e. a licence will not be required for a company which advises its group company which is its wholly owned subsidiary, its holding company which holds all of its issued shares, or a wholly owned subsidiary of that holding company, and only in respect of that group company’s assets and not the group company’s client assets.
Intermediaries licensed for RA4 will require a VA advisory licence where advising clients on VA: The Consultation Conclusions emphasise that where Type 4 licensed intermediaries provide advice on a client’s overall portfolio comprising both VA and securities, the advice on VAs will not be considered “wholly incidental” to the advice provided on securities. This is on the basis that VA is a wholly distinct asset class and as such Type 4 licensed intermediaries will still require a licence. This is consistent with the current position with regards to the provision of advice by firms regarding both securities and futures contracts, which require both Types 4 and 5 licences.

C. Regulatory requirements

While the SFC has signalled that it will undertake a further public consultation in relation to the proposed regulatory requirements that will apply to VA advisory licensees, the Consultation Conclusions do note that:

Financial resources requirements (FRR) will be aligned with those for RA licensees: Under the ‘same activity, same risks, same regulation’ principle, financial resources requirements to be imposed on VA advisory service providers will align with those currently imposed on RA4 licensed corporations. In other words, (i) a minimum required liquid capital of HK$100,000 for VA advisory service providers will apply to firms that do not hold client assets; and (ii) a minimum paid‑up share capital of HK$5 million and a minimum required liquid capital of HK$3 million will apply to firms that do hold client assets (with the SFC having the discretion to impose additional financial resources requirements where necessary).
Firms licensed for both RA4 and VA advisory services will not be subject to duplicative regulatory capital requirements: Instead, such a corporation should be required to meet only the highest applicable regulatory capital threshold among the regulated activities and/or VA services for which it is licensed.

Other regulatory requirements to be imposed on VA advisory service providers will be based on those currently applicable to licensed corporations or registered institutions providing VA advisory services under the Joint Circular on Intermediaries’ Virtual Asset-Related Activities issued by the SFC and the Hong Kong Monetary Authority (Joint Circular).[3] These requirements cover product due diligence, suitability obligations, disclosure requirements and assessments of client’s knowledge of VA, as summarized in our previous client alerts.[4] The SFC is actively reviewing these requirements to ensure an appropriate balance between investor protection and market development, and intends to conduct a public consultation in due course.

II. VA Management Regime

A. Scope and coverage

The Consultation Conclusions confirm that the FSTB and SFC will proceed with the definition of ‘VA management’ proposed under the Further Consultation, namely, covering any person who carries on a business in Hong Kong in providing a service of managing a portfolio of VAs for another person. Further, given industry support, there will be no de minimis threshold for the proposed licensing regime for VA management service providers (VA Management Regime). This is to align with the scope of the Type 9 (RA9) licence for asset management under the SFO.

Similar to the scope of the RA9 definition, the VA Management Regime will apply to firms that have discretionary power to make investment decisions in respect of the VAs in the portfolio of another person (including both the management of funds as well as discretionary accounts in the form of an investment mandate or pre-defined model portfolio). In particular, firms that have full investment discretion to make investment decisions on behalf of a fund or a discretionary account will require a license, even if they sub-contracts their investment management role to a third party. That third party will also require a license if it is carrying on the business of providing VA management services in Hong Kong.

The key determinant in whether a VA management licence is required is whether the fund manager has discretionary power to make investment decisions in respect of the VAs concerned (for example, decisions to convert the VAs into cash before making investments for the fund, use the VAs to invest in other assets, or hold the VAs instead of cash or other investments). Where the VAs form part of the portfolio managed by the fund manager, and the fund manager has discretionary power to make investment decisions in respect of the VAs in the portfolio, a VA management licence will be required. Notwithstanding this, the Consultation Conclusions acknowledge the possibility of an investment portfolio managed by a fund manager inadvertently acquiring VAs due to an unexpected or involuntary event. Where all reasonably practicable steps are taken to dispose of the portfolio’s holdings in VAs in a timely manner, this may not amount to carrying on a business of providing a VA management service.

Consistent with the VA Advisory Regime, the VA Management Regime is intended to be technology neutral. Providing technology tools which make investment decisions for clients on a discretionary basis (such as robo-advisers) constitutes VA management and will require a licence.

B. Exemptions

The Consultation Conclusions also provide the following guidance regarding exemptions in relation to VA management activities:

VA management services provided to wholly owned group companies will be exempt: Consistent with the approach under the VA Advisory Regime, this proposed exemption applies only where a corporation provides VA management services to its wholly owned group entities (i.e. its wholly owned subsidiary, its parent holding all its shares, or a fellow wholly owned subsidiary) and solely in respect of that entity’s own VAs. Managing non-group assets (such as client assets) constitutes VA management and requires a licence.
Dealing in VAs solely for the purpose of VA management will not require a VA dealing licence: Consistent with the exemptions applicable to a RA9 license, the SFC and FSTB plan to introduce an exemption from the requirement to obtain a VA dealing licence if a VA management licensee performs dealing in VAs solely for the purpose of carrying on VA management. This means that where, for example, a fund manager licensed for VA management accepts VAs for subscribing to the fund and converts the VAs into cash prior to investing in other assets for the fund, or converts cash or other investments into VAs as part of managing the fund, it will not need to be licensed for VA dealing when performing such conversion.
Stablecoin-specific treatment: Recognising that specified stablecoins[5] issued by HKMA-licensed persons (Relevant Stablecoins) have a different risk profile from other VAs, the FSTB and SFC will introduce appropriate exemptions for SFC-licensed or registered intermediaries from obtaining relevant VA service provider licences or registrations in relation to their SFO activities involving Relevant Stablecoins.
Intermediaries licensed for RA9 will require a VA management licence where managing a portfolio consisting of both VA and investment products referencing VA: As with the VA Advisory Regime, the VA Management Regime is intended to capture “VA” as defined in the AMLO. However, managing a portfolio of investment products with exposure to or referencing VAs (e.g., derivatives and structured products referencing VAs and VA futures ETFs) will typically require an RA9 licence on the basis that such products are not VAs. Consequently, managing a portfolio consisting of both VAs and investment products referencing VAs would require both a VA management licence under the AMLO and an RA9 licence under the SFO. Similarly, managing portfolios investing in companies whose principal business is engaging in proprietary trading in VAs or managing fund of funds investing in underlying VA funds will generally require an RA9 licence rather than a VA management licence, as the management of such portfolios is the management of portfolios of securities rather than VAs.

C. Regulatory requirements

While the SFC will undertake a further public consultation in relation to the proposed regulatory requirements that will apply to VA management licensees, the Consultation Conclusions state that the regulatory requirements to be imposed on VA management service providers will be based on those currently applicable to licensed corporations or registered institutions providing VA management services under the Joint Circular as well as the terms and conditions for licensed corporations or registered institutions which manage portfolios that invest in virtual assets (VA Management Terms and Conditions). Additionally, the Consultation Conclusions note that:

FRR will be aligned with those for RA9 licensees: In keeping with the approach for VA advisory licencees, the FRR for VA management service providers will align with those currently imposed on RA9 licensed corporations, i.e., (i) a minimum required liquid capital of HK$100,000 where client assets are not held; and (ii) otherwise, a minimum paid‑up share capital of HK$5 million and a minimum required liquid capital of HK$3 million.
Firms licensed for both RA9 and VA advisory services will not be subject to duplicative regulatory capital requirements: Instead, such a corporation should be required to meet only the highest applicable regulatory capital threshold among the regulated activities and/or VA services for which it is licensed.
Staking will be allowed: The Consultation Conclusions confirm that SFC-authorised VA funds and private funds will continue to be permitted to engage in staking after the introduction of the VA Management Regime.
Experience of staff to date will be taken into consideration: As noted above, the FSTB and SFC will not introduce a de minimis threshold under the VA Management Regime. Accordingly, SFC‑licensed or registered intermediaries conducting RA9 activity under the SFO that manage portfolios with VA exposure below the current de minimis threshold will nonetheless be required to obtain a VA management licence or registration, and will be subject to the same regulatory standards as those managing portfolios with higher VA exposure. However, the Consultation Conclusions do note that the experience of staff in managing the VA portion of such portfolios will be recognised for the purposes of meeting the experience requirements under the VA Management Regime.

D. Custody of VA

The FSTB and SFC had previously proposed requiring VA management licensees to hold the VAs of the private funds they manage only with SFC-regulated VA custodians. This was the subject of ‘mixed feedback’ on the basis that this would be disproportionately restrictive to private funds, constrain execution capabilities and increase operational costs. Industry feedback also noted that this would disrupt existing private VA funds which have engaged overseas custodians for safekeeping of the funds’ VAs, and that restricting choice could disproportionately impact private equity / venture capital strategies.

Given this feedback, the SFC has indicated that it will allow private funds the flexibility of appointing qualified custodians outside of Hong Kong. However, the SFC has emphasized that investor protection still remains fundamental. Given this, where new tokens are not supported by qualified custodians and must be self‑custodied by VA management service providers, the SFC will impose robust self‑custody requirements. In addition, VA management service providers (other than authorised institutions) holding client assets will be subject to heightened financial resources requirements. VA management service providers should also be vigilant as to whether and when their custody of VAs on behalf of the funds they manage may trigger licensing requirements under the VA custodian service provider licensing regime.

III. Conclusion

Finally, the Consultation Conclusions confirm that the SFC’s current practice of imposing licensing or registration conditions on intermediaries under the SFO (e.g. those under the Joint Circular and VA Management Terms and Conditions) will be replaced by the new VA management and advisory regimes (as well as the VA dealing regime). Given this, intermediaries currently conducting VA‑related activities under the existing regime will be required to obtain a licence or registration under the new regimes once introduced, although an expedited process will be in place for firms already conducting these activities.

As stated above, we expect a legislative regime to be introduced into the Legislative Council during the course of this year. As the Consultation Conclusions also establish that there will be no deeming arrangements in place for existing VA advisory or VA management service providers, the FSTB and SFC have encouraged those industry stakeholders already engaged in or interested in providing VA advisory or VA management services are encouraged to engage with the SFC or the HKMA as soon as possible to discuss the licensing or registration process, and to provide feedback on applicable regulatory requirements.

[1] “Consultation Conclusions Legislative Proposal to Regulate Virtual Asset Advisory Service Providers and Virtual Asset Management Service Providers”, jointly published by the Financial Services and the Treasury Bureau and the Securities and Futures Commission on May 26, 2026, accessible here: https://apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=25CP12.

[2] “Hong Kong Concludes Consultations on Regulation of Virtual Asset Dealing and Custodian Services – With Yet More to Come”, published by Gibson, Dunn & Crutcher on January 5, 2026, accessible here: https://www.gibsondunn.com/hong-kong-concludes-consultations-on-regulation-of-virtual-asset-dealing-and-custodian-services-with-yet-more-to-come/.

[3] “Joint circular on intermediaries’ virtual asset-related activities” jointly published by the Securities and Futures Commission and the Hong Kong Monetary Authority on December 22, 2023, accessible here, and supplemented by the “Supplemental joint circular on intermediaries’ virtual asset-related activities” jointly published by the Securities and Futures Commission and the Hong Kong Monetary Authority on September 30, 2025, accessible at: https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=25EC50.

[4] “Hong Kong’s Regulators Refresh Guidance on Virtual Assets and Propose Legal Framework for Stablecoin Issuers”, published by Gibson, Dunn & Crutcher on February 2, 2024, accessible at: https://www.gibsondunn.com/hong-kong-regulators-refresh-guidance-on-virtual-asset-and-propose-legal-framework-for-stablecoin-issuers/; “Hong Kong SFC and HKMA Release Supplemental Guidance on Virtual Asset-Related Activities” published by Gibson, Dunn & Crutcher on October 9, 2025, accessible at: https://www.gibsondunn.com/hong-kong-sfc-and-hkma-release-supplemental-guidance-on-virtual-asset-related-activities/.

[5] Specific stablecoins are defined under section 4 of the Stablecoins Ordinance as stablecoins that maintain their value by referencing official currencies. See “Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime” published by Gibson, Dunn & Crutcher on June 4, 2025, accessible at: https://www.gibsondunn.com/hong-kong-gets-ready-for-stablecoin-regulation-hkma-prepares-for-enactment-of-the-regime/.

The following Gibson Dunn lawyers prepared this update: William Hallatt, Emily Rumble, and Jane Lu.

William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)

Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)

Arnold Pun (+852 2214 3838, apun@gibsondunn.com)

Becky Chung (+852 2214 3837, bchung@gibsondunn.com)

Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

Resource nationalism has moved well beyond royalty disputes. In 2025 and 2026, it has come to include export bans, quota systems, processing mandates, and extraterritorial technology controls. For lithium and the rare earth elements, the legal terrain is shifting as quickly as the political one—and the strategies that protected investors during the last commodities cycle will not be sufficient for the next.

A New Wave, on Both Sides of the Supply Chain

The most visible recent move came from Beijing. On October 9, 2025, China issued export controls on five additional rare earth elements and on a broad set of related materials and technologies, with extraterritorial reach extending to items containing as little as 0.1 percent Chinese‑origin content—an architecture clearly modeled on the U.S. Foreign Direct Product Rule.[1] On November 7, 2025, those controls were suspended for one year as part of the Xi‑Trump understanding to roll back tariffs and trade barriers.[2] The suspension is not a repeal: the framework remains on the books, the licensing apparatus has been built, and the leverage now exists in perpetuity even when the controls are dormant.

Africa has produced the year’s most consequential producer‑side precedent. The Democratic Republic of the Congo banned cobalt exports in February 2025, then in October 2025 lifted the ban in favor of an annual quota of 96,600 metric tons for each of 2026 and 2027—less than half of recent global production—with ten percent of future volumes reserved for “strategic national projects.”[3] Glencore endorsed the regime; CMOC opposed it; both had previously declared force majeure under their offtake arrangements.[4] The DRC quota model is being studied as a template across other producing jurisdictions.

Lithium and other battery metals have generated their own catalogue. Vietnam in December 2025 amended its Law on Geology and Minerals so that only government‑approved companies may mine, process, or utilize rare earths, and the export of raw rare earth materials is now prohibited.[5] Indonesia’s nickel ore export ban, in force since January 2020 and reinforced by escalating downstream processing requirements through 2025, has become the canonical producer‑side template — and one increasingly cited by Vietnam, Chile, and the DRC as they design their own regimes.[6] In Chile, the inauguration of President José Antonio Kast on March 11, 2026 has produced a more market‑friendly tone, but as the firm detailed in a recent client alert, lithium remains non‑concessionable under Decree Law No. 2886 and access continues to depend on a state contract or special operation contract (CEOL).[7] The state‑centric model still governs.

Consuming states are responding in kind. On February 2, 2026, the United States launched “Project Vault,” a strategic critical minerals reserve, and two days later the State Department convened a ministerial of fifty‑four countries and the European Commission, at which the administration announced a preferential trade zone using “adjustable tariffs” to maintain a price floor.[8] The November 2025 National Security Strategy named critical mineral supply chains a matter of national security.[9] The European Union’s Critical Raw Materials Act and the United Kingdom’s emerging framework pull in the same direction.

Legal Consequences

Several legal exposures move in tandem with these developments.

Investment treaty protection. Most resource‑nationalist measures will be tested against the network of bilateral investment treaties, free trade agreement investment chapters, and the Energy Charter Treaty. Expropriation claims today rarely involve outright seizure; they involve indirect expropriation through export bans, license revocations, or quota systems that strip economic value. Fair and equitable treatment claims remain the most flexible vehicle, particularly where legitimate expectations were created by license terms, ministerial assurances, or stabilization commitments.

Stabilization and renegotiation. Many concession and investment agreements signed during the last commodities cycle contain stabilization or freezing provisions. These are about to be tested in a wave of state‑led renegotiations. Investors should expect host states to invoke public‑order or essential‑security exceptions and should expect tribunals to scrutinize those defenses closely.

Force majeure, hardship, and change of law. The DRC episode confirms that export bans and quotas can trigger force majeure declarations under upstream offtake contracts. Validity depends on the contractual language, the duration of the measure, and the foreseeability test in the governing law. Counterparty disputes about whether a quota system—as distinct from an outright ban—qualifies as a force majeure event are already in arbitration.

Export controls and secondary sanctions. The Chinese rare earth framework and its U.S. counterparts—the Bureau of Industry and Security’s evolving entity list and foreign direct product rule, OFAC’s expanded use of secondary sanctions on third‑country traders, and the Department of the Interior’s accelerated review processes—create overlapping and at times conflicting compliance obligations. Companies caught between the two regimes will require formal opinions and contingency licensing strategies.

Foreign investment screening and antitrust. Friend‑shoring is producing a wave of joint ventures, sovereign‑linked equity investments, and offtake‑for‑equity arrangements. These face increasing scrutiny under CFIUS, the EU FDI Regulation, the UK National Security and Investment Act, and analogous regimes, in addition to ordinary merger control review.

Immediate Next Steps for Businesses

Boards and general counsel with exposure to lithium, rare earth, or adjacent supply chains should consider five near‑term actions.

First, map treaty protection. Identify the holding‑company structures through which each material asset is owned and confirm whether they qualify as protected investors under an applicable BIT, multilateral instrument, or investment chapter. Restructure before, not after, a measure is announced; the abuse‑of‑process doctrine forecloses post‑dispute restructuring designed to acquire treaty rights.

Second, audit contracts for the new risk profile. Offtake agreements, joint operating agreements, and concessions drafted for a 2015 commodities environment frequently do not address quota systems, technology export controls, or price‑floor tariffs. Force majeure, change‑of‑law, indemnity, dispute resolution, and stabilization provisions all deserve targeted review.

Third, assess political risk insurance and export credit support. MIGA, the U.S. International Development Finance Corporation, the European Bank for Reconstruction and Development, and several private carriers have meaningfully expanded critical‑minerals coverage, and many recent financings now treat political risk coverage as a structural prerequisite.

Fourth, engage with the new architecture. Project Vault, the Forum on Resource Geostrategic Engagement, the European Union’s Critical Raw Materials Club, and the bilateral memoranda negotiated at the February 4 ministerial create avenues for shaping the rules rather than reacting to them.

Fifth, reassess processing and offtake geography. The most durable hedge against export restrictions is to be on the right side of them. Investment in midstream processing in producer countries, or in third‑country processing aligned with the consuming bloc, increasingly carries the character of insurance.

The questions in this area are not novel; the volume, the speed, and the political stakes are. The producers and investors who fare best will be those who treat critical‑minerals exposure as a permanent feature of their compliance and disputes function rather than as a temporary disruption.

Gibson Dunn’s Geopolitical Strategy and International Law team advises corporations, sovereigns, public entities, and international organizations involved in cross‑border activity. The team includes the former President of the European Court of Human Rights, the former U.S. State Department Chief of Investment Arbitration, a former UK Lord Chancellor, and the former General Counsel of an international organization.

[1] See China Briefing, China’s Rare Earth Export Controls—Impact on Businesses and Industries (updated Nov. 2025), available at https://www.china-briefing.com/news/chinas-rare-earth-export-controls-impacts-on-businesses/.

[2] Id. The suspension runs through November 10, 2026.

[3] See ARECOMS Regulatory Notices, September–October 2025; Investing News Network, DRC to End Cobalt Export Ban, Move to Quota System (Sept. 22, 2025).

[4] Id.

[5] Law on Geology and Mineral Resources (Vietnam, as amended Dec. 2025). See generally China-CEE Institute, The Manifestations, Causes, and Impacts of the Resurgence of Resource Nationalism, China Watch Vol. 6, No. 21 (May 2026).

[6] See also, e.g., Namibia critical minerals export ban (June 2023); Ghana Green Minerals Policy (2023); Zimbabwe export ban on unprocessed lithium (Dec. 2022).

[7] Patrick W. Pearsall, Lindsey D. Schmidt & Ben Shorten, Chile’s Lithium Regime Under President Kast: Pro‑Investment Tone, but the State‑Centric Model Still Governs (Gibson Dunn Client Alert, Mar. 23, 2026).

[8] See Center for Global Development, A Coming Clash Over Critical Minerals? (Feb. 2026); remarks of Vice President J.D. Vance, Critical Minerals Ministerial (Feb. 4, 2026).

[9] National Security Strategy of the United States of America (Nov. 2025).

The following Gibson Dunn lawyer prepared this update: Patrick W. Pearsall and Robert Spano.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Geopolitical Strategy & International Law or Mining & Metals practice groups, or the following:

Patrick W. Pearsall – Co-Chair, Geopolitical Strategy & International Law Group,
Washington, D.C. (+1 202.955.8516, ppearsall@gibsondunn.com)

Robert Spano – Co-Chair, Geopolitical Strategy & International Law Group,
London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)

The decision confirms that the discovery of misappropriation of one trade secret starts the clock for related trade secrets misappropriated in the same course of conduct.

On May 28, 2026, the Federal Circuit held that the statute of limitations under the Defend Trade Secrets Act (DTSA) is triggered when a plaintiff knows, or with reasonable diligence should know, enough facts to plead a DTSA claim.  Insulet Corp. v. EOFlow, Co., — F.4th –, 2026 WL 1502238 (Fed. Cir. May 28, 2026). The decision also confirms that the discovery of misappropriation of one trade secret starts the clock for related trade secrets misappropriated in the same course of conduct.

In Insulet, a jury found that EOFlow misappropriated four of Insulet’s trade secrets and awarded $170,000,015 in compensatory damages and $282,000,005 in exemplary damages. The damages were reduced by the district court to approximately $59 million. A divided panel of the Federal Circuit then reversed the judgment, holding that EOFlow was entitled to judgment as a matter of law because the three-year statute of limitations under the DTSA had expired before Insulet filed suit.

The decision is notable in two key respects. First, it ties the accrual date of a DTSA claim to a plaintiff’s actual or constructive knowledge of facts sufficient to plead a DTSA claim. The limitations period runs once the plaintiff knows, or should know, facts sufficient to state a claim for misappropriation—not when it has gathered enough evidence to prove it. Id. at *6. The court found that circumstantial evidence showing the defendant’s access to the asserted trade secrets and similarity between those secrets and the accused product (“access plus similarity”) sufficed to start the clock. Id. at *5–6. Second, applying the DTSA’s statutory instruction that “a continuing misappropriation constitutes a single claim of misappropriation,” 18 U.S.C. § 1836(d), the decision holds that related trade secrets disclosed in the same course of conduct share a single accrual date. Insulet, 2026 WL 1502238, at *7–9.

Background

Insulet manufactures the Omnipod® insulin patch pump. Id. at *1. EOFlow developed a competing device, the EOPatch 2. Id.  Insulet alleged that EOFlow misappropriated its trade secrets beginning in 2018 after hiring former Insulet employees bound by confidentiality agreements. Id.  Chief among them was Steve DiIanni, who between March and May 2018 disclosed to EOFlow CAD files, soft-cannula design and manufacturing information, and information concerning the Omnipod’s occlusion-detection algorithm. Id. at *2.

Insulet filed suit on August 3, 2023, more than five years later, alleging trade secret misappropriation under the DTSA and patent infringement.  Id. The jury found misappropriation of four trade secrets and awarded $452 million in damages, which the district court reduced to approximately $59 million. Id. at *2–3.

The Federal Circuit’s Decision

The Federal Circuit reversed, holding that Insulet’s DTSA claim was time-barred as a matter of law.

Accrual Standard. The court held that the limitations period starts to run once a plaintiff knows, or should know, facts sufficient to state a claim for misappropriation.  Id. at *6. “[D]etailed knowledge of all of the relevant facts underlying the misappropriation is not required” for the limitations clock to begin. Id. Instead, circumstantial evidence of the defendant’s access to the trade secrets and similarity between those secrets and the accused product suffices to start the clock. Id. at *5. The court declined to decide whether the DTSA also incorporates an inquiry-notice standard—under which the limitations period could be triggered even earlier, when a reasonably diligent plaintiff would have begun an investigation that would have uncovered facts sufficient to plead a claim.  Id.

The court concluded that Insulet knew or should have known facts sufficient to plead both access and similarity more than three years before filing suit. As to access, by March 2019, Insulet knew that its former employees, including DiIanni, were working for EOFlow on the EOPatch 2—which is enough to satisfy the access prong as a matter of law. Id. at *10. As to similarity, Insulet personnel observed and photographed EOPatch 2 samples at a June 2018 industry conference, internally described the product as having “cloned” the Omnipod and as bearing a “stunning resemblance,” and could have learned the relevant design features from EOFlow’s publicly available IPO prospectus. Id. at *10–13.

Single Accrual Date for Related Trade Secrets. The court next interpreted the DTSA’s directive that “a continuing misappropriation constitutes a single claim of misappropriation,” 18 U.S.C. § 1836(d), and held that “the first discovered (or discoverable) misappropriation of a trade secret commences the limitation period,” Insulet, 2026 WL 1502238, at *7 (citation omitted).

Applying that rule, the court concluded that Insulet’s four asserted trade secrets shared a single accrual date because Mr. DiIanni disclosed each of the secrets to EOFlow between March and May 2018, while serving as EOFlow’s consultant, for the same purpose—”designing an improved EOPatch 2.” Id. at *9. The court reached that conclusion even as to a trade secret that was “used internally to develop a product” and could not have been detected by examining EOFlow’s product.  Id. at *13. The court reasoned that “[o]therwise, absent direct proof of a misappropriator’s access to the trade secret, the statute of limitations would never expire for a trade secret that could not be discovered based on publicly available information or other information known to the plaintiff.” Id. The court therefore held that “[t]he statute of limitations begins to run with respect to all trade secrets disclosed during substantially the same time to that defendant by the same person for the same purpose.” Id.

Dissent. Judge Prost dissented, reasoning that the majority’s access-plus-similarity framework effectively applied an inquiry-notice standard that is inconsistent with the plain text of Section 1836(d).  Insulet, 2026 WL 1502238, at *16. The dissent further asserted that this framework is unsupported by the case law and invites premature suits, because employees routinely move between companies making similar products.  Id. at *16–21.

What It Means

Under Insulet, a DTSA claim accrues once a plaintiff knows, or reasonably should know, facts sufficient to plead misappropriation, which can be established based on circumstantial evidence alone. A trade secret holder thus cannot wait to sue until it has additional facts to confirm misappropriation. And importantly, the court did not decide whether the DTSA also incorporates an inquiry-notice standard, which would start the clock even earlier—i.e., when a diligent plaintiff should have begun investigating rather than when it should have uncovered facts sufficient to plead misappropriation.

In practice, Insulet arguably creates pressure to file suit soon after circumstantial evidence emerges and gives defendants a basis to raise limitations defenses earlier and more aggressively. The decision may prompt prospective plaintiffs that suspect misappropriation to evaluate both their claims and limitations exposure more quickly than before. At minimum, the decision underscores the importance of early competitive monitoring, including of trade shows, product launches, public technical materials, and securities filings, because those materials may supply facts sufficient to trigger the DTSA’s limitations period.

In addition to emphasizing the importance of filing a DTSA claim promptly, Insulet also underscores the importance of investigating a DTSA claim thoroughly. Under Insulet, discovery of misappropriation of one alleged trade secret can start the clock for other related trade secrets disclosed by the same person, to the same defendant, during substantially the same period, and for the same purpose—even if those other secrets are not visible in the accused product and could not be detected by examining it. This may encourage prospective plaintiffs to plead broadly in order to sweep in related secrets before the clock runs on them. It also gives plaintiffs a reason to characterize alleged misappropriation by different breaches of confidence—i.e., disclosed by different persons, at different times, or for different purposes—in order to preserve those claims for later. At bottom, how a plaintiff defines and groups its asserted secrets may carry limitations consequences under Insulet.

In short, Insulet highlights the importance of investigating a potential DTSA claim early, by permitting the clock to start when a plaintiff has facts sufficient to plead misappropriation of a trade secret (including based on circumstantial evidence alone)—while also highlighting the importance of investigating a potential DTSA claim thoroughly, as the clock may start as to multiple related trade secrets when they are misappropriated in connection with a single breach of confidence.

The following Gibson Dunn lawyers prepared this update: Ilissa Samplin, Angelique Kaounis, Grace Hart, Doran Satanove, and Joshua Leopold.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Trade Secrets or Intellectual Property practice groups:

Trade Secrets:
Ilissa Samplin – Los Angeles (+1 213.229.7354, isamplin@gibsondunn.com)
Angelique Kaounis – Los Angeles (+1 310.552.8546, akaounis@gibsondunn.com)
Grace E. Hart – New York (+1 212.351.6372, ghart@gibsondunn.com)
Doran J. Satanove – New York (+1 212.351.4098, dsatanove@gibsondunn.com)
Josh J. Leopold – New York (+1 332.253.7819, jleopold@gibsondunn.com)

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, kdominguez@gibsondunn.com)
Josh Krevitt – New York (+1 212.351.4000, jkrevitt@gibsondunn.com)
Jane M. Love, Ph.D. – New York (+1 212.351.3922, jlove@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC issued a policy statement describing the views of the Commission concerning the listing of perpetual contracts.

New Developments

CFTC Staff Issues Advisory on Cooperation in Enforcement Matters. On May 19, the CFTC issued a staff advisory containing the Division of Enforcement’s new policy on cooperation. Absent aggravating circumstances, the advisory lays out a path for a potential declination when a respondent voluntarily self-reports, fully cooperates, effects timely and appropriate remediation, and provides full restitution and/or disgorgement. Additionally, the advisory details what level of cooperation credit May be awarded to respondents for self-reporting and cooperation when they are ineligible for a declination.

CFTC Sues Minnesota to Block State Law. On May 19, the CFTC filed a lawsuit against Minnesota to block a new state law, signed by Governor Tim Walz, that would make operating or assisting in the operation of a prediction market a criminal felony. The CFTC is seeking a preliminary injunction to stop the law from going into effect on August 1, 2026.

CFTC Chairman Selig Announces DJ Hennes as Director of the Market Participants Division. On May 18, CFTC Chairman Michael S. Selig announced DJ Hennes will serve as director of the Market Participants Division. Hennes joins the CFTC from KPMG LLP, where he was a managing director in the firm’s Financial Services Risk & Compliance Advisory Practice. Prior to joining KPMG, he spent 15 years at Promontory Financial Group, most recently leading its Capital Markets Practice for the Americas.

New Developments Outside the U.S.

ESMA Issues Guidance on Effective Use of Resolution Tools in CCP Crisis Planning. On May 15, ESMA published a resolution briefing for Central Counterparties (CCP). The briefing provides practical guidance to National Resolution Authorities (NRAs) on how to operationalize the write-down and conversion of instruments tool (WDCI). According to ESMA, the briefing supports NRAs in enhancing their preparedness for implementing a WDCI.

New Industry-Led Developments

ISDA, FIA and SIFMA Submits Join Letter on Sunset of Swaps LTR Rules. On May 20, ISDA, the Futures Industry Association (FIA), and the Securities Industry and Financial Markets Association (SIFMA) submitted a joint letter to the CFTC to request the CFTC to sunset large trader reporting rules (LTR) rules for physical commodity swaps pursuant to Regulation 20.9.

ISDA and SIFMA Submit Joint Letter on CFTC-SEC Harmonization. On May 19, ISDA and SIFMA submitted a joint letter to the SEC and CFTC on SEC-CFTC harmonization. This letter focuses on three priority areas: alignment of SEC and CFTC transaction reporting rules, elimination of the SEC’s ANE trigger for applying security-based swap rules to non-U.S. transactions, and adoption of an outcomes-based substituted-compliance framework across both agencies.

ISDA, AFME Respond to EC on Market Risk Delegated Act. On May 19, ISDA and the Association for Financial Markets in Europe (AFME) responded to the European Commission’s consultation on the draft legal text of the upcoming market risk delegated act. ISDA stated that the associations welcomed the ongoing efforts to address the implementation of the market risk standard and to ensure a level playing field.

ISDA Responds to MAS on Prudential Treatment of Crypto Assets on Permissionless Blockchains. On May 15, ISDA and the Asia Securities Industry and Financial Markets Association submitted a joint response to the Monetary Authority of Singapore’s (MAS) consultation on the prudential treatment of crypto assets on permissionless blockchains. ISDA stated that it welcomed MAS’s more risk‑sensitive and technology‑neutral approach and urged further refinements.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Karin Thrasher, and Alice Wang.

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 Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus, New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com )

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Alice Yiqian Wang, Washington, D.C. (202.777.9587, awang@gibsondunn.com)

Soceidad Concesionaria Metropolitana de Salud S.A. v. Webuild S.p.A,
No. 24-3005 – Decided May 18, 2026

On May 18, 2026, the Third Circuit vacated and remanded the Delaware District Court’s order dismissing SMCS’s action to enforce a foreign arbitral award in Delaware for lack of personal jurisdiction. Gibson Dunn represented the prevailing party, Sociedad Concesionaria Metropolitana de Salud S.A. (SCMS).

“Because we agree with SCMS that Shaffer v. Heitner, 433 U.S. 186, 210 n.36 (1977), authorizes the exercise of traditional quasi in rem jurisdiction in an action to collect on an already adjudicated liability, we will vacate and remand.” Fisher, J., writing for the Court.

The Third Circuit’s holding resolved an issue of “first impression” in the circuit, holding that award creditors can enforce arbitral awards in any jurisdiction where the debtor’s property may be found. That path-marking decision resolves confusion about the vitality of “quasi in rem jurisdiction”—i.e., property-based personal jurisdiction—in arbitral award enforcement actions after the Supreme Court’s decision in Shaffer v. Heitner, 433 U.S. 186 (1977). Shaffer held that the “mere presence of property owned by a non-resident defendant in the forum state is insufficient to support quasi in rem jurisdiction for a claim unrelated to the property.” But the Court recognized in a footnote that “[o]nce it has been determined by a court of competent jurisdiction that the defendant is a debtor of the plaintiff,” a creditor may still pursue “an action to realize on that debt in a State where the defendant has property, whether or not that State would have jurisdiction to determine the existence of the debt as an original matter.” Id. at 210 n.36.

The Third Circuit held that “the logic of” Shaffer’s footnote 36 “extends to an action to confirm and enforce and arbitral award under the New York Convention.” And the Third Circuit recognized that the same rule holds even when a foreign losing party to a foreign arbitration merges into another entity that has property in the United States. Together, these holdings confirm that arbitral award debtors cannot avoid their obligations to pay binding awards through restructuring or by strategically transferring assets to U.S. entities unconnected to the underlying dispute.

Background:

SCMS, a Chilean entity, holds an indisputably valid $140 million arbitral award against Astaldi, an Italian construction conglomerate, from the Santiago Center for Arbitration and Mediation. Astaldi refused to pay. Pursuant to the New York Convention, a treaty that binds United States courts to enforce international arbitration awards, SCMS thus sought to enforce the award in the United States District Court for the District of Delaware against Webuild, another Italian construction company and Astaldi’s alleged successor-in-interest. To support personal jurisdiction, SCMS invoked the court’s quasi in rem jurisdiction over Webuild’s shares in its wholly-owned Delaware subsidiary.

Webuild moved to dismiss, arguing that the Supreme Court subjected all exercises of personal jurisdiction to the “minimum contacts” test in Shaffer, and that the underlying construction dispute that gave rise to the arbitral award bears no nexus to its Delaware-based property. The district court agreed and dismissed for lack of personal jurisdiction, holding (1) that Shaffer required a nexus between the Delaware asset and the underlying dispute for the court to exercise personal jurisdiction, and (2) that the court had no jurisdiction to determine whether Webuild’s property belonged to Astaldi, as its putative successor-in-interest.

Issues Presented:

Does Shaffer footnote 36 permit a district court to exercise quasi in rem jurisdiction to enforce a valid foreign arbitral award based on the debtor’s forum-based property, without regard to whether the debtor has sufficient minimum contacts with the forum state?
Did the district court err by refusing to consider whether Webuild was Astaldi’s successor-in-interest for purposes of quasi in rem jurisdiction?

Court’s Holding

Yes, on both counts. The Third Circuit vacated the order of the district court and remanded for it to decide whether Webuild’s is Astaldi’s successor, in which case the award should be confirmed and judgment entered against Webuild.

The Third Circuit explained that Shaffer’s thirty-sixth footnote “expressly acknowledged that the Due Process clause’s fairness requirement is less stringent in an action on an already adjudicated judgment” and that it therefore “embrace[d] a rear-view mirror approach to jurisdiction” for actions to enforce a court’s judgment. The court found “no principled reason” to treat foreign arbitral awards any differently than final court judgments. Like judgments, the court reasoned, arbitral awards stem from proceedings with proper procedural protections and give rise to “a new cause of action that is res judicata” and may be enforced in summary proceedings. Accordingly, the Third Circuit concluded that the New York Convention “imposes on United States courts an obligation to ‘recognize arbitral awards as binding and [to] enforce them,’” so “a court can exercise attachment jurisdiction based on the mere presence within the forum of an arbitral-award debtor’s property, and the property does not need any relation to the underlying cause of action.”

The Third Circuit deemed it irrelevant that the arbitral award was against Astaldi, not Webuild—its alleged successor in interest. The court recognized that whether Webuild may be held liable for Astaldi’s debts bears on the award’s enforceability against Webuild, but that merits question was inextricably intertwined with the jurisdictional issue whether Astaldi (through Webuild) had property in Delaware that could support quasi in rem jurisdiction. And although jurisdictional issues are ordinarily antecedent to merits issues, courts always have jurisdiction to determine jurisdiction—”even when the ‘merits and jurisdiction come intertwined.’” The Third Circuit therefore held that the district court was obligated to resolve the successor-liability question as part of its jurisdictional inquiry, rather than dismiss for lack of jurisdiction merely because Webuild was not named in the arbitral award.

What It Means:

The Third Circuit has confirmed that it remains a critical forum for the confirmation and enforcement of foreign arbitral awards and preserves the critical role that quasi in rem jurisdiction plays in enforcing arbitral awards against foreign defendants who will often lack sufficient connections with the United States to establish contacts-based personal jurisdiction. The Third Circuit’s recognition of these principles is particularly significant because many U.S.-based subsidiaries of foreign companies are incorporated in Delaware. The Third Circuit’s decision confirms that foreign companies cannot hold assets in Delaware and yet simultaneously claim to be beyond the reach of Delaware courts to confirm liability for their arbitral award obligations.

Gibson Dunn represented the prevailing party, SCMS. Partner Miguel Estrada argued the appeal on behalf of SCMS. He was joined by Rahim Moloo, Jason Myatt, Zachary Kady, Jeff Liu, and Lavi Ben Dor.

The following Gibson Dunn lawyers prepared this update: Miguel Estrada, Rahim Moloo, Jason Myatt, Zachary Kady, Jeff Liu, Pablo Garrido, Lavi Ben Dor, Vanessa Ajagu, Luke Wearden.

Miguel A. Estrada – Washington, D.C. (+1 202.955.8257, mestrada@gibsondunn.com)
Rahim Moloo – New York (+1 212.351.2413, rmoloo@gibsondunn.com)
Jason Myatt – New York (+1 212-351-4085, jmyatt@gibsondunn.com)
Zachary A. Kady – New York (+1 212.351.5305, zkady@gibsondunn.com)

K&K Inez Properties, LLC v. Kolle, No. 24-0045 – Decided May 22, 2026

A unanimous Texas Supreme Court held that Chapter 41’s exemplary-damages cap applies defendant by defendant, based on each defendant’s proportionate share of the economic-damages award—not the aggregate amount awarded.

“[W]e hold that the statute caps an individual defendant’s liability for exemplary damages by comparing the exemplary-damages award to the amount of economic damages attributable to that defendant, based on the defendant’s percentage of responsibility.”

Justice Huddle, writing for the Court

Background:

Chapter 41 of the Texas Civil Practice and Remedies Code limits exemplary damages to the “greater of:” (1) “two times the amount of economic damages” plus up to $750,000 in noneconomic damages or (2)“$200,000.” Tex. Civ. Prac. & Rem. Code § 41.008(a)–(b).
A Victoria County jury found three defendants—David Kucera, Valerie Kucera, and their company (K&K Inez Properties)—liable to their neighbors, Clay and Lacy Kolle, for constructing a dam while developing an adjoining subdivision. The jury found for the Kolles on their nuisance, trespass, and Water Code claims and awarded them $425,000 in economic damages. The jury apportioned responsibility 40% to K&K, 40% to David, and 20% to Valerie. The jury also found K&K and David grossly negligent and awarded $1.25 million in exemplary damages. The trial court ultimately rendered judgment of $900,000 in exemplary damages—$250,000 from K&K to each plaintiff and $200,000 from David to each plaintiff.

The Thirteenth Court of Appeals reduced the economic-damages award to $175,000 but otherwise affirmed, and left the exemplary-damages awards undisturbed. The Kuceras sought review in the Texas Supreme Court, principally arguing that Chapter 41’s exemplary-damages cap applies based on each defendant’s proportionate share of the economic-damages award, rather than the total amount awarded.

Issue:

Does Chapter 41’s exemplary-damages cap turn on the economic damages attributable to each defendant, rather than the total amount of economic damages awarded?

Court’s Holding:

Yes. Section 41.008(b)’s reference to “the amount of economic damages” means the portion of the economic-damages award attributable to that defendant, not the aggregate award against all defendants.

What It Means:

By confirming that Chapter 41’s cap must be applied based on the economic damages attributable to that defendant, the Court’s decision meaningfully reduces defendants’ exemplary-damages exposure in multi-defendant cases. The Court underscored “the Legislature’s clear instructions that exemplary damages are specific to a defendant and must be tied to that defendant’s degree of culpability.” Op. 18.
The Court also clarified that Chapter 41’s cap applies per award, not per plaintiff. So where, as here, the jury returns a single damages award for multiple plaintiffs, the cap applies once per defendant based on that single amount. The Court expressly reserved whether separate awards to plaintiffs seeking recovery for separate injuries should be combined for purposes of applying the cap. So defendants have a strong basis to challenge verdict forms that blur one injury into multiple claimant-specific awards.
When actual damages are reduced on appeal, the exemplary-damages award must be reevaluated too—under both Chapter 41 and the constitution. Successful defendants should affirmatively press the appellate court to revisit the exemplary-damages award—or remand for the trial court to do so. That said, the Court also indicated that, because such arguments arise from the appellate court’s judgment, they can be asserted for the first time in the Supreme Court.

The Court’s opinion in K&K Inez Properties, LLC is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com	Jeffrey B. Wall +1 202.955.8533 jwall@gibsondunn.com
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox
+1 214.698.3256
tcox@gibsondunn.com

Collin Cox
+1 346.718.6604
ccox@gibsondunn.com

Gregg Costa
+1 346.718.6649
gcosta@gibsondunn.com

This alert was prepared by Texas Of Counsel Benjamin Wilson and associates Elizabeth Kiernan, Stephen Hammer, and Jed Greenberg.

Formal adoption and publication in the Official Journal are expected in the coming weeks, in advance of the 2 August 2026 deadline.

Key Takeaways

The EU institutions have reached a provisional political agreement on the Digital Omnibus on AI that would amend the EU AI Act in several targeted respects, most significantly by postponing the applicability of high-risk AI obligations.
High-risk obligations for stand-alone Annex III systems are deferred to 2 December 2027; for AI embedded in regulated products under Annex I, to 2 August 2028.
A new prohibition on AI-generated non-consensual intimate imagery (“nudifiers”) and child sexual abuse material is introduced into Article 5 of the AI Act.
These changes only take legal effect upon formal adoption and publication of the Omnibus in the Official Journal, expected before 2 August 2026.
2 August 2026 remains an active compliance date. The Article 50 transparency obligations for AI systems largely remain on the original schedule. Businesses who are subject to those obligations must stay ready for that date regardless of the Omnibus.

1. Background

The EU AI Act entered into force on 1 August 2024, establishing the world’s first comprehensive horizontal regulatory framework for artificial intelligence. Its obligations roll out in staggered phases, with the most consequential provisions — covering high-risk AI systems (HRAIS) — originally set to apply from 2 August 2026 (for Annex III HRAIS) and 2 August 2027 (for Annex I HRAIS). By late 2025, implementation was visibly off track, prompting the European Commission to table the Digital Omnibus on AI on 19 November 2025 (see our previous client alert on the Commission’s Digital Omnibus proposal). The proposal contained a set of targeted amendments, most prominently a conditional delay mechanism for high-risk obligations.

After an initial round of trilogue negotiations on 28 April ended without success, the institutions returned to the table and reached a provisional political agreement on 6 May, subsequently confirmed by Member State representatives in the Council on 13 May. Formal adoption and publication in the Official Journal are expected in the coming weeks, in advance of the 2 August 2026 deadline.

2. What Was Agreed: Key Changes

The provisional trilogue agreement on the Omnibus is set to introduce targeted amendments across several areas of the AI Act, all subject to formal enactment expected before 2 August 2026.

High-Risk AI Obligations Delayed to 2027 and 2028

Under the proposal, high-risk AI system obligations under the AI Act will be postponed by over a year compared to the original timeline: stand-alone Annex III systems (covering, among others, recruitment, credit scoring, law enforcement, education, and border control tools) will now need to comply by 2 December 2027, and AI embedded in regulated products under Annex I — such as medical devices, machinery, and vehicles — by 2 August 2028. The agreed text replaces the Commission’s originally proposed conditional trigger mechanism with these fixed dates.

New Ban: “Nudifiers” and CSAM

A newly proposed prohibition under Article 5 would ban AI systems that generate or manipulate non-consensual intimate images, video, audio or similar material, or child sexual abuse material (CSAM). For providers, the prohibition extends beyond systems intended for such use to any system where such generation is a reasonably foreseeable and reproducible outcome, without requiring significant technical modification, and the system lacks reasonable and adequate technical safeguards to reliably prevent it. Providers of general-purpose image- or video-generation tools must therefore actively assess foreseeable misuse risks at the design and deployment stage. The new prohibition is subject to a transitional period until 2 December 2026.

Watermarking Grace Period for Existing Systems

Under the proposal, AI systems that have been placed on the market before 2 August 2026 will benefit from a four-month grace period (until 2 December 2026) before the watermarking obligation under Article 50(2) — which requires providers to embed machine-readable markers in AI-generated content — applies to them. The broader Article 50 transparency obligations, including the requirement to disclose to users when they are interacting with AI systems, remain unaffected and proceed as scheduled from 2 August 2026.

AI in Regulated Products: Duplicative Requirements May Be Limited

For AI systems embedded in products already covered by EU sectoral safety legislation under Annex I — such as medical devices and toys — the agreement introduces a compromise mechanism aimed at avoiding double regulation: The Commission is empowered to limit the application of specific AI Act requirements where sectoral legislation already imposes equivalent obligations. Furthermore, AI systems embedded in products covered by the Machinery Regulation will be largely exempted from the AI Act obligations. The agreement also narrows the definition of “safety component” so that AI systems used solely for non-safety related aspects of user assistance, performance optimization, service efficiency, automation or convenience, or quality control do not fall within the high-risk category by virtue of being embedded in regulated products, unless their failure or malfunctioning would endanger health and safety.

Bias Detection: Broader Scope, Strict Standard

The agreement extends the existing legal basis for processing special-category personal data for bias detection and correction — previously limited to providers of high-risk systems — to all AI systems and general-purpose AI models, subject to a strict necessity standard in line with the approach recommended by the EDPB and EDPS in their Joint Opinion 1/2026.

AI Regulatory Sandboxes: Establishment Deadline Postponed

The agreement aims at postponing the deadline for member states to establish AI regulatory sandboxes by national competent authorities to 2 August 2027 (one year later than originally scheduled) and at expanding the possibility for real-world testing outside sandboxes to Annex I high-risk AI systems.

EU AI Office: Supervisory Role and Enforcement Powers

The agreement clarifies and reinforces the supervisory role of the EU AI Office. The AI Office is given exclusive competence over AI systems built on general-purpose AI (GPAI) models where the model and the system are developed by the same provider, as well as over AI systems integrated into VLOPs/VLOSEs under the Digital Services Act. National authorities remain competent for law enforcement, border management, judicial authorities, and financial institutions. The AI Office is also equipped with new enforcement tools, including powers to conduct investigations and on-site inspections, accept binding commitments, and impose fines.

AI Literacy Obligation: Retained but Softened

The Article 4 AI literacy obligation, which has applied since 2 February 2025, is proposed to be softened: providers and deployers would be required to support the development of AI literacy among their staff, rather than to guarantee a specific level of literacy.

3. Updated AI Act Applicability Timeline

The table below provides an integrated overview of all key AI Act milestones — those already in force, those proceeding as originally scheduled, and those proposed to be deferred by the Omnibus agreement.

Date	Key Provisions	Status	Note
1 Aug 2024	AI Act enters into force (Article 113).	In Force	No change.
2 Feb 2025	Unacceptable-risk prohibitions apply (Article 5); AI literacy obligations begin (Article 4).	In Force	No change of date. New nudifier/CSAM ban proposed to be added to Article 5 (with a transitional period until 2 Dec 2026) and Article 4 obligation to be softened in substance.
2 Aug 2025	GPAI model obligations apply (Articles 51–56); AI Office becomes operational.	In Force	No change to date. AI Office competence scope proposed to be clarified and enforcement powers reinforced by Omnibus agreement.
2 Aug 2026	Article 50 transparency obligations for AI-generated content apply.	Partially Deferred	Article 50 transparency proceeds as scheduled, with a proposed four-month grace period for existing systems under Article 50(2). Annex III HRAIS obligations and sandbox establishment deadline were originally due from this date but are proposed to be deferred.
2 Dec 2026	Proposed Article 50(2) watermarking grace period ends for existing systems; newly proposed Article 5 NCII/CSAM prohibition transitional period ends.	New	/
2 Aug 2027	Deadline for member states to establish AI regulatory sandboxes (Article 57).	New	Annex I HRAIS obligations were originally due from this date but are proposed to be deferred to 2 Aug 2028.
2 Dec 2027	Annex III HRAIS obligations proposed to apply.	New	/
2 Aug 2028	Annex I HRAIS obligations proposed to apply.	New	/

4. What This Means for Businesses

The deferral of high-risk applicability dates reflects a pragmatic acknowledgment that the regulatory infrastructure needed to make those obligations operable has not materialized on schedule. It is, however, a deferral rather than a dismantling: the fundamental architecture of the AI Act — its risk-based approach, its governance structure, and its core obligations — remains intact. Formal adoption is expected before 2 August 2026, but businesses should note that the new dates only bind once the Omnibus is published in the Official Journal.

For businesses, the key takeaways are:

2 August 2026 remains a live compliance date. The Article 50 transparency obligations are largely unaffected by the Omnibus. Businesses who are subject to those obligations should continue preparing for that date.
Use the additional time — do not wait for it. The 2027/2028 dates for high-risk AI systems provide real headroom, but a compliance framework takes time to build properly. Organizations should treat the agreement as a signal to commence or continue, not as a reason to defer.
Monitor formal adoption closely. The amended dates do not bind until formal adoption and Official Journal publication.

Gibson Dunn’s Privacy, Cybersecurity & Data Innovation and Artificial Intelligence practices regularly advise on AI Act compliance and will continue to monitor developments closely. If you have questions about how the Omnibus agreement affects your business, please do not hesitate to reach out to the authors of this alert.

The following Gibson Dunn lawyers prepared this update: Ahmed Baladi, Kai Gesing, Joel Harrison, Vera Lukic, Robert Spano, Yannick Oberacker, and Victor Thonke.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Artificial Intelligence or Privacy, Cybersecurity & Data Innovation practice groups:

Ahmed Baladi – Paris (+33 1 56 43 13 00, abaladi@gibsondunn.com)
Kai Gesing – Munich (+49 89 189 33 285, kgesing@gibsondunn.com)
Joel Harrison – London (+44 20 7071 4289, jharrison@gibsondunn.com)
Vera Lukic – Paris (+33 1 56 43 13 00, vlukic@gibsondunn.com)
Robert Spano – London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)
Yannick Oberacker – Munich (+49 89 189 33 282, yoberacker@gibsondunn.com)
Victor A. Thonke – Frankfurt (+49 69 247 411 526, vthonke@gibsondunn.com)

Artificial Intelligence:
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Robert Spano – London/Paris (+33 1 56 43 13 00, rspano@gibsondunn.com)
Eric D. Vandevelde – Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)

Privacy, Cybersecurity & Data Innovation:
Ahmed Baladi – Paris (+33 1 56 43 13 00, abaladi@gibsondunn.com)
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Joel Harrison – London (+44 20 7071 4289, jharrison@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)

The abeyance will provide the Federal Trade Commission and the Department of Justice Antitrust Division with time to promulgate an updated HSR Premerger Notification Form rulemaking based on the ongoing public comment process.

On May 26, 2026, the U.S. Court of Appeals for the Fifth Circuit granted the government’s unopposed motion to hold in abeyance its appeal of the district court decision vacating the FTC’s 2024 overhaul of the Hart-Scott-Rodino (HSR) Premerger Notification and Report Form (the 2024 Rule). The appeal in Chamber of Commerce v. FTC, No. 26-40094, will remain paused until December 31, 2026. During this period, the FTC and the DOJ Antitrust Division (together, the Antitrust Agencies) will continue to accept HSR filings using the pre-2024 Form and Instructions.

The Antitrust Agencies sought the abeyance to allow their renewed HSR Form rulemaking to proceed. As we previously reported, on March 25, 2026, the Antitrust Agencies issued a joint request for public comment on potential revisions to the HSR Form, including disclosures introduced by the vacated 2024 Rule, as well as additional targeted changes such as narrowing the “solely for the purpose of investment” exemption and capturing acquihires and other “non-traditional” transaction structures. The comment period closes on May 26, 2026, and, according to the motion for abeyance, the Antitrust Agencies anticipate issuing an updated rulemaking by year-end 2026.

Implications for Dealmakers

The Fifth Circuit’s order provides short-term clarity but should not be mistaken for a return to the pre-2024 status quo. Several points warrant attention:

Pre-2024 Form Remains in Effect—For Now. Filers may continue to use the pre-2024 HSR Form and Instructions through the abeyance.
A New Premerger Notification Rulemaking Is Likely by Year-End. Dealmakers should expect the forthcoming notice of proposed rulemaking to build on the 2024 Rule’s framework, while incorporating targeted changes addressing the procedural deficiencies identified in the district court’s vacatur decision. Once published, parties will have an opportunity to comment on any proposed rulemaking before it is implemented.
Appellate Review Is Deferred but Remains Open. The district court’s vacatur of the 2024 Rule remains in force, but the Fifth Circuit has not addressed the merits. While the appeal may be rendered moot or substantially narrowed if the Antitrust Agencies issue a sufficiently revised rule by year-end, the FTC retains the ability to reinstate the appeal.
Staff Information-Gathering Continues. Even under the pre-2024 Form, Antitrust Agency staff retain the authority to request additional information during the initial waiting period and through Second Requests. Transactions raising substantive antitrust concerns should still be prepared to produce the categories of information sought by the 2024 Rule.
Engagement During the Comment Period Remains Crucial. Parties whose transactions could be affected by the contemplated changes should consider submitting comments before the current comment period closes on May 26, 2026, and again when the notice of proposed rulemaking opens a further round of public comment.

Gibson Dunn attorneys are closely monitoring these developments and are available to discuss the implications for transaction planning, HSR filing strategy, and participation in the forthcoming rulemaking. For further details on these developments, see our previous Client Alerts and related HSR resources on the firm’s Antitrust and Competition page here.

The following Gibson Dunn lawyers prepared this update: Jeffrey Wall, Rachel Brass, Jamie France, Kristen Limarzi, Judson Littleton, Bradley Smith, Caroline Black, and Logan Billman.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Antitrust and Competition, Appellate and Constitutional Law, Private Equity, or Mergers and Acquisitions practice groups:

Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Jamie E. France – Washington, D.C. (+1 202.955.8218, jfrance@gibsondunn.com)
Sophia A. Hansell – Washington, D.C. (+1 202.887.3625, shansell@gibsondunn.com)
Caeli A. Higney – San Francisco (+1 415.393.8248, chigney@gibsondunn.com)
Julian W. Kleinbrodt – San Francisco (+1 415.393.8382, jkleinbrodt@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Samuel G. Liversidge – Los Angeles (+1 213.229.7420, sliversidge@gibsondunn.com)
Michael J. Perry – Washinton, D.C. (+1 202.887.3558, mjperry@gibsondunn.com)
Cynthia Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)
Bradley P. Smith – New York (+1 212.351.5376, bpsmith@gibsondunn.com)
Daniel G. Swanson – Los Angeles (+1 213.229.7430, dswanson@gibsondunn.com)
Stephen Weissman – Washington, D.C. (+1 202.955.8678, sweissman@gibsondunn.com)

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, tdupree@gibsondunn.com)
Allyson N. Ho – Dallas (+1 214.698.3233, aho@gibsondunn.com)
Judson O. Littleton – Washington, D.C. (+1 202.955.8531, jlittleton@gibsondunn.com)
Julian W. Poon – Los Angeles (+ 213.229.7758, jpoon@gibsondunn.com)
Jeffrey B. Wall – Washington, D.C. (+1 202.955.8533,jwall@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

Mergers and Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

This edition of Gibson Dunn’s Federal Circuit Update for April 2026 summarizes the current status of petitions pending before the Supreme Court, Federal Circuit news, and recent Federal Circuit decisions concerning inventorship, the on-sale bar, written description and enablement, and patent-eligible subject matter.

Federal Circuit News

Supreme Court:

As we summarized in our March 2026 update, the Supreme Court granted the certiorari petition in Hikma Pharmaceuticals USA Inc. v. Amarin Pharma, Inc. (US No. 24-889). It was argued on April 29, 2026.

Noteworthy Petitions for a Writ of Certiorari:

There were a few potentially impactful petitions filed before the Supreme Court since our last update:

Polar Electro Oy v. Firstbeat Technologies Oy (US No. 25-1268): The questions presented are: “Whether a court may create its own invalidity argument . . . or whether doing so violates the party-presentation principle. . . . .” 2. “Whether a claimed process that takes a real world physiological input from the body and uses that input within a specific, improved process to produce a more accurate technological result . . . is patent eligible under § 101 . . . .” 3. “Whether the judicially created exceptions to 35 U.S.C. § 101 for abstract ideas, laws of nature, and natural phenomena . . . constitute impermissible judicial legislation . . . .” The response brief is due June 8, 2026.
Google LLC v. VirtaMove, Corp. (US No. 25-1230): The questions presented are: “Whether the PTO lacks statutory authority to deny institution based on ‘settled expectations’ where the patent statutes allow for administrative review at any time during the life of a patent.” 2. “Whether courts have power to review a PTO decision denying inter partes review on grounds that are contrary to statute.” The response brief is due May 29, 2026.

We provide an update below of the petitions pending before the Supreme Court, which were summarized in our March 2026 update:

In Hyatt v. Squires (US No. 25-1049) and Dolby Laboratories Licensing Corp. v. Unified Patents, LLC (US No. 25-1011, the response briefs are due on May 26, 2026. Four amicus briefs have been filed in Hyatt, and one amicus brief has been filed in Dolby. In Finesse Wireless LLC v. AT&T Mobility LLC (US No. 25-953), after one of the respondents waived its right to file a response, the Court requested a response. The response brief is due May 26, 2026.
The Court denied the petitions in Rideshare Displays, Inc. v. Lyft, Inc. (US No. 25-1132), United Services Automobile Association v. PNC Bank N.A. (US No. 25-853), and EscapeX IP, LLC v. Google LLC (US No. 25-1114).
Federal Circuit News:

On May 18, 2026, the Federal Circuit announced the Federal Circuit Center for Innovation & Law would be opening its doors to the public for a one-day America250 program. The full article is here.

Key Case Summaries (April 2026)

Fortress Iron, LP v. Digger Specialties, Inc., No. 24-2313 (Fed. Cir. Apr. 2, 2026): Fortress sued Digger for infringement of two patents directed to a vertical cable railing used in the construction of outdoor living spaces. The claimed invention incorporated aspects of the original idea of Mr. Sherstad (owner of Fortress), early designs of Mr. Burt (Fortress employee), and suggestions from Messrs. Lin and Huang (two employees at a Chinese manufacturer of the cable railing) as to the final cable and rail designs. However, the patent only names Sherstad and Burt as inventors. During discovery, Digger learned that the patents did not list Lin and Huang. Fortress acknowledged they were co-inventors and successfully added Lin as a co-inventor pursuant to 35 U.S.C. § 256(a), but was unable to locate Huang to add him using the same procedure. Fortress therefore attempted to add Huang as a co-inventor under § 256(b). Digger moved for summary judgment of invalidity due to incorrect inventorship, and the district court granted the motion.

The Federal Circuit (Lourie, J., joined by Hughes and Kleeh (district judge sitting by designation), JJ.) affirmed. Under 35 U.S.C. § 256(b), a district court may order correction of omitted inventors on a patent upon “notice and hearing of all parties concerned.” The Court held that a co-inventor is a “party concerned” entitled to notice and opportunity to be heard prior to any correction of inventorship. Because Fortress was unable to locate Huang to provide him notice, Fortress could not avail itself of § 256(b) to correct inventorship of the patents. The Court rejected Fortress’s argument that repeal of § 102(f) means joinder of all inventors is not necessary for validity. The Court reasoned that courts have long held, even prior to the enactment of § 102(f), that nonjoinder of an inventor invalidates a patent. Thus, the Court held that as a matter of law that “a patent that incorrectly lists its inventor(s) and cannot be corrected according to law is invalid.”

Definitive Holdings, LLC v. Powerteq LLC, No. 24-1761 (Fed. Cir. Apr. 14, 2026): Definitive sued Powerteq for infringement of a patent directed to methods and apparatuses for upgrading software in an engine controller. Powerteq moved for summary judgment of invalidity under pre-AIA 35 U.S.C. § 102(b), contending that non-party Hypertech Inc. had sold a device called the Hypertech Power Programmer III (PP3) embodying every asserted claim by 1996—well before the March 30, 2000 critical date. The district court granted summary judgment.

The Federal Circuit (Cunningham, J., joined by Moore, C.J. and Dyk, J.) affirmed. The Court clarified that the pre-AIA on-sale bar does not require that the product sold to disclose the invention’s details to the public, but that it must embody the claimed invention. Thus, because the PP3 embodied the claimed methods and apparatuses, it is prior art under § 102(b).

Teva Pharmaceuticals International Gmbh v. Eli Lilly & Co., No. 24-1094 (Fed. Cir. April 16, 2026): Teva sued Eli Lilly for infringement of patents directed to using humanized anti-CGRP antagonist antibodies to treat headache. CGRP is a protein found in humans. When it binds to receptors on certain cells, the cells expand increasing blood flow, causing headaches. Anti-CGRP antagonist antibodies bind to CGRP to antagonize (i.e., inhibit) CGRP from binding to receptors that result in headaches. These antibodies exist in mice, and the process of converting a murine antibody into a form that the human body will accept is called humanization, resulting in “humanized” antibodies. The patents claim using humanized anti-CGRP antagonist antibodies to treat headaches. At trial, the jury returned a verdict finding willful infringement and that the patents were not invalid for lack of written description or enablement. Eli Lilly moved for judgment as a matter of law (JMOL) of invalidity due to lack of written description and enablement, which the district court granted.

The Federal Circuit (Prost, J., joined by Cunningham and Andrews (district judge sitting by designation), JJ.) reversed and remanded. The Court first made clear that the patents were directed to the use of anti-CGRP antagonist antibodies to treat headaches—not to the antibodies themselves. Therefore, even though the specification only disclosed one species of humanized anti-CGRP antagonist antibody, the genus of anti-CGRP antagaonist anitbodies were already well known in the art. Furthermore, the specification disclosed several murine versions and disclosed that humanization was a routine procedure. The Court thus held that disclosure of a representative number of species of humanized anti-CGRP antagonist antibodies was sufficient for a skilled artisan to understand that the patent disclosed that all humanized anti-CGRP antagonist antibodies treat headaches rendering JMOL of no written description improper. Similarly, the disclosure that all anti-CGRP antagonist antibodies could treat headaches meant there was no undue experimentation. The Court therefore held that JMOL of no enablement was also improper.

Constellation Designs, LLC v. LG Electronics Inc., No. 24‑1822 (Fed. Cir. Apr. 28, 2026): Constellation sued LG for willful infringement of multiple patents relating to digital communication systems that use non‑uniform signal constellations to improve performance in over-the-air television broadcasts. At summary judgment, the district court held all asserted claims were patent eligible under 35 U.S.C. § 101.

The Federal Circuit (Stoll, J., joined by Lourie and Oetken (district judge sitting by designation), JJ.) vacated-in-part, affirmed-in-part, and remanded. Constellation had divided the asserted claims into two categories: (1) the “optimization claims,” which recite a geometrically spaced symbol constellations optimized for capacity, and (2) the “constellation claims,” which recite specific non-uniform constellations. The Court held that the optimization claims were directed to the abstract, results‑oriented idea of optimizing a constellation for capacity, without reciting a specific technical means for achieving that result. Because the claims also lacked an inventive concept, the Court held the optimization claims were patent ineligible and vacated the summary judgment of eligibility as to those claims. By contrast, the Court affirmed the district court’s eligibility ruling for the constellation claims, because those claims were directed to a concrete technological solution to a technological problem in improving capacity and coding gains in digital communications. Because the constellation claims were not directed to an abstract idea, the Court did not reach whether the claims recited an inventive concept.

The following Gibson Dunn lawyers prepared this update: Blaine Evanson, Jaysen Chung, Audrey Yang, Al Suarez, Hannah Bedard, and Michelle Zhu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups, or the following authors:

Blaine H. Evanson – Orange County (+1 949.451.3805, bevanson@gibsondunn.com)
Audrey Yang – Dallas (+1 214.698.3215, ayang@gibsondunn.com)

Appellate and Constitutional Law:
Thomas H. Dupree Jr. – Washington, D.C. (+1 202.955.8547, tdupree@gibsondunn.com)
Allyson N. Ho – Dallas (+1 214.698.3233, aho@gibsondunn.com)
Julian W. Poon – Los Angeles (+ 213.229.7758, jpoon@gibsondunn.com)
Jeffrey B. Wall – Washington, D.C. (+1 202.955.8533,jwall@gibsondunn.com)

Intellectual Property:
Kate Dominguez – New York (+1 212.351.2338, kdominguez@gibsondunn.com)
Josh Krevitt – New York (+1 212.351.4000, jkrevitt@gibsondunn.com)
Jane M. Love, Ph.D. – New York (+1 212.351.3922, jlove@gibsondunn.com)