Gibson Dunn | Client Alert

Client Alert

December 12, 2005

OFCCP Regulations Require Federal Contractors to Track Data on Internet Applicants

Federal regulations mandate that covered federal contractors and subcontractors collect information about the gender, race and ethnicity of "applicants" for employment. This information is necessary in order for the Office of Federal Contract Compliance Programs (OFCCP) to enforce Executive Order 11246 and to review nondiscrimination and affirmative action programs. In recent years, there was some confusion as to when contractors must compile information on those applications submitted via the Internet or other electronic means. The OFCCP recently issued final regulations detailing when identifying information must be solicited and retained for "Internet Applicants." (The regulations may be found at 70 Fed. Reg. 58946 (Oct. 7, 2005)).Beginning February 6, 2006, contractors will have to retain data on "Internet Applicants." To be considered an "Internet Applicant" the following four criteria must be met:(1)  The person expresses interest in employment through the Internet;(2)  The person is considered by the contractor for employment in a particular position; (3)  The person’s expression of interest indicates that he or she possesses the basic qualifications for the job; and(4)  The person does not remove himself or herself from consideration at any point in the selection process, prior to receiving an offer of employment.Notably, under these new regulations all applicants - even those who submit traditional hard copy application materials - will be considered "Internet Applicants" for recordkeeping purposes (assuming that they meet the other criteria listed above) if the contractor accepts any expression of interest via Internet or other electronic means.Under this new definition, contractors do not need to collect data on every person who seeks employment. Contractors do not need to compile data on individuals who submit unsolicited resumes, who fail to satisfy the minimum qualifications for the position in question, or who withdraw from the selection process. Note, however, that an applicant is deemed to have withdrawn from the selection process only when he/she indicates that he/she is no longer interested in the position by his/her repeated non-responsiveness to inquiries from the contractor about his/her interest in the position.Gibson, Dunn & Crutcher has organized a multi-disciplinary team of its labor & employment attorneys, who have extensive experience in representing clients in matters involving OFCCP regulations and audits, and its government contracts attorneys, who regularly advise clients on all aspects of operating in accordance with applicable federal regulations, to advise clients on these, and other, regulations.    Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding this issue. Please contact the Gibson Dunn attorney with whom you work, labor partner William J. Kilberg (202-955-8573, wkilberg@gibsondunn.com) or government contracts partners Joseph D. West (202-955-8658, jwest@gibsondunn.com) and Diana G. Richard (202-887-3572, dgrichard@gibsondunn.com) in the firm's Washington, D.C. office.© 2005 Gibson, Dunn & Crutcher LLP
Read More

December 7, 2005

Employee Blogging: What Employers Don’t Know Could Hurt Them

December 2005Denver partner Jessica Brown is the author of "Employee Blogging: What Employers Don't Know Could Hurt Them," [PDF] published in the December 2005 issue of Law Journal Newsletters - Law Firm Partnership & Benefits Report.Reprinted with permission, December 2005 edition of Law Journal Newsletters - Law Firm Partnership & Benefits Report, © 2005 ALM Properties, Inc.
Read More

December 2, 2005

The United States Patent and Trademark Office Adopts Interim Subject Matter Guidelines

The USPTO's Motivation for The GuidelinesOn October 26, 2005, the United States Patent and Trademark Office adopted a set of Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility (the “Guidelines”). According to the USPTO, “[t]he principal objective of these Guidelines is to assist examiners in determining, on a case-by-case basis, whether a claimed invention falls within a judicial exception to statutory subject matter (i.e., is nothing more than an abstract idea, law of nature, or natural phenomenon), or whether it is a practical application of a judicial exception to statutory subject matter.” Guidelines at 1-2.The Guidelines were adopted shortly after the USPTO’s Board of Patent Appeals and Interferences decided, in a business methods case, to overrule the Patent Office’s “technological arts” limitation on patentable subject matter. See Ex parte Lundgren, Appeal No. 2003-2088 (BPAI 2005). The “technological arts” limitation was one of many formulations that courts and the Patent Office adopted and then abandoned as the standard for patentable subject matter has evolved. The Guidelines represent the USPTO’s latest attempt to capture that standard in a form that examiners can apply to an increasing stream of patent applications. Although the Guidelines are not substantive agency rules that would have legally binding effect, they are likely to have a substantial effect on the way business method and other process patents are evaluated by examiners at the Patent Office.The Approach to Subject Matter Adopted by The GuidelinesAfter briefly reviewing the history of the patentable subject matter standard, the Guidelines prescribe a four-step procedure for a patent examiner to follow to determine whether a claimed invention fits within that standard:First, the patent examiner should determine whether the claimed invention falls into at least one category listed in 35 U.S.C. § 101 – process, machine, manufacture or composition of matter. Guidelines at 14-15. While there is much creative material that does not fall into any of these categories and is clearly not patentable (e.g., musical compositions, data compilations), most plausible patent claims will not have trouble meeting this first requirement.Second, the examiner should determine whether the claimed invention falls within one of the exceptions to patentable subject matter – ideas, laws of nature, or natural phenomena. Id. at 15-16. For example, while a plant falls into at least one category of § 101 (as a “composition of matter”), a new plant found in the wild will not be patentable because it is a “natural phenomenon.” See Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980).Third, even if the claimed invention does fall within one of these exceptions, it may still be patentable if it constitutes a practical application of that exception. To determine whether this is the case, the examiner should apply the following test, drawn from Supreme Court and Federal Circuit opinions: (1) does the claimed invention “transform[] an article or physical object to a different state or thing; and/or (2) does the claimed invention otherwise “produce[] a useful, concrete, and tangible result.”The Guidelines do not elaborate on the physical transformation prong of this test except to say that a “reduction” of an article into a different state qualifies as a “transformation.” Guidelines at 19. For example, a new process for making diamonds from coal may be patentable despite being clearly governed by natural laws that describe the behavior of carbon under pressure, because the process physically transforms the coal.The Guidelines do elaborate on the second prong of the above test, explaining that a result is not “useful” unless the utility therein is specific, substantial, and credible, and directing patent examiners to reject claims that cover production of both useful and non-useful results. Id. at 21. Results are only “tangible,” according to the Guidelines, when they have “real world” effect and are not “abstract.” Id. at 21-22. “Concrete” results are those that are reproducible and predictable. Fourth and finally, if a patented invention does cover only practical applications of a subject matter exception, the examiner should determine whether the patent claim “preempts” the idea, law of nature, or natural phenomenon it practically applies. Id. at 23. In other words, a claim may not validly cover every substantial practical application of an abstract idea, because such a claim would effectively cover the idea itself. The Guidelines give as an example of preemption “a computer disk that solely stores a mathematical formula.” Id. at 23.The Practical Effect of The Guidelines on Patent ApplicationsAlthough the examination procedure described above may seem daunting to patent applicants, the likely effect of the Guidelines is to make rejection of patent claims on the basis of subject matter less likely. The Guidelines make clear that the patent examiner should only reject claims where it is more likely than not that the claimed invention as a whole falls outside the categories of proper subject matter and does not constitute a practical application of a subject matter exception, or that the claim preempts the exception it practically applies. Id. at 24. In other words, the burden is on the patent examiner to make a prima facie case of improper subject matter, which the applicant can then rebut if possible.For applicants whose process inventions skirt the subject matter line, the key to avoiding rejection on this basis is to emphasize during prosecution (1) that the claimed process produces useful, “real world” results; and (2) that while the invention constitutes practical application of an abstract idea, the claims sought do not cover all possible practical applications of that idea. For example, an applicant claiming an inventive method for performing surgery should focus on the medically beneficial results of the method and should draw attention to other existing applications of the “laws of nature” underlying the method to avoid a finding of preemption.  Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or Glenn K. Beaton (303-298-5773, gbeaton@gibsondunn.com) in the firm's Denver office or H. Mark Lyon (650-849-5307, mlyon@gibsondunn.com) in the Palo Alto office. © 2005 Gibson, Dunn & Crutcher LLP
Read More

December 1, 2005

NYSE Proposes Amendments to its Corporate Governance Listing Standards

On November 23, 2005, the New York Stock Exchange filed proposed amendments to its corporate governance listing standards with the Securities and Exchange Commission for approval.  Among other things, the proposals would impact the NYSE's director independence requirements and related proxy disclosures and would mandate notification to the NYSE of any non-compliance with its corporate governance listing standards. Although the NYSE's filing states that its Board of Directors approved the proposed amendments in April 2005, the SEC must publish them for comment and approve them before they take effect.  An overview of the proposals is below, and the NYSE filing, which includes a mark-up showing the proposed changes to the text of the Listed Company Manual, is available on the NYSE website at http://www.nyse.com/pdfs/NYSE-2005-81.pdf.The most significant amendments proposed by the NYSE involve its director independence standards.  According to the NYSE's filing, the independence disclosures that many companies provided in their 2005 proxy statements either were "not sufficient to allow investors to adequately assess the quality of the board's independence determination" or stated that particular directors had relationships with companies without explaining the basis for the board's determination that these relationships did not preclude independence.  In addition, according to the NYSE, many companies were "confused" by the concept of categorical independence standards and often were using the NYSE's bright-line independence tests as the sole criteria in assessing director independence.  To date, the prevailing practice has been to adopt categorical independence standards because the listing standards permit companies to disclose these standards in their proxy statements and make a general disclosure that their independent directors meet the standards "without detailing particular aspects of [any] immaterial relationships between the individual directors and the company."   To clarify the types of disclosure that companies must provide, the NYSE has proposed two alternative disclosure approaches.  Under one approach, a company's board could determine that certain types of relationships are categorically immaterial, and the company could disclose these types of relationships in its proxy statement.  For companies that select this alternative, no additional disclosure would be required about individual directors' relationships that fall within the categories of immaterial relationships established by the board.  Importantly, boards would not be permitted to treat as categorically immaterial any relationship that is required to be disclosed as a related party transaction under Item 404 of SEC Regulation S-K.  Accordingly, for each independent director, the independence disclosures in a company's proxy statement would have to include a discussion of any Item 404 related party transactions that the board determined were not material in concluding that the director is independent.  In some cases, however, the disclosure thresholds in Item 404 are lower than those in the NYSE's bright-line independence tests.  For example, Item 404 would require disclosure of a transaction between a listed company and an entity where a director is an executive officer if the transaction represented more than 5% the entity's annual revenues, even if the amount of the transaction were less than $1 million, while under the NYSE's business relationship test, the transaction would not preclude the director from being independent unless it exceeded a minimum of $1 million. Under the other approach proposed by the NYSE, a company could disclose in its proxy statement that an independent director has no relationships with the company (other than as a director and/or shareholder) or has only immaterial relationships.  If an immaterial relationship exists, the company would have to provide a "specific description" of the relationship and disclose the basis for the board's determination that the relationship is immaterial and therefore does not preclude a determination of independence. The proposed amendments also would expressly prohibit companies from summarizing or incorporating disclosures about director independence by reference from another document or a company's website.In view of the proposals, companies should revisit their independence standards and consider the independence disclosures to be included in their upcoming proxy statements. The remaining amendments proposed by the NYSE would address, among other things:Notification of non-compliance with corporate governance requirements.  CEOs would be required to notify the NYSE in writing promptly after an executive officer becomes aware of any non-compliance with the NYSE's corporate governance listing standards.  Currently, notification is required only with respect to a material non-compliance, which also triggers an obligation to file a Form 8-K. Disclosure of code-of-conduct waivers.  Companies would be required to disclose waivers of their codes of conduct that are granted to directors and executive officers within four business days.  This is a change from guidance contained in the NYSE's Frequently Asked Questions, in which the NYSE stated that two to three business days would constitute "prompt" notification to shareholders of a waiver, and is being proposed for consistency with the Form 8-K disclosure requirements.  The proposed amendments also would specify that companies must disclose waivers by press release, on their websites, or on a Form 8-K. Audit committee review of MD&A.  Current NYSE listing standards require that audit committees "meet" to review and discuss the disclosures in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the company's annual and quarterly reports.  The proposed amendments would clarify that telephonic meetings satisfy the meeting requirement if permitted by state corporate law, but that polling audit committee members in lieu of a meeting is not permitted. Executive sessions.  Current NYSE listing standards require that non-management directors hold regular executive sessions and recommend (but do not require) that the independent directors meet by themselves in executive session at least once per year.  In recognition of the fact that some boards have chosen to limit all executive sessions to independent directors, the proposed amendments would clarify that regular executive sessions of the independent (rather than non-management) directors satisfy the NYSE requirement.  Similarly, companies could satisfy the requirement to establish procedures for "interested parties" to communicate with the presiding director or the non-management directors as a group through procedures that provide for communication with the independent directors only.Corporate governance disclosures and webposting of corporate governance documents.  Currently, various provisions of the NYSE's corporate governance listing standards require that companies make specific disclosures about their corporate governance practices in their proxy statements (or annual reports, for companies that do not file proxy statements), and that companies post their corporate governance documents (including their corporate governance guidelines, codes of conduct, and key committee charters) on their websites.  The proposed amendments would prohibit companies from incorporating other required proxy disclosures by reference from another document or a company's website.  In addition, the proposals would: (a) eliminate the requirement that companies disclose in their proxy statements that their corporate governance documents are available on their websites; (b) expressly require that companies have and maintain a website; and (c) consolidate the requirements relating to proxy statement and website disclosure in a separate section of the corporate governance listing standards. CEO and SEC Certifications.  Companies would no longer be required to disclose in their annual reports to shareholders (or annual reports on Form 10-K) that they have filed the most recent annual CEO certification mandated by the NYSE (as to compliance with the corporate governance listing standards) and the Section 302 certification required in their most recent annual report.  According to the NYSE, this provision caused "significant confusion" because it related to certifications made during a prior year and is no longer necessary in view of SEC disclosure requirements, including the requirement to disclose on a Form 8-K any material non-compliance with NYSE listing standards.Phase-in requirements for companies listing in connection with IPOs.  Companies listing on the NYSE in connection with an IPO would have until the earlier of the date the IPO closes or five business days from the date that trading begins on the NYSE to have one independent director on each of the audit, compensation, and nominating/governance committees.  Current listing standards require each of these committees to have one independent committee member as of the date of listing, but according to the NYSE, market practice has been not to appoint independent directors prior to the closing of an IPO due to prospectus liability concerns.  Current listing standards also provide a transition period that gives companies listing in connection with an IPO 90 days to have a majority of independent members on their key committees and one year to have fully independent committees.  The proposed amendments would extend this transition period to the requirement that companies have a three-person audit committee, giving companies listing in connection with an IPO up to one year after listing to appoint three members to the audit committee.  This would avoid the need for companies to appoint directors who are not independent to their audit committees in order to satisfy the three-person minimum.Controlled companies.  The proposed amendments would clarify that a "controlled company" is one in which 50% or more of the voting power for the election of directors is held by an individual, a group, or another company.  The proposals also would establish deadlines by which companies that cease to be controlled companies must comply with the requirements for a majority independent board and fully independent compensation and nominating/governance committees.  A company would be required to have a majority of independent directors on its board within one year from the date it ceased to be a controlled company.  It would be required to have one independent director on each of its compensation and nominating/governance committees on that date, a majority of independent directors within 90 days, and fully independent committees within one year. Foreign private issuers.  Foreign private issuers would be required to disclose on their websites significant differences between their corporate governance practices and NYSE-required practices rather than having the option to provide this disclosure in their annual reports or on their websites.  The proposed amendments must be approved by the SEC before they take effect and will be the subject of a 21-day comment period following publication in the Federal Register. Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues.  Please contact the Gibson Dunn attorney with whom you work, or John F. Olson (202-955-8522, jolson@gibsondunn.com), Amy L. Goodman (202-955-8653, agoodman@gibsondunn.com), Ronald O. Mueller (202-955-8671, rmueller@gibsondunn.com), or Gillian McPhee (202-955-8230; gmcphee@gibsondunn.com).© 2005 Gibson, Dunn & Crutcher LLP
Read More

November 30, 2005

Impact of Securities Offering Reform on Underwriting Arrangements

October 2005Partner Stephanie Tsacoumis is the author of "Impact of Securities Offering Reform on Underwriting Arrangements," [PDF] published in the October 2005 issue of Insights: The Corporate & Securities Law Advisor.This article is reprinted with permission from Aspen Publishers, copyright 2005, Insights, Volume 19, Number 10. 
Read More

November 30, 2005

U.S. Export Control Compliance Requirements for Government Contractors

November 2005Partners Joseph West and Judith Lee and associate Jason Monahan are authors of "U.S. Export Control Compliance Requirements for Government Contractors" [PDF] published in the November 2005 issue of Briefing Papers, a Thomson/West publication.Reprinted with permission, Briefing Papers, © 2005 Thomson/West.
Read More