Publications Archives

On December 22, 2020, Congress passed the content of a pending bill, H.R. 6196, the “Trademark Modernization Act of 2020,” as part of its year-end virus relief and spending package.[1] The Act includes various revisions to the Lanham Act, 15 U.S.C. §§ 1051 et seq., intended to respond to a recent rise in fraudulent trademark applications. Among other things, the Act seeks to create more efficient processes to challenge registrations that are not being used in commerce, including by establishing new ex parte proceedings. The Act also seeks to unify the standard for irreparable harm with respect to injunctions in trademark cases, in light of inconsistencies that have emerged across federal courts after the Supreme Court’s decision in eBay v. MercExchange, LLC, 547 U.S. 388 (2006). We briefly summarize these key features of the Act below.

Presumption of Irreparable Harm. Section 6 of the Act provides that a “plaintiff seeking an injunction shall be entitled to a rebuttable presumption of irreparable harm” upon a finding of a violation or a likelihood of success on the merits, depending on the type of injunction sought.[2] That language effectively reinstates the standard that most courts applied in trademark cases until the Supreme Court’s decision in the patent case, eBay v. MercExchange, LLC, 547 U.S. 388 (2006). Before eBay, courts generally treated proof of likelihood of confusion as sufficient to establish both a likelihood of success on the merits and irreparable harm. In eBay, however, the Supreme Court concluded that courts deciding whether an injunction should issue must consider only “traditional equitable principles,” which do not permit “broad classifications.” Id. at 393. In light of that decision, some courts determined that liability for trademark infringement no longer presumptively supported injunctive relief and that irreparable injury had to be shown independently.[3] This Act resolves the division among the courts following eBay and clarifies that a rebuttable presumption of irreparable harm applies for trademark violations.
New Ex Parte Processes. Section 5 of the Act creates two new ex parte cancellation proceedings, designed to address concerns that the trademark register is becoming overcrowded with marks that have not been used in commerce properly, as the Lanham Act requires.[4] The first creates a new Section 16A to the Lanham Act, that allows for ex parte expungement of a registration that has never been used before in commerce.[5] The second creates a new Section 16B to the Lanham Act that allows for ex parte reexamination of a registration where the mark was not in use in commerce at the time of either the first claimed use, or when the application was filed.[6] The Act further authorizes the Director to promulgate regulations regarding the conduct of these proceedings.[7]
Changes to the Examination Process. The Act establishes two notable updates to the trademark examination process: first, it formalizes the process by which third-parties can submit evidence to the United States Patent and Trademark Office concerning a given application; second, it provides the Office with greater authority and flexibility to set the deadlines by which trademark applicants must respond to actions taken by the examiner.
- Third-Party Evidence: The Act effectively codifies the longstanding informal practice by which third parties submit evidence to the Office regarding the registrability of a mark during the examination process. Section 3 expressly permits the submission of this evidence and also establishes new formalities concerning the process to do so—including by requiring that the submitted evidence include a description identifying the ground of refusal to which it relates, and by providing the Office with the authority to charge a fee for the submission.[8]
  The Act also imposes a two-month deadline for the Office to act on a third-party submission,[9] which should incentivize third-parties to submit relevant evidence to the examiner before he or she makes any decision on an initial application.
- Response Times: Section 4 of the Act amends the Lanham Act’s provision that imposes a six month deadline for an applicant to respond to an examiner’s actions during the application process.[10]
  Specifically, Section 4 grants the Office the authority to determine, by regulation, response periods for different categories of applications, so long as the period is between 60 days and six months.[11]

It remains to be seen how the Office will interpret the Act and what procedures it will promulgate. It is also an open question whether the new ex parte and examination procedures created by the Act will address Congress’ underlying concerns that the register has become overcrowded with fraudulent registrations obtained by foreign entities, especially from China.[12] But it is clear that the Act will open up new fronts for administrative proceedings to challenge registered trademarks, and create new weapons for those who believe they are or would be affected by a pending application or registration. At the same time, the restoration of a formal presumption of irreparable harm in trademark infringement cases will make it procedurally easier for trademark owners to enjoin uses of confusingly similar marks and avoid consumer confusion about the source of a good or service.

_______________________

[1] See Office of Congressman Hank Johnson, Congressman Johnson’s Bipartisan, Bicameral Trademark Modernization Act Becomes Law, available at https://hankjohnson.house.gov/media-center/press-releases/congressman-johnson-s-bipartisan-bicameral-trademark-modernization-act (Dec. 22, 2020).

[2] The Act also clarifies that this amendment “shall not be construed to mean that a plaintiff seeking an injunction was not entitled to a presumption of irreparable harm before the date of the enactment of this Act.” H.R. 6196 § 6(a).

[3] See, e.g., Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., Inc., 736 F.3d 1239, 1249 (9th Cir. 2013) (reading eBay as signaling “a shift away from the presumption of irreparable harm” and holding that a plaintiff must separately establish irreparable harm for a preliminary injunction to issue in a trademark infringement case); Salinger v. Colting, 607 F.3d 68, 78 n.7 (2d Cir. 2010) (suggesting that eBay’s “central lesson” that courts should not “presume that a party has met an element of the injunction standard” applies to all injunctions); see also Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 31 (1st Cir. 2011) (questioning whether, after eBay, irreparable harm can be presumed upon a finding of likelihood of success on the merits of an infringement claim).

[4] See H.R. 6196 § 5(a); House Report Section C.1 (explaining the intent behind the new proceedings).

[5] H.R. 6196 § 5(a).

[6] Id. § 5(c).

[7] Id. § 5(d) (providing that the Director “shall issue regulations to carry out” the new “sections 16A and 16B” “[n]ot later than one year after the date of the enactment of this Act.”).

[8] See H.R. 6196 § 3(a) (“A third party may submit for consideration for inclusion in the record of an application evidence relevant to a ground for refusal of registration. The third-party submission shall identify the ground for refusal and include a concise description of each piece of evidence submitted in support of each identified ground for refusal. Within two months after the date on which the submission is filed, the Director shall determine whether the evidence should be included in the record of the application. The Director shall establish by regulation appropriate procedures for the consideration of evidence submitted by a third party under this subsection and may prescribe a fee to accompany the submission.”).

[9] Id.

[10] See 15 U.S.C. § 1062(b).

[11] See H.R. 6196 § 4.

[12] See, e.g., Tim Lince, Fraudulent Specimens at the USPTO: Five Takeaways from Our Investigation – Share Your Experience, World Trademark Rev. (June 19, 2019), https://www.worldtrademarkreview.com/brand-management/fraudulent-specimens-uspto-five-takeaways-our-investigation-share-your (reporting on investigation of nearly 10,000 US trademark applications filed in May 2019 with many seemingly fraudulent specimens originating from China).

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work in the firm’s Intellectual Property, Fashion, Retail, and Consumer Products, or Media, Entertainment and Technology practice groups, or the following authors:

Howard S. Hogan – Washington, D.C. (+1 202-887-3640, hhogan@gibsondunn.com)
Alexandra Perloff-Giles – New York (+1 212-351-6307, aperloff-giles@gibsondunn.com)
Doran J. Satanove – New York (+1 212-351-4098, dsatanove@gibsondunn.com)

Please also feel free to contact the following practice leaders:

Intellectual Property Group:
Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com)
Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com)
Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com)

Media, Entertainment and Technology Group:
Scott A. Edelman – Los Angeles (+1 310-557-8061, sedelman@gibsondunn.com)
Kevin Masuda – Los Angeles (+1 213-229-7872, kmasuda@gibsondunn.com)
Orin Snyder – New York (+1 212-351-2400, osnyder@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

The substantive provisions of Hong Kong’s Competition Ordinance (“Ordinance”) came into force in December 2015. This note looks at the main achievements in the first five years and some of the challenges laying ahead.

The main achievements of the Hong Kong Competition Commission (“Commission”) are first and foremost building up—from scratch—a competent and trustworthy institution. The Commission has hired seasoned enforcers from overseas with impeccable reputations which has brought immediate credibility to the Commission. It has embarked on a wide range of educational activities, including seminars, advertising and publishing guidelines detailing its enforcement priorities and interpretation of the Ordinance. The Commission has also adopted a world-class leniency programme to facilitate the prosecution of cartels, its main priority. The Commission proceeded to win its first case in court thereby confirming that it is a force to be reckoned with.

Nevertheless, it is still early days and the Commission will face significant challenges in the next few years. The Competition Tribunal (“Tribunal”)’s decision in the Nutanix case that the criminal standard of proof applies where the Commission seeks to have financial penalties imposed is likely to limit the Commission’s enforcement activities to clear cut cartel cases, and prevent enforcement actions in relation to most cases of abuses of substantial market power. Also, while the Tribunal has vindicated the Commission’s decision to also prosecute individuals, the Tribunal still needs to rule on the level of fines that may be imposed on individuals. This will have a direct impact on the Ordinance’s deterrent effect and on incentives to self-report under the leniency policy.

Further, it remains to be seen whether the Government and the legislature will have any appetite to revise the Ordinance in order to foster more competition and give more teeth to the Ordinance. Among possible changes are an extension of the merger control regime, currently limited to the telecommunications sector, to apply generally to all sectors. Observers are also calling for an increase in the level of fines and the introduction of stand-alone private litigation.

1. The Competition Ordinance in a Nutshell

The Ordinance prohibits three types of conduct:

agreements and concerted practices having the object or effect of preventing, restricting or harming competition (“First Conduct Rule”);
abuses of a substantial degree of market power having the object or effect of preventing, restricting or harming competition (“Second Conduct Rule”); and
mergers in the telecommunications sector that are likely to have the effect of substantially lessening competition (“Merger Rule”).

The Commission does not have the power to impose sanctions on its own, but must apply to the Tribunal for that purpose. The Tribunal has wide-ranging powers, including the authority to impose fines of up to 10% of the Hong Kong turnover per year of infringement (up to a maximum of 3 years), impose a cease and desist order, disqualify directors, and award damages.[1]

A private party cannot bring a stand-alone action before the Tribunal. Instead, the Tribunal must first rule on the legality of the alleged contravention in proceedings commenced by the Commission, after which time, a private party can commence a follow-on action for damages.[2]

2. Cartels

The Commission has from the start made it clear that prosecuting cartels would be a priority. The adoption of a leniency regime was an important step towards that goal. The initial leniency programme, while a step in the right direction, contained too many disincentives to self-report cartel conduct. In 2020, the Commission brought major changes to its leniency policy and adopted what is clearly a world-class framework. In addition, the Commission attracted highly experienced officials from foreign competition agencies reinforcing the level of credibility of its leniency programme.

It is unclear at this stage to what extent the new leniency programme has been successful. As with other leading regimes, it is likely that additional cases resulting in high financial penalties (or penalties on individuals) are necessary before companies widely see the benefit of self-reporting in Hong Kong.

2.1 The Leniency Programme

Section 80 of the Ordinance grants the Commission the ability to enter into a “leniency agreement”.

Under the Leniency Policy for Undertakings, leniency is available for the first cartel member that either reports participation in a cartel which the Commission is not already investigating (known as Type 1 applicant) or provides substantial assistance to an ongoing investigation by the Commission (known as Type 2 applicant).[3] In exchange for a successful applicant’s cooperation with the Commission, the Commission will agree not to take any proceedings against it before the Tribunal in relation to the reported conduct. Because the Tribunal may only impose pecuniary penalties on application by the Commission, successful leniency applicants will therefore receive full immunity from pecuniary sanctions.[4]

For successful Type 1 applicants only, the Commission will also agree not to require the applicant to admit to a contravention of the First Conduct Rule. Because follow-on actions may only be initiated in Hong Kong after the Tribunal or another Hong Kong court has made a decision that an act is a contravention of a conduct rule, or when a person has made an admission to the Commission that the person has contravened a conduct rule, this will protect successful Type 1 leniency applicants from follow-on damages claims in Hong Kong. Type 2 applicants, on the other hand, may be require to admit to a contravention, potentially exposing them to follow-on damages claims.

The Leniency Policy for Individuals allows individuals to self-report anticompetitive conduct, in exchange for the Commission not initiating any proceedings against the leniency applicant in relation to the reported conduct.[5]

The Cooperation Policy establishes a framework by which cooperating cartel members that are not the first to report may receive a discount on the penalty that the Commission would otherwise recommend to the Tribunal.[6] The policy lays out several “bands” of discounts on the recommended pecuniary penalty based on the order in which participating undertakings express their interest in cooperating. Undertakings assigned to Band 1 will receive a discount of between 35% and 50% of the recommended penalty; those assigned to Band 2 will receive a discount of between 20% and 40%; and those assigned to Band 3 will receive a discount of up to 25%. The Commission will “ordinarily” assign the first undertaking to express its interest to cooperate to Band 1. Later applicants will be assigned to Band 2 or 3, depending on the order in which they came forward. The Commission may recommend a discount of up to 20% if an undertaking cooperates with the Commission only after enforcement proceedings against it have commenced. Finally, the Cooperation Policy offers an additional “leniency plus” discount: if a cooperating undertaking finds that, in addition to the first cartel, it has engaged in a completely separate cartel and enters into a leniency agreement with the Commission for its role in the second cartel, the Commission will apply an additional discount of up to 10% on the undertaking’s recommended pecuniary penalty for its role in the first cartel.

2.2 Enforcement Actions at the Tribunal

The Commission has initiated six enforcement actions before the Tribunal and they all concern cartel conduct. Decisions have been issued in two actions and the remaining four are pending as of the date of this article.

Competition Commission v Nutanix Hong Kong Limited and others: In its first enforcement action before the Tribunal, the Commission alleged that a supplier of IT equipment (Nutanix) had engaged in bid rigging with four of its distributors and resellers in relation to a tender conducted by the YWCA.[7] In particular, in order to ensure that YWCA would receive the required number of valid bids in order to award the contract, Nutanix had asked several of its distributors and resellers to submit a dummy bid. The Tribunal ruled in favor of the Commission, except in relation to one of the resellers for which it decided that the isolated conduct of the employee who prepared the dummy bid could not be attributed to its employer. The Tribunal imposed fines totalling about HKD 7 million and the defendants were ordered to pay the Commission’s costs for about HKD 9 million. This case is now before the Court of Appeal.

The main lesson from this decision is that the Tribunal confirmed that where the Commission seeks to have financial penalties imposed, the criminal standard of proof will apply. The Commission therefore has to demonstrate “beyond a reasonable doubt” that an infringement has taken place. This is likely to have a major impact on the Commission’s enforcement powers as it will make it very difficult for the Commission to have financial penalties imposed where the infringement does not have the “object” of restricting competition but only a possible “effect”. This would include, for example, most abuses of substantial market power, some forms of exchange of information, or agreements between competitors that have some pro-competitive effects. The Commission’s enforcement powers against these types of conduct may be limited to obtaining a cease and desist order, which should be subject to the civil standard of the balance of probabilities, which may not have a strong deterrent effect.

A second lesson from that case is that an employer does not enjoy privilege against self-incrimination with regard to statements made by its employees in the competition law context.[8] Section 45(2) of the Ordinance provides that no statements made by a person in responding to the Commission’s requests for information is admissible against that person in proceedings. The Tribunal found that, where the Commission’s requests for information are addressed to a natural person, the responses given by the individual are personal to him and do not bind his employer, such that the individual, and not the employer, is liable for any false or misleading answers. As such, the individual could not be perceived to be acting on behalf of his employer when he attends an interview before the Commission, even if he attends the interview with the employer’s lawyers. The Tribunal’s decision limits the beneficiary of the statutory protection against self-incrimination under Section 45(2) to the person compelled to attend before the Commission.

Finally, this case shows that although fines may be on the low side, the costs of defending a case before the Tribunal are significant. The defendants have likely spent over a combined USD 20 million to defend themselves (solicitors, barristers, experts,…), in addition to paying part of the Commission’s costs. The high cost of litigation in Hong Kong is a significant incentive to comply with the law or to promptly self-report problematic conduct.

Competition Commission v W. Hing Construction Company Limited and others: In April 2020, the Tribunal issued its second dispositive judgment and found that ten decoration contractors entered into a market sharing and price fixing agreement, in contravention of the First Conduct Rule, regarding the decoration works at a public rental housing estate.[9] Importantly, in this case, the Tribunal set out the methodology that it will follow when imposing fines on undertakings in breach of the prohibition on cartel conduct. The methodology is similar to the approaches taken in the UK and the EU. The Tribunal followed, by and large, the recommendations of the Commission but emphasized that while that there were strong public interest in facilitating cooperation by parties, at the same time that the Tribunal, as an independent Tribunal, is not bound by any recommendation of the Commission.

In particular, the Tribunal adopted a four-step approach in calculating the fine: (1) determining the base amount; (2) making adjustments for aggravating, mitigating and other factors; (3) applying the ceiling which a penalty may not exceed under the Ordinance; and (4) applying any fine reductions based on cooperation or an inability to pay. However, it should be noted that it remains unclear how the framework adopted by the Tribunal would apply in case of fines on individuals. Moreover, the facts did not require the Tribunal to assess a recommendation by the Commission on the fine reductions based on a party’s cooperation pursuant to the Commission’s Cooperation and Settlement Policy.

The noteworthy development in the four other pending cases is that the Commission decided to enforce the Ordinance against individuals. In Competition Commission v Kam Kwong Engineering Company Limited and others, the Commission commenced proceedings against three decoration contractors and two individuals at the Tribunal alleging that the parties entered into a market sharing and price fixing agreement regarding the decoration works at a subsidized sale flats housing estate.[10] Three of the parties admitted to the contravention and entered into a settlement with the Commission, which was approved by the Tribunal in July 2020.

In Competition Commission v Fungs E & M Engineering Company Limited and others, the Commission commenced proceedings against six decoration contractors (and three involved individuals) alleging that the parties entered into a market sharing and price fixing agreement regarding the decoration works at a public rental housing estate.[11] In this case, one of the involved directors admitted liability for a contravention of the First Conduct Rule and the Tribunal issued its first ever director disqualification order against that director, prohibiting him from serving as a director for one year and ten months.

In Competition Commission v Quantr Limited and another, the Commission issued its first infringement notices to Quantr Limited and Nintex Proprietary Limited alleging that the two companies exchanged information regarding the intended fee quotes in relation to a bidding exercise organized by Ocean Park.[12] Nintex accepted the Commission’s infringement notice and committed to comply with the requirements imposed by the Commission, which resulted in the Commission not commencing proceedings against Nintex. Quantr disputed the infringement notice and the Commission commenced proceedings against it and its sole director. In November 2020, Quantr and its sole director entered into a settlement with the Commission, where is admitted to a contravention of the First Conduct Rule and agreed to pay pecuniary penalty.

In Competition Commission v T.H. Lee Book Company Limited and others, the Commission commenced proceedings against three publishing companies (and one of their directors) alleging that the companies engaged in price fixing, market sharing, and/or bid-rigging in relation to tenders for the supply of textbooks to primary and secondary schools in Hong Kong.[13]

3. Other Nonmerger Enforcement Actions taken by the Commission

3.1 Court cases

On 21 December 2020, the Commission initiated its first abuse of market power case before the Tribunal. It alleged that Linde had a substantial degree of market power in the medical gases supply market in Hong Kong and that it had committed a breach of the Second Conduct Rule by refusing to supply a competitor in the downstream market of medical gas pipeline system maintenance, in what seems an essential facility case. It is unclear at this stage when the case will be heard.

3.2 Block Exemptions

Section 15 of the Ordinance grants the Commission the ability to issue “block exemption orders” to exempt a particular category of agreements because they enhance overall economic efficiency.

Vessel Sharing Agreements Block Exemption.[14] The Hong Kong Liner Shipping Association, which represents most shipping lines in Hong Kong, applied for a block exemption order in relation to liner shipping agreements, including vessel sharing agreements (“VSA”) and voluntary discussion agreements (“VDAs”).

The Commission granted a block exemption in relation to VSAs. These are operating arrangements between shipping lines in relation to the provision of liner shipping services, including the coordination of joint operation of vessel services, and the exchange or charter of vessel space (these agreements are commonly called “alliances”, “consortia”, “slot charter agreements” joint services agreements” or “slot swap agreements”). The block exemption is subject to the following conditions: (i) parties to a particular VSA do not have a combined market share in excess of 40%, (ii) the VSA does not authorize or require its members to engage in price fixing, capacity or sale limitations, market/customer allocation, and (iii) parties can withdraw from a VSA without penalty or unreasonable notice period.

However, the Commission’s block exemption order does not extend to VDAs. These are agreements between carriers in which parties discuss commercial issues relating to a particular trade, including prices (freight rates and surcharges), agreements on recommended freight rates and surcharges, and exchanges of commercial information (such as statistics on costs, capacity, deployment, etc.). The Commission considered that exchanges of future price intentions and an agreement on recommended prices constituted infringements by object of the First Conduct Rule and could not benefit from a block exemption.

3.3 Decisions

Section 9(1) of the Ordinance empowers the Commission to issue a decision that the First Conduct Rule does not apply to a particular agreement because one of more exclusions or exemptions in the Ordinance apply.

Code of Banking Practice.[15] A series of banks applied to the Commission for a decision that the Code of Banking Practice (“Code”) issued by the Hong Kong Association of Banks (“HKAB”) and endorsed by the Hong Kong Monetary Authority (“HKMA”) was exempted from the First Conduct Rule because it was adopted to comply with legal requirements, a ground for exemption under the Ordinance. After a detailed assessment of the regulatory framework and the specific language in the Ordinance, the Commission concluded that agreeing to the Code is not the result of a legal requirement and that the application of the First Conduct Rule is therefore not excluded. However, the Commission indicated that it had no current intention to pursue an investigation or enforcement action in respect of the Code. The Commission noted indeed that the Code is intended to promote good banking practices through setting out minimum standards, that the Code has been formulated with input and support from the Consumer Council, the HKMA and other public bodies, and was endorsed by the HKMA.

Pharmaceutical Sales Survey.[16] The Hong Kong Association of the Pharmaceutical Industry (“HKAPI”) applied for a decision that a proposed arrangement to conduct and publish a survey comprising data on the sales of prescriptions and over-the-counter pharmaceutical products in Hong Kong did not infringe the First Conduct Rule, including because such exchange of information will enhance economic efficiency. The Commission ruled against the HKAPI, finding that the proposed exchange of information was not excluded or exempted from the First Conduct Rule under the efficiency exclusion.

In particular, the Commission took issue with the proposed exchange of product level sales data, this is sales data for specific, named products by sector (government, private, trade and Macau) grouped by supplier or according to the ATC3 class. The proposed survey would have been published on a quarterly basis, one month after the end of each quarter. According to the Commission, the exchange of product level sales data would enhance transparency on the market and reduce independent decision-making and/or facilitate coordination. In particular, the Commission considered that quarterly data published one month after the end of the quarter did not constitute “historical data”.

The exchange of other data was considered as unlikely to raise concerns, such as the exchange of total sales data per company (unless a particular company only has one product on the market). In addition, the Commission did not object to the exchange of sales data per ATC3 category, unless a particular class only included a limited number of products or competitors.

The precedential value of this decision may be limited. Indeed, as the Commission itself recognized, assessing the competition concerns relating to an exchange of information require consideration of the context of the exchange and can differ depending on the products, markets and characteristics of the information exchange in question. Therefore, the analysis in the decision may not apply to exchanges of information in other contexts.

3.4 Commitments

Section 60 of the Ordinance allows the Commission to accept commitments from undertakings in exchange for terminating an investigation or not initiating proceedings before the Tribunal.

Seaport Alliance.[17] The Commission accepted commitments in relation to the Seaport Alliance (“Alliance”). This was a cooperative joint venture by four of the five terminal operators at Kwai Tsing Container Terminal. The purpose of the joint venture was to pool and share their capacity, coordinate prices, commercial terms and customer allocation, and sharing profit and losses. In essence, this was a model similar to the “metal-neutral” joint ventures in the airlines business.

The Commission considered that the Alliance was likely to result in anticompetitive effects as it eliminated competition between the largest operators at Kwai Tsing, covered between 80-90% of all the throughput at that port and the remaining operator had limited ability to expand capacity to operate as an alternative to the Alliance. As such, the Alliance’s members would be able to increase prices or decrease service levels.

In order to address the Commission’s concerns, the Alliance proposed a series of behavioural commitments. In essence, the Alliance agreed to (i) cap the charges for services to customers and maintain a minimum service level, (ii) maintain reciprocal overflow arrangements with the remaining port operator, and (ii) eliminate cross-directorships in specified other ports in Mainland China.

Online Travel Agents.[18] The Commission accepted commitments from three large online travel agents operating in Hong Kong, namely Booking.com, Expedia.com and Trip.com, in respect of the agreements entered into between the online travel agents and hotels. These agreements included provisions requiring hotels to provide the same or better room price, room condition and room availability to the online travel agents as the hotel provided to other third party sales channels.

The Commission considered that these provisions, which were akin to most-favoured nation clauses, were likely to have the effect of softening competition between travel agents by reducing the incentives for travel agents to lower the commission charged. As an effect of these provisions, hotels have limited incentives to offer better terms to new or smaller travel agents who seeks to attract business by charging less commission, as the hotels would have to offer the same terms to the three online travel agents pursuant to the abovementioned provisions.

In order to address the Commission’s concerns, the three online travel agents dropped these provisions. As a result, the Commission terminated its investigation.

4. Private Litigation

Private litigation is limited under the Ordinance. Parties can only initiate a case before the Tribunal after the Tribunal has ruled that an infringement has taken place. As an exception to that rule, private parties can raise defences based on the Ordinance in any litigation before the Court of First Instance. In that case, there is a possibility to transfer the case (or parts of it) to the Tribunal. For example, in Taching Petroleum Company, Limited and Shell Hong Kong Limited v Meyer Aluminium Limited [19], Taching and Shell commenced proceedings in the Hong Kong High Court against Meyer to recover outstanding unpaid invoices in relation to the supply of diesel. In defending such proceedings, Meyer alleged that Taching (a reseller of Sinopec diesel) and Shell had breached the First Conduct Rule by colluding to, inter alia, fix prices and exchange price information (the “Defence”), possibly with other suppliers. Meyer referred to a series of parallel price announcements by Taching and Shell. The case was transferred from the Hong Kong High Court to the Tribunal and the case remains pending before the Tribunal. Whilst the Defence was transferred to the Tribunal for determination and set down for trial in late 2020, as a result of the introduction by Meyer of expert evidence, along with other interlocutory applications, which the Tribunal largely determined against Meyer and which are subject to possible appeals, the trial has been adjourned to a future date. The Tribunal did allow expert evidence, but limited to “whether the uniformity in the pricing mechanisms and adjustments of Taching and Shell between January 2011 and June 2017 could be better explained on the hypothesis of collusion or on the hypothesis of independent conduct”.

Meyer’s claims of a conspiracy seems inconsistent with the findings of the Commission in its autofuel market study in which it came essentially to the conclusion that there was no evidence of collusion among suppliers of gasoline despite the similarity in retail prices and the fact that suppliers would increase/decrease prices at the same time.[20] Although the Tribunal should be commended for allowing Meyer to state its case, it seems that the various procedures amount to a waste of resources. If Shell and Taching prevail, Meyer risks being faced with a costs claim that is without proportion to the amounts at stake.

5. Mergers

The Merger Rule only applies to the telecommunications sector. Therefore, the Communications Authority (“CA”) will ordinarily take the lead in enforcing the Merger Rule.

There is no mandatory pre-closing notification system so there is no need to obtain approvals from the CA in order to close a transaction. The CA may initiate a preliminary investigation within thirty days after becoming aware that a merger took place. If, after carrying out that investigation, the CA has reasonable cause to believe that a merger could be in breach of the Ordinance, it has six months (starting from the day it became aware of the merger or the day the merger closed, whichever is the later) to initiate proceedings before the Tribunal to stop the merger process or unwind the merger. Merger parties can voluntary notify their merger to obtain (confidential) informal advice. This is likely to be a process of limited value because the CA will not reach out to third parties to obtain their views. Parties may also apply for a decision that their transaction does not breach the Ordinance but the CA is only required to consider such application if the merger raises essentially novel questions. Finally, the CA is empowered to accept commitments from the merger parties.

Enforcement activity in the merger space has been limited. The only decision relates to a merger between two fixed network operators, Hong Kong Broadband Network Limited and WTT HK Ltd, essentially a 4-to-3 merger. The CA initiated a preliminary investigation into the merger but the merger parties offered a set of commitment to address the concerns raised by the CA.[21] These commitments included (i) an obligation to facilitate access to non-residential buildings where both merging parties have already installed their own communications lines, and (ii) an obligation to continue to provide wholesale inputs to downstream rivals (e.g. mobile backhaul services).

Looking forward, the key issue is whether Hong Kong will extend the scope of the Merger Rule and adopt a cross-sector prohibition on anticompetitive mergers.

____________________

[1] Part 6 and Schedule 3 of the Ordinance.

[2] See Section 110 of the Ordinance.

[3] Leniency Policy for Undertakings Engaged in Cartel Conduct (Revised April 2020 version).

[4] Section 93(1) of the Ordinance.

[5] Leniency Policy for Individuals Involved in Cartel Conduct (April 2020 version).

[6] Cooperation and Settlement Policy for Undertakings Engaged in Cartel Conduct (April 2019 version).

[7] Competition Commission v Nutanix Hong Kong Limited and others (CTEA1/2017) [2019] HKCT 2.

[8] Competition Commission v Nutanix Hong Kong Ltd and Others (CTEA1/2017) [2017] 5 HKLRD 712.

[9] Competition Commission v W. Hing Construction Company Limited and others (CTEA2/2017) [2020] 2 HKLRD 1229, [2020] HKCT 1.

[10] Competition Commission v Kam Kwong Engineering Company Limited and others (CTEA1/2018) [2020] 4 HKLRD 61, [2020] HKCT 3.

[11] Competition Commission v Fungs E & M Engineering Company Limited and others (CTEA1/2019) [2020] HKCT 9.

[12] Competition Commission v Quantr Limited and another (CTEA1/2020) [2020] HKCT 10; Commitment to Comply with Requirements of Infringement Notice issued to Nintex Proprietary Limited by Competition Commission, 16 January 2020.

[13] Competition Commission v T.H. Lee Book Company Limited and others (CTEA2/2020).

[14] Competition (Block Exemption For Vessel Sharing Agreements) Order 2017.

[15] Commission Decision under section 11(1) of the Competition Ordinance in respect of the Code of Banking Practice, 15 October 2018.

[16] Commission Decision under section 11(1) of the Competition Ordinance in respect of a proposed pharmaceutical sales survey, 26 September 2019.

[17] Commitments by Modern Terminals Limited and HPHT Limited (Case EC/03AY), 30 October 2020.

[18] Commitment by Booking.com B.V., 13 May 2020; Commitment by Expedia Lodging Partner Services Sarl, 13 May 2020; and Commitment by Trip International Travel (Hong Kong) Limited and Ctrip.com (Hong Kong) Limited, 13 May 2020.

[19] [2018] HKCFI 2095, [2019] HKCFI 515, [2019] HKCT 1 and [2019] HKCT 2.

[20] Report on Study into Hong Kong’s Auto-fuel Market, 4 May 2017.

[21] Notice of Acceptance by the Communications Authority of Commitments Offered by Hong Kong Broadband Network Limited, HKBN Enterprise Solutions Limited and WTT HK Limited under Section 60 of the Competition Ordinance in relation to the Proposed Acquisition of WTT Holding Corp. by HKBN Ltd., 17 April 2019.

The following Gibson Dunn lawyers assisted in the preparation of this client update: Sébastien Evrard, Winson Chu, Bonnie Tong and Adam Ismail.

Gibson Dunn 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 Antitrust and Competition Practice Group, or the following lawyers in the firm’s Hong Kong office:

Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com)
Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com)
Winson S. Chu (+852 2214 3713, wchu@gibsondunn.com)
Bonnie Tong (+852 2214 3762, btong@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Paris partner Pierre-Emmanuel Fender is the author of “Weathering the Covid-19 Crisis in France,” [PDF] published in the Europe, Middle East and Africa Review 2020 by Global Restructuring Review in December 2020.

The General Court of the European Union (“General Court”) delivered three Judgments on 16 December 2020 which confirmed different aspects of the scope of the powers enjoyed by the European Commission (“the Commission”) in its application of competition rules in the European Union (“EU”). In a nutshell, the General Court has confirmed that the Commission:

is entitled to apply competition rules to sports activities;
has a very wide discretion in determining whether or not there is sufficient “Community interest” for it to pursue an infringement action under Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”); and
has a broad discretion in interpreting commitments given in merger proceedings to ensure they are in line with other EU policies.

I. Competition Law and Sports Associations: Case T-93/18 – International Skating Union v. Commission

In relation to the role of sports in the EU, Article 165 TFEU provides that: “The Union shall contribute to the promotion of European sporting issues, while taking account of the specific role of sport, its incentives based on voluntary activity and its social and educational function”. The General Court has confirmed that Article 165 TFEU does not prevent the Commission from determining whether rules adopted by sporting associations are contrary to the terms of Articles 101 or 102 TFEU (the EU equivalent of Sections 1 & 2 of the Sherman Act). In doing so, it rejected the appeal of the International Skating Union (the “ISU”) to overturn an earlier Commission’s Decision.[1]

Commission Decision

Following a complaint by two Dutch professional speed skaters, the European Commission initiated proceedings in relation to the ISU’s eligibility rules that provided that skaters who participated in events that were not authorized by the ISU would become ineligible to participate in all ISU events. The Commission concluded that these rules had both the object and effect of restricting competition and therefore breached EU competition rules.[2]

In its Decision, the Commission referred to the Meca-Medina Case, in which the Court of Justice found that the rules relating to the organisation of competitive sport were subject to EU competition law but might fall outside the application of Article 101 TFEU under certain circumstances, namely:

the overall context in which the rules were made or produced their effects, and their objectives;
whether the consequential effects which restricted competition were inherent in the pursuit of the objectives behind the rules; and
whether the rules were proportionate in pursuing such objectives.[3]

In the present case, the Commission found that the eligibility rules did not fall outside the application of Article 101 TFEU because they were neither inherent in the pursuit of legitimate objectives nor proportionate to achieve legitimate objectives, in particular in view of the disproportionate nature of the ISU’s ineligibility sanctions (possibly resulting in a lifetime ban).

General Court

Citing precedents from both Articles 102 and 106 TFEU, the General Court found that the ISU had placed itself in a position of potential conflict of interest because it had the powers of a regulator (inter alia by being responsible for the adoption of membership rules and setting the conditions of tournament participation) and was acting as a commercial body (in organising competitions as part of its commercial activities). That conflict of interest was – consistent with the administrative practice of the Commission and supported by the European Courts – likely to give rise to anti-competitive results.[4] This was borne out by the fact that the eligibility rules adopted by the ISU were not based on criteria that were clearly defined, objective, transparent, and non-discriminatory in nature. They allowed the ISU to retain a very broad discretion to refuse the authorisation of competitions proposed by third parties.[5] Finally, the severity of the penalties exacted by the ISU was disproportionate to the alleged infringements of such rules, both when considered in the light of ill-defined categories of infringement and the duration of the penalties relative to the average career length of a skater.[6]

In the circumstances, the General Court agreed with the Commission’s conclusion that the ISU’s rules went beyond any objectives outlined in Article 165 TFEU and, as such, constituted a restriction of competition law “by object”.[7]

The only aspect of the Commission’s analysis with which the Court did not agree related to the Commission’s conclusion that the exclusive arbitration procedure endorsed by the ISU where its decisions were challenged did not constitute an aggravating factor for the purpose of calculating the fine imposed on the ISU. According to the General Court, recourse to arbitration proceedings before the Court of Arbitration for Sport (CAS) did not constitute an aggravating circumstance in the determination of the level of the fine, as the CAS was an independent body that was appropriately placed to adjudicate disputes between the ISU and its members.[8]

Conclusions

The Judgment is not unexpected and is in line with previous case-law. It has been well established that EU competition rules apply to many elements of professional sport, similar to how the antitrust rules in the US have a long track record of being applied in a sporting context.[9] Such applicability does not undermine the essential social and cultural aspects of sport, which inevitably give rise elements of “solidarity” between competitive athletes that are necessary for the sustainability of competition in team and individual sports. As there has recently been a Complaint lodged against Euroleague,[10] this will inevitably prove to be an area which generates more competition issues in the future.

The rules on membership adopted by the ISU are viewed in a very similar way to how the Commission would look at the membership rules of trade associations and standardisation bodies. If there are foreclosure risks, the rules must be non-discriminatory and objective.[11] It is also interesting that the Court expressed concerns that the market ‘regulator’ was also having commercial activities.[12] One can envisage that this principle, especially with the General Court embracing Article 106 precedents, arguably provides the Commission with additional (albeit indirect) support in its actions against digital platforms engaged in so-called “self-preferencing” practices. At the heart of any theory of harm based on concerns about self-preferencing lies the view that the digital platform self-preferencing its own services is a de facto ‘regulator’ of the market in parallel with its role as a market player.[13]

In addition, the Judgment sets out some clear principles for the identification of a competition restriction “by object”. As is made clear by the Court, whether any given practice satisfies the “by object” characterisation turns not only on the nature of the offence but also on its particular market context and on the necessary implications for market actors likely to be affected by such restrictions. Although the General Court is not breaking new ground in this respect,[14] the clarity of its approach is welcome.

Finally, the General Court has not sought to challenge the traditional appellate hierarchy established by many international sporting bodies, which choose to settle their disputes either through litigation or arbitration in institutions lying outside the EU.

II. Community Interest and Competition Law Enforcement:
Case T-515/18 – Fakro v. Commission

The General Court dismissed the appeal of FAKRO Sp. z o.o. (“Fakro”) in its attempt to overturn a Commission Decision rejecting Fakro’s complaint that Velux, its roof-window specialist rival, had abused its dominant position by inter alia engaging in several categories of abuse, including a selective pricing policy (such as rebates, predatory pricing and price discrimination), by introducing “fighting brands” with the sole purpose of eliminating competition, and by brokering exclusive agreements.[15]

In so holding, the Court confirmed again that the Commission has a very large margin of discretion in determining whether or not to pursue complaints on the ground that they lack sufficient Community interest.[16]

Commission Decision

In its 2018 Decision, the Commission found that there were insufficient grounds to pursue claims that Velux had abused its dominant position in the market for roof windows and flashings, and that it would be disproportionate to conduct a further investigation into the alleged behaviour based on the resources that would be needed.[17] Fakro appealed, arguing that the Commission had:

committed a manifest error in concluding that there would be no “Community interest” in pursuing the action, as the Commission had not taken a definitive position either in relation to the finding of dominance or in relation to the elements of abusive behaviour that had been identified by Fakro;
infringed the principle of sound administration set forth under the Article 41 of the EU’s Charter of Fundamental Rights,[18] especially by taking as long as 71 months to adopt the Decision rejecting Fakro’s Complaint, thereby effectively preventing Fakro from approaching National Competition Authorities until national statutory limitation periods had elapsed; and
infringed Article 8(1) of Regulation 773/2004 by refusing Fakro access to the Commission’s file, thereby undermining its rights of defence.[19]

General Court

The General Court rejected all three pleas in their entirety.

First, the General Court did not look kindly on what it considered to be the lack of probative evidence submitted by Fakro. In such circumstances, it was wrong to expect that the Commission was in any position to establish the existence of the alleged abusive behaviour by Velux. Accordingly, the General Court was unwilling to oblige the Commission to engage on a speculative fact-finding exercise, holding that: “As the Commission is under no obligation to rule on the existence or otherwise of an infringement it cannot be compelled to carry out an investigation, because such investigation could have no purpose other than to seek evidence of the existence or otherwise of an infringement, which it is not required to establish”.[20]

Second, the General Court reminded Fakro that the Commission is “entrusted […] with the task of ensuring application of Articles [101 and 102 TFEU], is responsible for defining and implementing Community competition policy and for that purpose has a discretion as to how it deals with complaints”.[21] While acknowledging that the Commission’s discretionary powers are not unfettered, the General Court nevertheless concluded that the Commission was entitled to give different levels of priority to complaints and that it is not required to establish that an infringement has not been committed in order to decide not to open an investigation.[22]

As regards the length of the investigative procedure, the General Court acknowledged that a period of 71 months between the Complaint being lodged and the Decision to reject the Complaint is a “particularly long [period of time] accentuated by the fact that the applicant denounced the practices as soon as [July 2012]”.[23] However, the General Court also held that: (i) the length of the procedure was explained by the particular circumstances of the case; (ii) Fakro had not demonstrated that the Commission’s Decision to reject the Complaint was affected by the length of the procedure; and (iii) the length of the procedure could not, in and of itself, serve as a basis for an action for annulment.[24] Moreover, Fakro had failed to demonstrate to the General Court why it was impossible to pursue claims under Article 102 TFEU before National Competition Authorities or national courts.

Third, the General Court dismissed Fakro’s argument regarding access to the file, citing settled case-law according to which “the complainants’ right of access does not have the same scope as the right of access to the Commission file afforded to persons, undertakings and associations of undertakings that have been sent a statement of objections by the Commission, which relates to all documents which have been obtained, produced or assembled by the Commission Directorate-General for Competition during the investigation, but is limited solely to the documents on which the Commission bases its provisional assessment”.[25]

Conclusions

The General Court usefully delved deep into the evidence before arriving at its conclusions, rather than dismissing Fakro’s application with a blanket endorsement of the Commission’s wide discretion to reject competition law complaints. Clearly, Fakro’s shortcomings in producing sufficient evidence played a material role in the assessment of the Court.

By the same token, we have witnessed over the years a steady rise in the elevation of rights conferred under the EU’s Human Rights Charter being assimilated into the rights of the defence in competition cases. It might not be stretching the imagination too far to suggest that, absent the poor evidentiary record of abuse that was laid before the Commission, the European Courts might at some point in the future consider it unacceptable that a period as long as 71 months can be taken by the Commission to arrive at the threshold conclusion that it is not obliged to pursue a competition infringement action. Such delays do not sit comfortably with the principle of “good administration”.

III. Commission holds the whip-hand in the interpretation of the scope of commitments: Case T-430/18 – American Airlines

American Airlines (the “Applicant”) failed in its appeal against a Commission Decision granting Delta Air Lines (the “Intervener”) permanent rights to slots at London Heathrow and Philadelphia airports, which it had obtained in the context of commitments given by American Airlines and US Airways in order for their merger to be approved.[26]

Commission Decision

In the merger review proceedings, Delta Air Lines had submitted a formal bid for slots in order to operate on the London Heathrow – Philadelphia International Airports routes. By Decision of 19 December 2014, the Commission approved the Slot Release Agreement concluded between Delta Air Lines and American Airlines, appending the Agreement to its merger clearance Decision. The commitments provided that Delta Air Lines would acquire slot rights, provided it made “appropriate use” of the slots.

However, in September 2015, the Applicant claimed that Delta Air Lines had failed to operate the relevant slots in accordance with the terms of the Agreement because it had not operated them in accordance with the frequency that it had proposed in its bid for the slots, thereby under-using them. As a result, American Airlines claimed that the Delta Air Lines had not made ‘appropriate use’ of the slots remedy.

On 30 April 2018, the Commission adopted a Decision rejecting the Applicant’s claim, concluding that the Intervener had made an appropriate use of the slots,[27] despite the fact that the commitments did not include a definition of such term. The Commission concluded that the term ‘appropriate use’ should be interpreted as meaning ‘the absence of misuse’, and not as ‘use in accordance with the bid’, as had been argued by the Applicant.

General Court

The General Court upheld the Commission’s Decision and held that the term ‘appropriate use’ of the slots had to be interpreted as the absence of misuse. However, the General Court also held that the two interpretations were not irreconcilable and that “the term ‘appropriate’ implies a use of slots which may not always be completely ‘in accordance with the bid’ but nonetheless remains above a certain threshold”.[28] In order to determine that threshold, the General Court made reference to the “use it or lose it” principle that lies at the heart of the Airport Slots Regulation. According to that principle, use of 80% slot capacity constitutes a sufficient use of the allotted slots.[29] Based on this principle, the General Court concluded that “it cannot be considered to be self-evident that the entrant is expected to operate, in principle, the airline service in its bid at 100% in order to acquire Grandfathering rights”.[30]

Conclusions

The effectiveness of behavioural remedies to address competition problems in a merger review, especially those remedies that involve some form of access to infrastructure, have proven at times to be especially difficult for the Commission to monitor. That task is rendered somewhat easier for the Commission where the activities concerned are already subject to a regulatory regime which mandates access. This gives the Commission a benchmark in terms of the legal standard that needs to be satisfied.

In this particular case, the Commission went one step further. It relied on the Airport Slots Regulation to provide the basis of interpretation of the scope of an access remedy involving access to airport slots, rather than merely the modalities of access. In this way, any ambiguity in the meaning of the behavioural remedies that formed part of the Commission’s conditional clearance Decision involving the American Airlines’ merger could be resolved by reference to the structure and policy purpose behind the Regulation.

Even when analysing the significance of the commitments by reference to their precise language, the General Court purported to do so by interpreting their scope in accordance with the meaning attributed under the Airport Slots Regulation to the “misuse” of those rights. In this way, the Commission and the Court have both attributed higher value to the policy direction of a regulatory instrument in the sector rather than the express words agreed under the commitments. Merging parties may not find this to be a precedent to their liking, as it is arguably a case which adds little to the goal of legal certainty – unless of course the Ruling can be limited to the very specific facts of the case and the particular dynamics of the airline sector.

____________________

[1] Judgment of 16 December 2020, International Skating Union v. Commission, Case T-93/18, EU:T:2020:610.

[2] Commission Decision of 08.12.2017 in Case AT.40208 – International Skating Union’s Eligibility Rules.

[3] Judgment of 18 July 2006, Meca-Medina, Case C-519/04 P, ECLI:EU:C:2006:492, para. 42. The Commission added that the case-law of the Court of Justice does not create a presumption of legality of such rules. Sporting rules are not presumed to be lawful merely because they have been adopted by a sports federation.

[4] Although the Commission’s action against the Applicant was brought under Article 101 TFEU, recourse to Article 102 TFEU precedents (and by extension, Article 106) was appropriate given that multilateral conduct otherwise falling under Article 101 was effected by an “association of undertakings” in this case, which can also be the subject of action under Article 102 where that association of undertakings (as was the case with the Applicant) holds a dominant position.

[5] See Paragraph 118 of the Judgment.

[6] See Paragraphs 90-95 of the Judgment.

[7] A competition restriction by object is contrary to the terms of the prohibition of Article 101 (1) TFEU because it is highly likely to generate anti-competitive consequences given its very nature and contextual setting. In some respects, the concept is related, but not identical to, the concept of a per se offence under US antitrust rules.

[8] Refer to discussion at Paragraphs 155-164 of the Judgment.

[9] For example, refer to Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball

Clubs, 259 U.S. 200 (1922); Denver Rocket v. All-Pro Management, Inc, 325 F. Supp. 1049, 1052, 1060 (C.D. Cal. 1971); Smith v. Pro-Football, 420 F. Supp. 738 (D.D.C. 1976); Brown v. Pro Football, Inc., 116 S.Ct. 2116 (1996). See also, more recently, a complaint against the Fédération International de Natation, available at: https://swimmingworld.azureedge.net/news/wp-content/uploads/2018/12/isl-lawsuit.pdf.

[10] ULEB, the organization bringing together national basketball leagues in Europe, filed a complaint against Euroleague, claiming that Euroleague illegally boycotts the participation of the winners of some leagues in its competition. See Mlex “Euroleague targeted by fresh EU antitrust complaint from national leagues” (01.10.2020), available at: https://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=1229542&siteid=190&rdir=1.

[11] For example, see Judgment of 10 March 1992, ICI v. Commission, Case T-13/89, EU:T:1992:35; Judgment of 30 January 1985, BNIC, Case C-123/83, EU:C:1985:33; Judgment of 7 January 2004, Aalborg Portland v. Commission, Case C-204/00 P, EU:C:2004:6.

[12] For example, see Judgment of 28 June 2005, Dansk Rørindustri and Others v Commission, C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P, EU:C:2005:408, paras. 209 to 211.

[13] A classic case in point is the Commission’s Decision in the Google Shopping Case, Commission Decision AT.39740 of 27 June 2017, with the issue of self-preferencing being raised in Google’s appeal of the Commission Decision to the General Court, Case T-612/17, Google and Alphabet v. Commission, OJ C 369 from 30.10.2017, p. 37 [pending].

[14] For example, see Judgment of 6 October 2009, GlaxoSmithKline Services and Others v. Commission and Others, Joined Cases C-501/06 P etc., EU:C:2009:610; Judgment of 20 November 2008, Beef Industry Development and Barry Brothers, Case C-209/07, EU:C:2008:643; Judgment of 14 March 2013, Allianz Hungaria Biztosito and Others, Case C-32/11, Eu:C:2013:160.

[15] Judgment of 16 December 2020, Fakro v. Commission, Case T-515/18, EU:T:2020:620. On 21 December 2020, Fakro announced that it would lodge a further appeal to the Court of Justice of the European Union.

[16] This type of threshold assessment is necessary under the terms of procedural Regulation 1/2003 in order to determine whether it is the Commission or the Member States that are best placed to entertain particular types of competition law complaints.

[17] Commission Decision of 14.06.2018 in Case AT.40026 – Velux.

[18] Charter of Fundamental Rights of the European Union, OJ C 364, 18.12.2000, pp. 1-22.

[19] Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles [101 TFEU and 102 TFEU], OJ L 123, 27.4.2004, pp. 18-24, Article 8(1): “Where the Commission has informed the complainant of its intention to reject a complaint pursuant to Article 7(1) the complainant may request access to the documents on which the Commission bases its provisional assessment. For this purpose, the complainant may however not have access to business secrets and other confidential information belonging to other parties involved in the proceedings”.

[20] Refer to discussion at Paragraph 208 of the Judgment. See also Judgment of 18 September 1991, Automec v. Commission, Case T-24/90, EU:T:1992:97, para. 76; Judgment of 16 October 2013, Vivendi v. Commission, Case T-432/10, EU:T:2013:538, para. 68; Judgment of 23 October 2017, CEAHR v. Commission, Case T-712/14, EU:T:2017:748, para. 61.

[21] Refer to discussion at Paragraph 66 of the Judgment. See also Judgment of 26 January 2005, Piau v. Commission, Case T-193/02, EU:T:2005:22, para. 80 ; Judgment of 12 July 2007, AEPI v.Commission, Case T-229/05, EU:T:2007:224, para. 38; and Judgment of 15 December 2010, CEAHR v. Commission, Case T-427/08, EU:T:2010:517, para. 26.

[22] Judgment of 4 March 1999, Ufex e.a. v. Commission, Case C-119/97 P, EU:C:1999:116, para. 88; Judgment of 16 May 2017, Agria Polska e.a. v. Commission, Case T-480/15, EU:T:2017:339, para. 34.

[23] Refer to discussion at Paragraph 83 of the Judgment.

[24] Indeed, as regards the application of the competition rules, exceeding reasonable time limits can only constitute a ground for annulment of infringement decisions and on condition that it has been established that this has infringed the rights of defence of the undertakings concerned. Apart from this specific type of case, the failure to comply with the obligation to act within a reasonable time does not affect the validity of the administrative procedure under Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 [EC] (OJ 2003 L 1, p. 1) (see Judgment of 15 July 2015, HIT Groep v Commission, Case T-436/10, EU:T:2015:514, paragraph 244).

[25] Refer to Paragraph 43 of the Judgment. See also Judgment of 11 January 2017, Topps Europe/Commission, Case T-699/14, EU:T:2017:2, para. 30; Judgment of 11 July 2013, Spira v Commission, T-108/07 and T-354/08, EU:T:2013:367, paras. 64 and 65.

[26] Judgment of 16 December 2020, American Airlines v. Commission, Case T-430/18, EU:T:2020:603. The grandfathering rights are defined as “The Prospective Entrant will be deemed to have grandfathering rights for the Slots once appropriate use of the Slots has been made on the Airport Pair for the Utilization period. In this regard, once the Utilization period has elapsed, the Prospective Entrant will be entitled to use the Slots obtained on the basis of these Commitments on any city pair (‘Grandfathering’)”.

[27] Commission Decision of 30.04.2018 in Case M.6607 – US Airways / American Airlines.

[28] Refer to Paragraph 105 of the Judgment.

[29] Council Regulation (EEC) No 95/93 on common rules for the allocation of slots at Community airports, OJ L 1993, 18.01.1993, p. 1, Article 10(2).

[30] Refer to Paragraph 147 of the Judgment.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition Practice Group, or the following authors in Brussels:

Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com)
David Wood (+32 2 554 7210, dwood@gibsondunn.com)
Iseult Derème (+32 2 554 72 29, idereme@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 11, 2020, Congress fulfilled its constitutional obligation “to provide for the common defense,”[1] passing for the 60th consecutive year the National Defense Authorization Act (“NDAA”), H.R. 6395. Buried on page 1,238 of this $740.5 billion military spending bill is an amendment to the Securities Exchange Act of 1934. That amendment gives the Securities and Exchange Commission, for the first time in its history, explicit statutory authority to seek disgorgement in federal district court. It also doubles the current statute of limitations for disgorgement claims in certain classes of cases. The amendment appears to be a direct response to recent Supreme Court decisions limiting the SEC’s authority.

Although the Exchange Act does not by its terms authorize the SEC to seek “disgorgement” for Federal Court actions, the agency has long requested this remedy, and courts have long awarded it under their power to grant “equitable relief.”[2] In Liu v. SEC, 140 S. Ct. 1936 (2020), however, the Supreme Court made clear that while disgorgement could qualify as “equitable relief” in certain circumstances, to do so, it must be bound by “longstanding equitable principles.”[3] Generally, under Liu, disgorgement cannot be awarded against multiple wrongdoers under a joint-and-several liability theory, and any amount disgorged must be limited to the wrongdoer’s net profits and be awarded only to victims, not to the U.S. Treasury. And just three years earlier, in Kokesh v. SEC, 137 S. Ct. 1635 (2017), the Court added other limitations on the SEC’s ability to seek disgorgement, holding that disgorgement as applied by the SEC and courts is a “penalty” and therefore subject to the same five-year statute of limitations as the civil money penalties the SEC routinely seeks.[4]

The SEC has not responded positively to either decision, particularly Kokesh. Chairman Clayton stated that he is “troubled by the substantial amount of losses” he anticipated the SEC would suffer as a result of the five-year statute of limitations applied in Kokesh.[5] And for that reason, he has urged Congress to “work with” him to extend the statute of limitations period for disgorgement.[6]

Section 6501 of the NDAA appears to grant the SEC its wish, at least in part. The bill authorizes the SEC to seek “disgorgement . . . of any unjust enrichment by the person who received such unjust enrichment,” establishing that the SEC has statutory power to seek disgorgement in federal court. And it provides that “a claim for disgorgement” may be brought within ten years of a scienter-based violation—twice as long as the statute of limitations after Kokesh. As one Congressman put it in reference to a similar provision in an earlier bill, this “legislation would reverse the Kokesh decision” by allowing the SEC to seek disgorgement for certain conduct further back in time.[7] The proposed amendment would apply to any action or proceeding that is pending on, or commenced after, the enactment of the NDAA.

If enacted, the NDAA will likely embolden the SEC on numerous levels. It will, for instance, likely encourage the agency to charge scienter-based violations to obtain disgorgement over a longer period. It also will likely incentivize the SEC to use this authority to eschew the equitable limitations placed on disgorgement in Liu and even to apply that expanded conception of disgorgement retroactively to pending cases. It is not clear, however, whether courts would go along. If Congress, for example, had wanted to free the SEC from all equitable limitations identified in Liu, it could have said so explicitly. Courts may be especially reluctant if, as the SEC may claim, the disgorgement provision of the NDAA can be applied retroactively. Because the “[r]etroactive imposition” of a penalty “would raise a serious constitutional question,”[8] the courts would not lightly find that disgorgement had slipped Liu’s equitable limitations, the one thing potentially keeping disgorgement from “transforming . . . into a penalty” after Liu.[9]

We will continue to monitor the NDAA, which is currently awaiting the President’s signature or veto. Although the President has threatened to veto the bill over unrelated provisions, Congress likely has enough votes to override that veto.[10]

____________________

[1] U.S. Const. pmbl.; see also U.S. Const. art. I, § 8, cls.12–14.

[2] 15 U.S.C. § 78u(d)(5); see Liu v. SEC, 140 S. Ct. 1936, 1940–41 (2020).

[3] Liu, 140 S. Ct. at 1946.

[4] The Supreme Court’s cabining of the SEC’s disgorgement authority to “longstanding equitable principles” in Liu raised at least some doubt whether SEC disgorgement continued to be a “penalty” for statute of limitations purposes under Kokesh.

[5] Jay Clayton, Chairman, SEC, Keynote Remarks at the Mid-Atlantic Regional Conference (June 4, 2019), https://www.sec.gov/news/speech/clayton-keynote-mid-atlantic-regional-conference-2019.

[6] Id.

[7] 165 Cong. Rec. H8931 (daily ed. Nov. 18, 2019) (statement of Rep. McAdams), https://www.congress.gov/116/crec/2019/11/18/CREC-2019-11-18-pt1-PgH8929.pdf.

[8] Landgraf v. United States, 511 U.S. 244, 281 (1994).

[9] Liu, 140 S. Ct. at 1944.

[10] Lindsay Wise, Senate Approves Defense-Policy Bill Despite Veto Threat, Wall St. J. (Dec. 11, 2020), https://www.wsj.com/articles/senate-advances-defense-policy-bill-despite-trump-veto-threat-11607703243.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Enforcement, Administrative Law and Regulatory or White Collar Defense and Investigations practice groups, or the following authors:

Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)
M. Jonathan Seibald – New York (+1 212-351-3916, mseibald@gibsondunn.com)
Brian A. Richman – Washington, D.C. (+1 202-887-3505, brichman@gibsondunn.com)

Please also feel free to contact any of the following practice leaders:

Securities Enforcement Group:
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Richard W. Grime – Washington, D.C. (+1 202-955-8219, rgrime@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212-351-2433, mschonfeld@gibsondunn.com)

Administrative Law and Regulatory Group:
Helgi C. Walker – Washington, D.C. (+1 202-887-3599, hwalker@gibsondunn.com)

White Collar Defense and Investigations Group:
Joel M. Cohen – New York (+1 212-351-2664, jcohen@gibsondunn.com)
Charles J. Stevens – San Francisco (+1 415-393-8391, cstevens@gibsondunn.com)
F. Joseph Warin – Washington, D.C. (+1 202-887-3609, fwarin@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 14, 2020, the United States imposed sanctions on the Republic of Turkey’s Presidency of Defense Industries (“SSB”), the country’s defense procurement agency, and four senior officials at the agency, for knowingly engaging in a “significant transaction” with Rosoboronexport (“ROE”), Russia’s main arms export entity, in procuring the S-400 surface-to-air missile system. These measures were a long-time coming—under Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”) of 2017, the President has been required to impose sanctions on any person determined to have knowingly “engage[d] in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation.” This includes ROE, and Turkey’s multi-billion dollar S-400 transaction with ROE has been public knowledge for at least three years. Indeed, in 2017, we forecasted that the deal would “test both the power of [Section 231]’s deterrence and potentially Congress’s patience.”

That the President only imposed the sanctions now demonstrates that despite Congress’ increasing appetite for being involved in sanctions implementation—which has historically been the province of the Executive—the legislative branch has limited ability to push the Executive to impose sanctions even when requiring such measures by law. Moreover, it also demonstrates that, as we have discussed in prior updates, the President retains meaningful discretion when deciding whether to impose congressionally-mandated sanctions because all similar “mandatory” sanctions measures are triggered only after the Executive makes a “determination” of “significance.” At least in the context of sanctions, “[t]he President shall impose . . .” turns out not to have the meaning in practice that Congress arguably thinks it means. Under CAATSA, the President needs to “determine” that a transaction was “significant”—two discretionary gating requirements that can be used to delay the imposition of measures if the Executive chooses. This flexibility was also used by the Obama Administration with respect to certain mandated Iran sanctions; and we fully expect the incoming Biden Administration to rely on a similar flexibility as it deems fit when calibrating its foreign policy.

Since the deal with ROE was announced, the United States has repeatedly pressured Turkey, a U.S. ally and member of the North Atlantic Treaty Organization (“NATO”), to abandon the plan—going so far as to remove Ankara from its F-35 stealth fighter development and training project—but had thus far refused to impose the Section 231 sanctions. The United States has not been so restrained with respect to China. In September 2018, the Trump Administration imposed Section 231 sanctions on a Chinese entity—the Equipment Development Department (“EDD”)—for facilitating China’s acquisition of the identical S-400 equipment. Despite U.S. efforts at deterrence with respect to Turkey, President Erdogan proceeded with formally acquiring the S-400 system in July 2019 and reportedly began its testing in October 2020.

The Sanctions Imposed

The four SSB executives who have been sanctioned (“SSB Executives”)—Dr. Ismail Demir (President), Faruk Yigit (Vice President), Serhat Gencoglu (Head of Department of Air Defense and Space), and Mustafa Alper Deniz (Program Manager for Regional Air Defense Systems Directorate)—have been added to the Specially Designated Nationals and Blocked Persons List (“SDN List”) managed by the Treasury Department’s Office of Foreign Assets Control (“OFAC”). Any of their assets under U.S. jurisdiction are blocked and U.S. persons are prohibited from engaging in nearly any transaction with them—including as counterparties on contracts (see OFAC FAQ 400).

The sanctions imposed on SSB are more complex and are novel enough that OFAC was compelled to construct a new Non-SDN Menu-Based Sanctions (“NS-MBS”) List solely for SSB (and any subsequent entity subject to similar sanctions). The Administration chose to fully sanction China’s EDD and added the entity to the SDN List in September 2018—so the new list structure was not needed at that time.

Section 231 of CAATSA requires the imposition of at least five of the 12 “menu-based” sanctions described in Section 235. The five menu-based sanctions imposed on SSB are:

Prohibition on granting U.S. export licenses and authorizations for any goods or technology transferred to SSB (CAATSA Section 235(a)(2));
Prohibition on loans or credits by U.S. financial institutions to SSB totaling more than $10 million in any 12-month period (CAATSA Section 235(a)(3));
Prohibition on U.S. Export-Import Bank assistance for exports to SSB (CAATSA Section 235(a)(1));
Requirement for the United States to oppose loans benefitting SSB by international financial institutions (CAATSA Section 235(a)(4)); and
Full blocking sanctions and visa restrictions (CAATSA Section 235(a)(7), (8), (9), (11), and (12)) on the SSB Executives.

While the designation of the four SSB Executives is impactful for them personally—and potentially for SSB to the extent any or all are directly involved in dealings—the most meaningful restriction for SSB itself is likely to be the prohibition on the granting of U.S. export licenses under Section 235(a)(2). Pursuant to this prohibition, the State Department’s Directorate of Defense Trade Controls (“DDTC”) and the Commerce Department’s Bureau of Industry and Security (“BIS”) announced that they will not approve any export license or authorization applications where SSB is a party to the transaction. However, even this restriction may be less than it seems. In our experience, SSB is rarely identified as a party to export licenses, which more typically identify a more specific Turkish Armed Forces component, companies owned by SSB, or joint ventures these companies might form with non-Turkish defense contractors. Moreover, DDTC clarified that it will construe the prohibition to not include temporary import authorizations, existing export and re-export authorizations, and licenses involving subsidiaries of SSB—although any licenses submitted in relation with SSB subsidiaries will be “subject to a standard case-by-case review, including a foreign policy and national security review.” Furthermore, because many of the existing export authorizations have four- and ten-year terms, it may be many years before any change in DDTC or BIS treatment of SSB-associated licensing requests have a practical impact on SSB or the Turkish Armed Forces. Notwithstanding these facts, it is possible that the mere listing of SSB will prove impactful—and it is also possible that, if Turkey continues its activities, the regulations could become stricter and additional designations (including to the SDN List) could be imposed.

Conclusion and Implications

The sanctions imposed on SSB mark the first time that CAATSA measures have been imposed against a member of the NATO alliance. According to the State Department, the Administration’s “actions are not intended to undermine the military capabilities or combat readiness of Turkey or any other U.S. ally or partner, but rather to impose costs on Russia in response to its wide range of malign activities.” That might explain why the menu-based sanctions chosen, while consequential, do not go so far as to add SSB to the SDN List. This was not the first time the Trump Administration sanctioned major Turkish actors. It is, however, a far more nuanced approach than that the Trump Administration took in October 2019 when it sanctioned the Turkish defense and natural resources ministries (and their ministers) in connection with Ankara’s military operations in Syria (see our October 18, 2019 Client Update). In that case, the entities and individuals were added to the SDN List—and then promptly de-listed a short time later following a ceasefire in Syria.

The SSB sanctions may have a longer life under the Biden Administration. Not only is the new administration likely to be more keen on imposing meaningful measures against Russia, but also Congress is seeking to tie the Executive’s hands further with respect to the CAATSA sanctions. On December 11, 2020, Congress passed the National Defense Authorization Act for the Fiscal Year 2021 (“NDAA FY 2021”). Though President Trump has threatened to veto the bill, it has passed both Houses of Congress with a veto-proof majority. Section 1241 of NDAA FY 2021 requires the President to impose sanctions on persons involved in Turkey’s S-400 deal, under Section 231 of CAATSA, within 30 days. The bill further provides that the sanctions cannot be terminated without reliable assurances that Turkey no longer possesses and will not possess the S-400 “or a successor system” (a reference to an S-500 missile system Turkey and Russia have talked about since May 2019). This would require a public reversal of Turkey’s defense policies and acquisitions, which seems unlikely in the near term. As such, there may not be a colorable statutory basis to lift the sanctions. Indeed, rather than indicating a retreat from its S-400 purchase, immediately following the sanctions decision, the Turkish Ministry of Foreign Affairs issued a statement that Turkey “will retaliate in a manner and timing it deems appropriate” and urged the United States “to reconsider this unfair decision.” Considering Turkey’s status as a NATO ally and the presence of U.S. forces in Turkey, the Biden Administration will almost certainly face pressures in the early days to articulate its view of the bilateral relationship going forward.

The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Ron Kirk, Adam M. Smith, Chris T. Timura, Stephanie L. Connor, Audi Syarief, and Claire Yi.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade practice group:

United States:
Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, jalee@gibsondunn.com)
Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, rkirk@gibsondunn.com)
Jose W. Fernandez – New York (+1 212-351-2376, jfernandez@gibsondunn.com)
Marcellus A. McRae – Los Angeles (+1 213-229-7675, mmcrae@gibsondunn.com)
Adam M. Smith – Washington, D.C. (+1 202-887-3547, asmith@gibsondunn.com)
Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, sconnor@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202-887-3690, ctimura@gibsondunn.com)
Ben K. Belair – Washington, D.C. (+1 202-887-3743, bbelair@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, cmbrown@gibsondunn.com)
Laura R. Cole – Washington, D.C. (+1 202-887-3787, lcole@gibsondunn.com)
Jesse Melman – New York (+1 212-351-2683, jmelman@gibsondunn.com)
R.L. Pratt – Washington, D.C. (+1 202-887-3785, rpratt@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202-887-3509, ssewall@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202-955-8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202-887-3588, stoussaint@gibsondunn.com)
Claire Yi – Washington, D.C. (+1 202.887.3644, CYi@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202-955-8270, szhang@gibsondunn.com)

Asia and Europe:
Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com)
Qi Yue – Beijing – (+86 10 6502 8534, qyue@gibsondunn.com)
Joerg Bartz – Singapore – (+65 6507 3635, jbartz@gibsondunn.com)
Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com)
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Nicolas Autet – Paris (+33 1 56 43 13 00, nautet@gibsondunn.com)
Susy Bullock – London (+44 (0)20 7071 4283, sbullock@gibsondunn.com)
Patrick Doris – London (+44 (0)207 071 4276, pdoris@gibsondunn.com)
Sacha Harber-Kelly – London (+44 20 7071 4205, sharber-kelly@gibsondunn.com)
Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com)
Steve Melrose – London (+44 (0)20 7071 4219, smelrose@gibsondunn.com)
Matt Aleksic – London (+44 (0)20 7071 4042, maleksic@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com)
Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This fall saw numerous important privacy-related legal developments for companies that do business in the United States, Europe, and globally. In the U.S., California voters approved the California Privacy Rights Act, which places new requirements on companies that collect the personal information of California residents just two years after the California Consumer Privacy Act became the first-of-its-kind comprehensive U.S. privacy law. These changes in California law are occurring in parallel with the emergence of new privacy and cybersecurity laws and enforcement in New York, and the prospect of similar privacy legislation in a number of additional U.S. states. In Europe, the Court of Justice of the European Union struck down one mechanism for ensuring the security of data transferred from Europe to the United States (the Privacy Shield), and cast doubt on the long-term validity of another (the Standard Contractual Clauses). The European Data Protection Board thereafter issued guidance on additional mechanisms companies that rely on the Standard Contractual Clauses may take when transferring data out of Europe, and drafts of new versions of the Clauses were released for public comment. In this webcast, a panel of Gibson Dunn attorneys from around the world address these rapidly-changing developments and offer guidance on practical steps companies can take to come into compliance with these far-reaching new privacy requirements.

View Slides (PDF)

PANELISTS:

Ahmed Baladi – Partner, Paris

Ryan Bergsieker – Partner, Denver

Patrick Doris – Partner, London

Amanda Aycock – Associate Attorney, New York

Cassandra L. Gaedt-Sheckter – Associate Attorney, Palo Alto

Alejandro Guerrero – Of Counsel, Brussels

Vera Lukic – Of Counsel, Paris

The COVID-19 pandemic has caused unprecedented changes in daily life, disruption to businesses and the economy, as well as dramatic market volatility. As a follow up to the webinar conducted in May 2020, in this webinar, Gibson Dunn and Cornerstone Research will provide an update on COVID-19-related securities litigation filed since the pandemic began and corporate best practices, including the following topics:

Trends in COVID-19-related securities and derivative lawsuits
Issues for companies to consider in preparing risk disclosures and discussing forward looking projections
Best practices for Board of Directors oversight
Economic analyses that are particularly relevant for COVID-19 related securities actions

View Slides (PDF)

PANELISTS:

Jennifer L. Conn is a partner in the New York office of Gibson, Dunn & Crutcher. She is a member of Gibson Dunn’s Litigation, Securities Litigation, Securities Enforcement, Appellate, and Privacy, Cybersecurity and Consumer Protection Practice Groups. Ms. Conn has extensive experience in a wide range of complex commercial litigation matters, including those involving securities, financial services, accounting, business restructuring and reorganization, antitrust, contracts, and information technology. In addition, Ms. Conn is an Adjunct Professor of Law at Columbia Law School, lecturing on securities litigation.

Avi Weitzman is a litigation partner in the New York office of Gibson, Dunn & Crutcher. He is a member of the White Collar Defense and Investigations, Crisis Management, Securities Enforcement and Litigation, and Media, Entertainment and Technology Practice Groups. Mr. Weitzman is a nationally recognized trial and appellate attorney, with experience handling complex commercial disputes in diverse areas of law, white-collar and regulatory enforcement defense, internal investigations, and securities litigations. Prior to joining Gibson Dunn, Mr. Weitzman served for seven years as an Assistant United States Attorney in the Southern District of New York, primarily in the Securities and Commodities Fraud Task Force and Organized Crime Unit.

Lori Benson is a Senior Vice President and heads Cornerstone Research’s New York office. Over the course of her more than twenty years with the firm, she has prepared strategy and expert testimony in all aspects of complex commercial litigation, including trials, arbitrations, settlements, and regulatory inquiries. Ms. Benson has consulted on a wide range of cases including securities class actions, market manipulation, valuation, asset management and fixed income securities disputes.

Yan Cao is a Vice President at Cornerstone Research’s New York office. Dr. Cao specializes in issues related to financial economics and financial reporting across a range of complex litigation and regulatory proceedings. Her experience covers securities, market manipulation, M&A, risk management, and bankruptcy matters. Dr. Cao has fifteen years of experience consulting on securities class actions that cover a wide variety of industries, with a focus on financial institutions. She has also worked on regulatory investigation and enforcement matters led by the SEC, the CFTC, the DOJ, the NY Fed, and state AGs. Dr. Cao is a Chartered Financial Analyst (CFA) and a Certified Public Accountant.

On 15 December 2020, the Ruler of Dubai issued Decree No. (33) of 2020 which updates the law governing unfinished and cancelled real estate projects in Dubai (the “Decree”).

The Decree creates a special tribunal (the “Tribunal”) for liquidation of unfinished or cancelled real estate projects in Dubai and settlement of related rights which will replace the existing committee (the “Committee”) set up in 2013 for a similar purpose. The Tribunal will be authorised to review and settle all disputes, grievances and complaints arising from unfinished, cancelled or liquidated real estate projects in Dubai, including the disputes that remain unresolved by the Committee. The Tribunal will have wide-ranging powers, including, the ability to form subcommittees, appoint auditors and issue orders to the trustees of the real estate project’s escrow accounts in all matters related to the liquidation of unfinished or cancelled real estate projects in Dubai and determine the rights and obligations of investors and purchasers.

The Decree streamlines the process for resolving disputes, grievances and complaints relating to unfinished and/or cancelled real estate projects in Dubai by granting the Tribunal jurisdiction over all unfinished or cancelled disputes relating to real estate projects in Dubai and prohibiting all courts in Dubai, including the DIFC Courts from accepting any disputes, appeals or complaints under the jurisdiction of the Tribunal – thereby creating a more efficient route for resolution. The implementation of the Decree will be of interest to clients who have transactions related to unfinished and cancelled real estate projects in Dubai and may lead to the resolution / completion of projects that have stalled in Dubai.

The Decree also details the responsibilities and obligations of the Real Estate Regulatory Agency (“RERA”) related to supporting the Tribunal in performing its duties and responsibilities set out in the Decree. For example, RERA will be required to prepare detailed reports about unfinished and cancelled real estate projects in Dubai and provide its recommendations to the Tribunal to assist the Tribunal in settling disputes under its jurisdiction.

Gibson Dunn’s Middle East practice focuses on regional and global multijurisdictional transactions and disputes whilst also acting on matters relating to financial and investment regulation. Our lawyers, a number of whom have spent many years in the region, have the experience and expertise to handle the most complex and innovative deals and disputes across different sectors, disciplines and jurisdictions throughout the Middle East and Africa.

Our corporate team is a market leader in MENA mergers and acquisitions as well as private equity transactions, having been instructed on many of the region’s highest-profile buy-side and sell-side transactions for corporates, sovereigns and the most active regional private equity funds. In addition, we have a vibrant finance practice, representing both lenders and borrowers, covering the full range of financial products including acquisition finance, structured finance, asset-based finance and Islamic finance. We have the region’s leading fund formation practice, successfully raising capital for our clients in a difficult fundraising environment.

For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors in the firm’s Dubai office, with any questions, thoughts or comments arising from this update.

Aly Kassam (+971 (0) 4 318 4641, akassam@gibsondunn.com)

Galadia Constantinou (+971 (0) 4 318 4663, gconstantinou@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 8, 2020, the U.S. House of Representatives passed the Criminal Antitrust Anti-Retaliation Act of 2019.[1] Sponsored by Republican Senator Chuck Grassley and co-sponsored by Democratic Senator Patrick Leahy, the bill prohibits employers from retaliating against certain employees who report criminal antitrust violations internally or to the federal government. Similar legislation has previously been passed unanimously by the Senate in 2013, 2015, and 2017; each time, the legislation stalled in the House.[2] This time, however, the legislation has been adopted with overwhelming support in the Senate and the House.[3] The bipartisan bill now awaits the President’s signature.

Overview of the Criminal Antitrust Anti-Retaliation Act

If signed into law, the bill would amend the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 to protect employees who report to the federal government—or an internal supervising authority—criminal antitrust violations, acts “reasonably believed” by the employee to be criminal antitrust violations, and other criminal acts “committed in conjunction with potential antitrust violations,” such as mail or wire fraud.[4] The bill also protects employees who “cause to be filed, testify in, participate in, or otherwise assist” federal investigations or proceedings related to such criminal violations.[5] Notably, the bill’s expansive definition of “employee,” which could be read to include contractors, sub-contractors, and agents, may extend these protections to a broader population than a company’s own employees.

If an employee faces retaliation, such as discharge, demotion, suspension, threat, or harassment, he or she can file a complaint with the Secretary of Labor. If the Secretary of Labor does not issue a final decision within 180 days of filing, the employee can file a civil action in federal court. If the employee prevails, the employer would have to (1) reinstate the employee with the same seniority status, (2) pay back pay plus interest, and (3) compensate the employee for special damages (including litigation costs and attorney’s fees).

The bill would not protect employees who “planned and initiated” the criminal violations, or who “planned and initiated an obstruction or attempted obstruction” of federal investigations of such violations.[6] Further, the bill would not offer protection for reporting civil antitrust violations, unless they are also criminal violations.[7] And unlike Dodd-Frank, the bill would not provide reporting employees with a percentage of any monetary sanctions eventually collected by the Department of Justice (“DOJ”).[8]

Implications of the Criminal Antitrust Anti-Retaliation Act

The most immediate effects of the Criminal Antitrust Anti-Retaliation Act will be experienced by companies involved in criminal antitrust investigations. An employee who has engaged in a criminal antitrust violation may later claim to be a whistleblower after cooperating with an internal or government investigation into their own conduct. The bill does not provide clear guidance for an employer in these circumstances, though it is reasonable to assume alignment with existing whistleblower protections under the Sarbanes-Oxley Act of 2002 and other similar federal whistleblower statutes. Companies will understandably want to consider appropriate remedial personnel actions against the employees engaged in the wrongdoing, but should seek assistance from counsel to minimize the risk that the bill’s whistleblower protections are unintentionally triggered.

Additionally, companies may encounter situations in which employees seek to invoke the bill’s whistleblower protections by reporting unfounded allegations of criminal antitrust conduct when they anticipate termination for other reasons. Experienced labor and employment counsel will be familiar with this fact pattern from existing whistleblower laws (e.g., False Claims Act, Sarbanes-Oxley Act) and can provide invaluable guidance in helping to navigate a specific scenario. Still, companies will benefit from having robust, documented procedures for responding to whistleblower allegations, and implementing processes for assessing quickly whether reporting parties have good faith, credible bases for their allegations. For further guidance on whistleblower best practices, consult our April 6, 2020 guidance on this topic.[9]

A question that remains to be answered is whether the law’s exceptions ultimately limit its utility. In January 2017, the Antitrust Division injected uncertainty into its Corporate Leniency Policy by reserving the right to exclude certain “highly culpable” individuals from the scope of the immunity afforded to successful applicants.[10] Unfortunately, the Division did not define “highly culpable,” and left individuals uncertain about whether they could be prosecuted despite self-reporting and cooperating with the government. The Criminal Antitrust Anti-Retaliation Act introduces similar unpredictability by excluding from its protections individuals who “planned and initiated” the conduct.[11] Courts may ultimately be called upon to help clarify this standard, but until that time, employees may be hesitant to entrust themselves to the bill’s whistleblower protections.

The new whistleblower protections also subject companies to a heightened risk that employees will report to DOJ before reporting internally—potentially exposing employers to criminal liability for activities they may not even know are occurring, and depriving them of the opportunity to self-report. This “agency first” approach aligns with the SEC’s amendments to its whistleblower program earlier this year.[12] The Antitrust Division has an existing leniency policy for individuals that provides incentives for self-reporting, a program that was referenced in the Division’s widely read no-poach policy issued in October 2016.[13] However, the policy has been rarely used—the corporate leniency policy offers a more practical avenue for individuals to cooperate through their employer’s application.[14] The new whistleblower protections would open an additional pathway for DOJ to encourage these types of direct reports from a company’s employees. In some instances, the evidence disclosed by a company’s employee could be sufficient to preclude the company itself from later applying for protection under the Corporate Leniency Policy. Companies will therefore need to be vigilant in educating employees about internal conduits for reporting suspected violations and in conducting timely internal investigations to determine whether employee allegations have merit.

___________________

[1] H.R. 8226, 116^th Cong. (2020).

[2] Julie Arciga, Congress Approves New Antitrust Whistleblower Protections, Law360, https://www.law360.com/articles/1335665/congress-approves-new-antitrust-whistleblower-protections.

[3] 166 Cong. Rec. S5904-05 (daily ed. Oct. 17, 2019); 166 Cong. Rec H7007-09 (daily ed. Dec. 08, 2020).

[4] H.R. 8226, 116^th Cong. (2020).

[5] Id.

[6] Id.

[7] Id.

[8] Whistleblower Program, U.S. Securities and Exchange Commission, http://www.sec.gov/spotlight/dodd-frank/whistleblower.shtml.

[9] When Whistleblowers Call: Planning Today for Employee Complaints During and After the COVID-19 Crisis, available at: https://www.gibsondunn.com/when-whistleblowers-call-planning-today-for-employee-complaints-during-and-after-the-covid-19-crisis/.

[10] U .S. Department of Justice, Antitrust Division, “Frequently Asked Questions about the Antitrust Division’s Leniency Program and Model Leniency Letters” (Jan. 26, 2017), available at https://www.justice.gov/atr/page/file/926521/download.

[11] H.R. 8226, 116^th Cong. (2020).

[12] SEC Amends Whistleblower Rules, available at: https://www.gibsondunn.com/sec-amends-whistleblower-rules/.

[13] Antitrust Guidance for Human Resources Professionals, U.S. Department of Justice Antitrust Division, October 2016, available at: https://www.justice.gov/atr/file/903511/download. The Division’s Guidance is analyzed here: https://www.gibsondunn.com/antitrust-agencies-issue-guidance-for-human-resource-professionals-on-employee-hiring-and-compensation/.

[14] Leniency Policies for Individuals, U.S. Department of Justice, https://www.justice.gov/atr/individual-leniency-policy.

The following Gibson Dunn lawyers prepared this client alert: Daniel Swanson, Rachel Brass, Scott Hammond, Jeremy Robison, Chris Wilson and Anna Aguillard.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following authors:

Antitrust and Competition Group:

Washington, D.C.
Adam Di Vincenzo (+1 202-887-3704, adivincenzo@gibsondunn.com)
Scott D. Hammond (+1 202-887-3684, shammond@gibsondunn.com)
Kristen C. Limarzi (+1 202-887-3518, klimarzi@gibsondunn.com)
Joshua Lipton (+1 202-955-8226, jlipton@gibsondunn.com)
Richard G. Parker (+1 202-955-8503, rparker@gibsondunn.com)
Cynthia Richman (+1 202-955-8234, crichman@gibsondunn.com)
Jeremy Robison (+1 202-955-8518, wrobison@gibsondunn.com)
Andrew Cline (+1 202-887-3698, acline@gibsondunn.com)
Chris Wilson (+1 202-955-8520, cwilson@gibsondunn.com)

New York
Eric J. Stock (+1 212-351-2301, estock@gibsondunn.com)
Lawrence J. Zweifach (+1 212-351-2625, lzweifach@gibsondunn.com)

Los Angeles
Daniel G. Swanson (+1 213-229-7430, dswanson@gibsondunn.com)
Samuel G. Liversidge (+1 213-229-7420, sliversidge@gibsondunn.com)
Jay P. Srinivasan (+1 213-229-7296, jsrinivasan@gibsondunn.com)
Rod J. Stone (+1 213-229-7256, rstone@gibsondunn.com)

San Francisco
Rachel S. Brass (+1 415-393-8293, rbrass@gibsondunn.com)
Caeil A. Higney (+1 415-393-8248, chigney@gibsondunn.com)

Dallas
Veronica S. Lewis (+1 214-698-3320, vlewis@gibsondunn.com)
Mike Raiff (+1 214-698-3350, mraiff@gibsondunn.com)
Brian Robison (+1 214-698-3370, brobison@gibsondunn.com)
Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com)

Brussels
Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com)
Attila Borsos (+32 2 554 72 11, aborsos@gibsondunn.com)
Jens-Olrik Murach (+32 2 554 7240, jmurach@gibsondunn.com)
Christian Riis-Madsen (+32 2 554 72 05, criis@gibsondunn.com)
Lena Sandberg (+32 2 554 72 60, lsandberg@gibsondunn.com)
David Wood (+32 2 554 7210, dwood@gibsondunn.com)

Frankfurt
Georg Weidenbach (+49 69 247 411 550, gweidenbach@gibsondunn.com)

Munich
Michael Walther (+49 89 189 33 180, mwalther@gibsondunn.com)
Kai Gesing (+49 89 189 33 180, kgesing@gibsondunn.com)

London
Patrick Doris (+44 20 7071 4276, pdoris@gibsondunn.com)
Charles Falconer (+44 20 7071 4270, cfalconer@gibsondunn.com)
Ali Nikpay (+44 20 7071 4273, anikpay@gibsondunn.com)
Philip Rocher (+44 20 7071 4202, procher@gibsondunn.com)
Deirdre Taylor (+44 20 7071 4274, dtaylor2@gibsondunn.com)

Hong Kong
Kelly Austin (+852 2214 3788, kaustin@gibsondunn.com)
Sébastien Evrard (+852 2214 3798, sevrard@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

In one of the most anticipated rulings of recent years, on 11 December 2020 the UK Supreme Court handed down judgment in Merricks v Mastercard, dismissing (by a majority) Mastercard’s appeal against the criteria established by the Court of Appeal for the certification of class actions by the UK’s Competition Appeal Tribunal (“CAT”). The case is a landmark £14 billion opt-out collective proceeding which was started in 2016. The application for a Collective Proceedings Order will now be remitted to the CAT to be re-heard.

Mr Merricks’ application was only the second to come before the CAT since the ability for a class representative to commence opt-out US-style class actions was introduced into the Competition Act 1998 by the Consumer Rights Act 2015. Unlike opt-in actions, which require potential claimants to explicitly sign-up, in opt-out actions anyone who falls within the scope of the proposed class definition will automatically be treated as a member of the class unless they explicitly withdraw.

In order to grant a Collective Proceedings Order, the CAT must be satisfied that the following four requirements are met: (i) it is just and reasonable for the applicant to act as the class representative; (ii) the application is brought on behalf of an identifiable class of persons; (iii) the proposed claims must raise common issues (that is, they raise the same, similar or related issues of fact and law); and (iv) the claims must be suitable to be brought in collective proceedings.

Background

In 2007, the European Commission (“EC”) found that Mastercard had violated European Union competition laws in relation to the setting of multi-lateral interchange fees (“MIFs”) that were charged between banks for transactions using Mastercard issued credit and debit cards (the “EC Decision”).

In September 2016, Mr Merricks applied to the CAT for a Collective Proceedings Order (“CPO”) on an opt-out basis under section 47B of the Competition Act 1998 in reliance on the EC Decision (the “Application”). The Application was made on behalf of all individuals over the age of 16 who had been resident in the UK for a continuous period of at least three months and who, between 22 May 1992 and 21 June 2008, purchased goods or services from merchants in the UK which accepted Mastercard (approximately 46 million consumers). The proposed class included all purchasers from those merchants during the relevant period regardless of whether or not they used a Mastercard payment card to make the purchase. Mr Merricks alleged that Mastercard’s unlawful conduct resulted in merchants paying higher MIFs which merchants passed-on to consumers by increasing the prices for the products or services they provided. The damages sought from Mastercard were estimated at over £14 billion.

CAT Judgment (Walter Hugh Merricks CBE v MasterCard Incorporated & Ors [2017] CAT 16)

In considering the requirements for certification, the CAT held that the expert methodology proposed by an applicant to calculate alleged loss had to: (i) offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge by Mastercard was eventually established at the full trial of the common issues, there was a means by which to demonstrate that it was common to the class (i.e., that passing on to the consumers who were members of the class had occurred); and (ii) the methodology could not be purely theoretical or hypothetical, but had to be grounded in the facts of the particular case and there had to be some evidence of the availability of the data to which the methodology was to be applied.

The CAT refused Mr Merricks’ Application for two main reasons: (i) a perceived lack of data to operate the proposed methodology for determining the level of pass-on of the overcharges to consumers; and (ii) the absence of any plausible means of calculating the loss of individual claimants so as to devise an appropriate method of distributing any aggregate award of damages.

Court of Appeal Judgment (Walter Hugh Merricks CBE v MasterCard Incorporated & Ors [2019] EWCA Civ 674)

In April 2019 the Court of Appeal allowed an appeal by Mr Merricks on both issues. As to the first issue, the Court of Appeal held that:

Demonstrating pass-on to consumers generally satisfies the test of commonality of issues necessary for certification (i.e., it was not necessary to analyse pass-on to consumers at a detailed individual level).
At the certification stage, the CAT should only consider whether the proposed methodology is capable of establishing loss to the class as a whole.
There should not be a mini-trial at the certification stage and it was not appropriate to require the proposed representative to establish more than a reasonably arguable case. There had been no requirement to produce all the evidence or to enter into a detailed debate about its probative value and the expert evidence had been exposed to a more vigorous process of examination than should have taken place.
Certification is a continuing process and the CAT can revisit the appropriateness of the class action after pleadings, disclosure, and expert evidence are complete.

As to the second issue, the Court of Appeal held that:

An aggregate award of damages is not required to be distributed on a compensatory basis and it is only necessary at the certification stage for the CAT to be satisfied that the claim is suitable for an aggregate award. Distribution is a matter for the trial judge to consider following the making of an aggregate award.

The Court of Appeal’s judgment was therefore viewed to have “lowered the bar” to certification by comparison with the narrower approach that the CAT had originally taken. Mastercard was granted permission to appeal the judgment to the Supreme Court.

Supreme Court Judgment

Mastercard’s appeal was heard in May 2020 and the Supreme Court had to consider two main issues:

What is the legal test for certification of claims as eligible for inclusion in collective proceedings?
What is the correct approach to questions regarding the distribution of an aggregate award at the stage at which a party is applying for a CPO?

Delivering the majority judgment, Lord Briggs emphasised that the collective proceedings regime is “a special form of civil procedure for the vindication of private rights, designed to provide access to justice for that purpose where the ordinary forms of individual civil claim have proved inadequate for the purpose” and that it follows that “it should not lightly be assumed that the collective process imposes restrictions upon claimants as a class which the law and rules of procedure for individual claims would not impose”.

With this in mind, on the first main issue, Lord Briggs ruled that, when the CAT is considering the question as to whether claims are suitable to be brought using the collective proceedings procedure, the question that must be answered is whether the claims are more suitable to be brought as collective claims rather than individual claims. In particular, if difficulties identified with the claims forming the basis of the collective proceedings were themselves insufficient to deny a trial to an individual claimant who could show an arguable case to have suffered some loss, then those same difficulties should not be sufficient to lead to a denial of certification for collective proceedings.

As to whether the certification stage should involve an assessment of the underlying merits of the claim, Lord Briggs emphasised that, “the certification process is not about, and does not involve, a merits test”. The Court recognised an exception to this general approach only in circumstances where: (i) a proposed defendant brings a separate application for strike-out (or an applicant seeks summary judgment); or (ii) where the court is required to assess the strength of the proposed claims in the context of a choice between opt-in and opt-out proceedings.

In relation to the second main issue, Lord Briggs made clear that the compensatory principle of damages was “expressly, and radically, modified” by the collective proceedings regime and, where aggregate damages were to be awarded, the ordinary requirement to assess loss on an individual basis was removed. A central purpose of the power to award aggregate damages in collective proceedings is to avoid the need for individual assessment of loss. In particular, there will be cases where the mechanics of approximating individual loss are so difficult and disproportionate (for example because of the modest amounts likely to be recovered by individuals in a large class) that some other method may be more reasonable, fair and just. As to whether it is necessary for an applicant to demonstrate that evidence needed to calculate loss is available, Lord Briggs was clear that “the fact that data is likely to turn out to be incomplete and difficult to interpret, and that its assembly may involve burdensome and expensive processes of disclosure are not good reasons for a court or tribunal refusing a trial to an individual or to a large class who have a reasonable prospect of showing they have suffered some loss from an already established breach of statutory duty”. In reaching this conclusion, Lord Briggs noted that incomplete, or difficulties interpreting, data are everyday issues for the courts and that, even if the task of quantifying loss was very difficult, “it is a task which the CAT owes a duty to the represented class to carry out, as best it can with the evidence that eventually proves to be available”.

In their dissenting judgment, Lord Sales and Lord Leggatt agreed with the majority about the point on the compensatory principle, but otherwise considered that the CAT made no error of law in its assessment that the claims were not suitable for collective proceedings. In their view, the CAT’s decision to refuse certification should have been respected on that separate ground and they raised concerns that the approach of the majority risked undermining the CAT’s role as a gatekeeper for these types of actions.

Comment

It remains to be seen to what extent the Supreme Court’s judgment will affect the UK’s fledgling class action regime. However, whilst the majority judgment has provided much needed clarification as to what is the correct approach for the CAT to take when considering whether claims are suitable for collective proceedings, the dissenting judges have warned that the approach set out in the majority judgment has the potential to “very significantly diminish the role and utility of the certification safeguard”. If they are correct, this will lead to an increase in large scale opt-out collective actions being commenced in the UK.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Antitrust and Competition practice group, or the following authors in London:

Philip Rocher (+44 (0) 20 7071 4202, procher@gibsondunn.com)
Doug Watson (+44 (0) 20 7071 4217, dwatson@gibsondunn.com)
Susy Bullock (+44 (0) 20 7071 4283, sbullock@gibsondunn.com)
Dan Warner (+44 (0) 20 7071 4213, dwarner@gibsondunn.com)
Kirsty Everley (+44 (0) 20 7071 4043, keverley@gibsondunn.com)

UK Competition Litigation Group:
Patrick Doris (+44 (0) 20 7071 4276, pdoris@gibsondunn.com)
Steve Melrose (+44 (0) 20 7071 4219, smelrose@gibsondunn.com)
Ali Nikpay (+44 (0) 20 7071 4273, anikpay@gibsondunn.com)
Sarah Parker (+44 (0) 78 3324 5958/+44 (0) 20 7071 4073, sparker@gibsondunn.com)
Deirdre Taylor (+44 (0) 20 7071 4274, dtaylor2@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 11, 2020, the FDA granted Emergency Use Authorization for the Pfizer/BioNTech COVID-19 vaccine candidate.[1] That vaccine, which appears to be more than 90% effective in preventing the virus’s spread,[2] will likely soon be joined by other candidates, such as a similarly effective vaccine developed by Moderna.[3]

With their blazing-fast production time and extraordinary efficacy, the COVID-19 vaccines are among our most impressive recent medical achievements. They may also be the most controversial. Despite near-universal healthcare consensus as to the vaccines’ safety and efficacy, early polling suggests deep skepticism, with many in the population indicating that, if offered the vaccine, they will refuse.[4] And in a time of endemic disinformation and controversy, this resistance may only deepen.

Given the choice, employers might prefer to stay on the sidelines in an effort to avoid the coming “vaccine wars.” Like it or not, however, America’s workplaces will be on the front lines and likely will find themselves caught between public health imperatives, liability fears, and a restive workforce. And while current guidance indicates that employers generally can mandate employee vaccination (subject to religious and medical exceptions), unless the Occupational Safety & Health Administration (OSHA) or other authority requires them to do so, employers will face strong and countervailing pressures in deciding whether or how to implement such policies.

This Client Alert offers a “Playbook” for employers to navigate these choppy waters. Below we set out key considerations, both for employers who want or ultimately may be required to pursue a mandatory vaccination program and for employers who wish to encourage voluntary compliance.

Each employment context, of course, will differ. A mandatory vaccination policy that works well for a close-quarters or contact-heavy workplace, such as a healthcare facility or even a meatpacking plant, might be too heavy handed for a low-contact team of remote computer coders. Likewise, different states, cities, and industries may adopt very different workplace vaccination rules, creating a thicket of regulation (this Alert limits its scope to nationally applicable federal regulation, but state and local rules may differ). Despite this variation, though, there are nevertheless strategies and insights that can offer guidance.

I. Deciding Who Decides: Should Employers Mandate Vaccination?

As a threshold question, employers will need to decide whether to require employees to be vaccinated or instead to make vaccination voluntary. Below are some key considerations in making this choice.

A. Why Require the Vaccine?

Protecting Workplace and Community Health: In the absence of a regulatory requirement, the single most important reason for a workplace vaccine mandate is that it will protect workers’ health and lives. Each COVID-19 vaccine authorized for emergency use will have been found by the FDA to be “safe and effective,” and that authorization will have been supported by the Vaccines and Related Biological Products Advisory Committee (VRBPAC), an FDA advisory panel of outside scientific and public health experts that has independently reviewed the data.[5] The upshot is that, based on the best evidence available, the vaccines now being rolled out will protect the health and lives of employees, customers, and communities.

To be sure, vaccinations will not ensure everyone’s safety: we do not yet have long-term data on the duration of immunity, even the most effective vaccine candidates will protect no more than 90 to 95% of patients, and bona fide medical or religious reasons mean that some individuals cannot be vaccinated. Accordingly, even in the best-case scenario, a significant minority of the population will still be exposed and dependent upon the development of herd immunity to protect them. But these caveats should not distract from this reality: by an order of magnitude, COVID-19 vaccines will be our most effective medical strategy to prevent transmission of the virus and save lives.

Ensuring Vaccines Become Vaccinations: These powerful health benefits, however, will only be realized if workers actually get the vaccine. In other words, as public health experts have noted, we must “turn vaccines into vaccinations.”[6] Here, a mandatory approach may be important because voluntary vaccine programs have often had relatively low compliance, even in industries like healthcare,[7] and even for vaccines that have been the subject of massive “persuasion” campaigns (such as for the flu).[8] Given the amount of disinformation surrounding the coronavirus in general and vaccines in particular, such opt-in rates may, without a mandate, be even lower here. Put another way, a mandatory vaccine policy likely will be vastly more successful than a voluntary one at ensuring workers actually get protected.

Reducing Costs of Absences, Lost Productivity, and Long-Run Medical Care: Because a mandatory vaccination program creates a more vaccinated workforce, it also can significantly reduce workplace costs. Vaccinated workers will be less likely to fall ill to COVID-19, impose fewer costs from absences or lost productivity, require fewer instances of acute medical care, and impose lower long-term health costs. This last point is an important one: COVID-19 might be best known for short-term (and often horrific) acute consequences, but its long-term health impacts are poorly understood, yet believed to be significant for some.[9] Therefore, the virus may lead to worker illness and impairment that can span for months or even years. A higher vaccination rate is likely to curb each of these costs.

Getting and Staying Open: A mandatory vaccination approach also makes it more likely that a business can open and stay open. Even if there are no medical consequences, a single positive COVID-19 test can lead an employer to fully stop operations, particularly in industries like dining and hospitality.[10] A highly vaccinated workplace reduces the likelihood of such stoppages. At the same time, high vaccination rates can accelerate a “return to normal” by making it safer for the workforce to return to the office or otherwise resume normal operations, and by creating a safer environment for customers.

Defend Against Civil Liability for COVID-19 Cases: Further, and especially as vaccination rates increase, an un- or under-vaccinated workforce may pose a liability risk, as individuals infected on premises look to pin the blame on employers.

Under tort law principles employers that fail to take reasonable care to protect employees (or, for that matter, vendors, visitors, customers, or others on premises) risk liability. Applying this concept, individuals who become sick based on alleged on-premises exposure can argue (and in some cases have argued) that a business’s negligent safety practices (whether related to personal protective equipment (PPE), vaccines, cleaning, or anything else) caused their illness.

For employees themselves, such COVID-19 suits are likely to be limited by workers’ compensation statutes. As we noted in a previous Client Alert, companies are already seeing lawsuits seeking relief from employee injuries ranging from wrongful workplace exposure to COVID-19 to wrongful death from COVID-19.[11] In many cases, damages related to on-the-job COVID-19 exposure (or subsequent illness) will be considered occupational injuries and so are very likely covered under the relevant state’s workers’ compensation statutes. But employees’ lawyers will no doubt argue that this bar may not provide full protection, as evidenced by extensive (and so far, unsuccessful) efforts by federal lawmakers to provide businesses with greater immunity from employee COVID-19 claims,[12] as well as by a surge of interest in drafting (potentially unenforceable) employee COVID-19 liability waivers.[13]

More importantly, workers’ compensation statutes do not account for other stakeholders who may claim COVID-19 damages from exposure to an unvaccinated workforce. This includes suits by contractors, vendors, visitors, or customers—particularly in contact-intensive industries like education, lodging, hospitality, healthcare, or fitness where PPE may not provide sufficient protection.

A mandatory vaccination policy reduces these risks. First, and most obviously, mandatory vaccination makes it less likely individuals get sick in the first place, and therefore less likely anyone suffers legally actionable damages. Separately, the adoption and implementation of a mandatory vaccine plan can itself be important evidence of the high standard of care a company provided for those on premises, which also may be important in beating back potential liability.

Unless a broad liability shield is enacted by Congress, civil suits for COVID-19 infection damages, whether by employees, contractors, visitors, or customers, will remain a threat for the foreseeable future, and mandatory vaccination could be a key tool to address it.

Potential Protection Against Enforcement Action: Apart from civil liability from private plaintiffs, businesses without vaccine mandates could confront regulatory risk as well. Under OSHA’s “general duty” clause, for instance, employers are required to furnish each employee with a workplace free from recognized hazards that could cause serious harm.[14] While current OSHA guidance suggests this “general duty” can be satisfied by measures like PPE or distancing,[15] in the longer-run the agency might take the position that a robust vaccination program is required and that workplaces without such policies are not safe. This may be particularly true for healthcare and other industries where social distancing or similar measures may not be viable.

Further, even if OSHA does not enforce the “general duty” clause in this way, private litigants, unions, or others may seize on this language to argue that employers without mandatory vaccination policies are not providing a safe workplace.

B. Why Make the Vaccine Optional?

Employee Morale and Retention: Any “mandate,” as opposed to an optional program, would need to be carefully messaged and framed to the workforce. If the purposes behind the requirement are not explained (and even if they are), it may become a source of employee discontent or dissatisfaction. Day-to-day, such a requirement may lead employees opposed to the vaccine to view the company more negatively, and to respond accordingly.

Even with excellent messaging and buy-in, it is likely that some portion of the workforce, out of “anti-vaccine” belief, political views, or other reasons, will refuse to get the vaccine, and at the extreme may choose separation of employment rather than being vaccinated. And laws like the National Labor Relations Act (NLRA) could arguably protect various forms of employee protest as to the requirement, such as through social media campaigns.

Administrative Ease: Even for “mandatory” vaccines, by law those with medical conditions or sincerely held religious beliefs that preclude vaccination are entitled to make exemption requests and to seek appropriate reasonable accommodation (both possibilities discussed in detail below). Given the controversy around the vaccine, many workers may try to claim such exemptions. Without thoughtful processes, this could put Human Resources (HR) at risk of being overwhelmed by needing to decide, on a case-by-case basis, who qualifies for an exemption. In a voluntary program, by contrast, no (or much less) formal process is needed.

Less Liability Risk for Discrimination Claims: On this point, individuals who seek an exemption but are denied may pursue legal claims, such as on the grounds that they were unlawfully discriminated against under the Americans with Disabilities Act (ADA) based on a medical condition their employer did not treat with sufficient seriousness,[16] or under Title VII of the Civil Rights Act[17] for their religious beliefs. Careful applications of the exemption process will minimize this risk, but cannot eliminate it.

Potentially Less Necessary to Certain Industries: Finally, while in some industries, like healthcare or personal services, close contact is unavoidable, in others, it is less of a concern. For workplaces that do not require close contact, and so can more effectively avoid or mitigate the potential spread of the virus on-site, a vaccine mandate might be unnecessary.

II. Playbook For Employer Vaccine Policies

As the above shows, employers may have sound safety, business, and legal reasons to pick either a mandatory or a voluntary approach to a COVID-19 vaccine. But without attention to risk points, either approach can run into trouble. Here are ways to minimize the danger, no matter which approach employers take.

A. Assess the Right to Require Vaccinations

An employer’s first step is to confirm its right to require vaccinations. For obvious reasons, this is important to workplaces that want to mandate vaccines. But even workplaces that want to pursue voluntary vaccination policies may want to confirm this information, both because conditions may change over time, and also because, even if employers do not make vaccination a condition of employment, they may want to make it a condition for certain employment activities.

For most private-sector U.S. employers, current law suggests vaccinations can likely be required as a condition of employment for at-will employees. In the context of the H1N1 flu, for example, OSHA guidance indicates that, so long as a private employer makes appropriate religious and medical exceptions, an employer may require vaccination as a condition of employment.[18] Historically such guidance was directed toward medical care facilities. Given the EEOC’s finding that COVID-19 constitutes a “direct threat” to workplace health at this time,[19] however, there is good reason to believe the EEOC would similarly view COVID-19 vaccine mandates as permissible.

That said, a given workplace may be subject to special conditions, so it is important to assess, at the outset, whether a vaccination requirement would be permissible. One example is if a collective bargaining agreement (CBA) governs the terms of employment, in which case it may speak to vaccine requirements.[20] Further, if employees are not at-will, but rather work under a contract, that contract may dictate whether a vaccine can be required.

Likewise, while to date no state or local law or regulation appears to impose any general bar to private employers requiring vaccination, the situation at the federal, state, and local level is evolving rapidly,[21] so employers should obtain legal advice and ensure no new rule (or relevant agency guidance or court decision) has changed the landscape before getting started.

B. Make a Plan to Process Exemption Requests

Even if employers choose to “mandate” a vaccine, they must still be prepared to provide legally required exceptions for employees who (1) cannot take the vaccine due to a medical disability or (2) seek an exemption from the vaccine based on sincerely held religious beliefs. Virtually all employers must comply with these important legal protections. But employers should also recognize that they can structure such requests, and the resulting accommodations, in a way that satisfies the law while ensuring that those who are not truly motivated by such concerns, but instead merely would prefer to be unvaccinated, do not take advantage of them.

1. Medical Exemptions

For medical reasons, some individuals may be unable to safely take the vaccine. We know, for example, that the vaccine should not be administered to individuals with a known history of a severe allergic reaction to any component of the vaccine. Under the ADA, if an employee claims to require an exemption based on a “disability,” [22] a workplace must engage in an “interactive process” with that individual to arrive, if possible, at a “reasonable accommodation” (which, potentially, would relieve the employee from having to get the vaccine).

Employee requests for medical exemptions should be treated like any other ADA request for accommodation. However, if employers are concerned that vaccine qualms will lead to insincere accommodation requests, there are steps they can take. First, the ADA permits requests for reasonable documentation of the disability, which an employer can enforce.[23]

Second, workers with disabilities do not have the right to the accommodation of their choice, but rather to a “reasonable accommodation,” viz, one that “reasonably” accommodates their disability, and that does not impose an “undue hardship” on an employer.[24] For example, employees who cannot be vaccinated do not necessarily need to be offered the “accommodation” of simply not receiving the vaccine but then otherwise resuming work as normal, nor must they be offered the accommodation of continuing to work from home after their colleagues have returned to work. Rather, under appropriate circumstances, an employer might instead require unvaccinated employees to attend work, but continue to distance and wear masks and PPE, even after vaccinated employees may in the future be permitted to halt such measures.[25]

Other possible accommodations may include shifting unvaccinated workers to other workplace roles or positions, relocating work sites within a building, or requiring that employees work remotely even if they want to return. This process will typically require a case-by-case assessment of the relevant facts.

In sum, employers should recognize that the ADA does not create an automatic right for anyone to “opt-out” of the vaccine, but only a right to a fair interactive process that leads to a reasonable accommodation.

2. Religious Exemptions

The second major category for possible exemptions are accommodation requests based on sincerely held religious beliefs or religion-like philosophical systems.[26] Under Title VII, such beliefs must be taken into account, and if it would not pose “undue hardship,” a reasonable accommodation must be granted.

Compared to medical exemption requests, Title VII religious accommodation requests are (1) easier to establish, with employees permitted to substantiate the “sincerity” of their beliefs with little documentation; but (2) less demanding on employers, in that the accommodations granted need only be provided if they would impose “de minimis” burdens on the employer. Both of these distinctions are relevant to any COVID-19 vaccination mandate.

On the “sincerity” of the religious belief at issue, the EEOC has noted that an employer is entitled to “make a limited inquiry into the facts and circumstances of the employee’s claim that the belief or practice at issue is religious and sincerely held, and gives rise to the need for the accommodation.”[27] That said, an employee can provide sufficient proof of sincerity by a wide variety of means, including “written materials or the employee’s own first-hand explanation,” or verification of “others who are aware of the employee’s religious practice or belief.”[28] Beyond that, probing the “sincerity” of a religious belief is risky business. So to the extent employees provide such substantiation, and even if their interpretation of a religious tenet differs from that religion’s mainstream, employers would be wise, at that point, to accept it.

However, the EEOC has further made clear that employers are only obligated to accommodate “religious” beliefs or comprehensive religious-type philosophical systems, as opposed to other strongly held types of beliefs. For instance, there is no legal requirement to accommodate political, scientific, or medical views, or isolated ideas (such as “vaccines are dangerous”).[29]

Given these principles, workplaces with vaccine mandates may want to create standardized Title VII exemption-request forms that (1) expressly state and remind employees that political, social, scientific, or other non-religious views are not sufficient justification and that it is not appropriate to request a Title VII exemption on those grounds, but that (2) otherwise permit employees to explain, in their own words, their religious or religious-type beliefs and why those beliefs prevent vaccination. As noted, however, to the extent an employee then completes the form and provides such an explanation, the explanation generally should be credited.

However, for the accommodation itself, as in the ADA context, even a sincere religious exception does not guarantee the right to be accommodated, but only the right to a process that may, if legally required, lead to an accommodation. And unlike the medical context, where the “undue hardship” an employer must show to deny accommodation is a “significant difficulty or expense,”[30] in the Title VII context “undue burden” is defined to require only a showing of more than a “de minimis” cost on the business.[31]

Accordingly, in addition to requiring unvaccinated employees to keep using PPE and other measures even after the rest of the workforce returns to normal, an employer likely has much more latitude to indicate that, where the risk of non-vaccination imposes burdens on the company, non-vaccination will not be allowed.[32]

C. Build Buy-In and Plan for Conflict Diffusion

Even with the legal authority to impose a mandate, employers that go this route still must be sure to build employee buy-in for compliance. This is particularly important in light of concerns regarding how a vaccine requirement might impact employee morale or office culture.

The more a workforce understands why the employer chose a mandate, and the more they have the chance to feel “heard” on the subject, the less friction there will be (and the fewer workers will attempt to claim potentially unneeded exemptions). Best practices for building buy-in include:

Informing employees of the policy change in advance, so that they can meaningfully share their views.
Clear communication as to the purpose of the requirement: employee safety and allowing a return to normal.
Tying the vaccine mandate to concrete and visible changes (e.g., once the vaccine is in place, re-open formerly closed off recreation areas or office space).
Providing accurate and reader-friendly information on the vaccine. Given the amount of mis- or disinformation available, employers and HR in particular will play a key educational role.

On this point, given the incendiary rhetoric around vaccines and strong beliefs held by individuals on many topics related to vaccination, it is possible that the accommodation process, if not carefully handled, could lead to workplace tension. Workplaces should be aware of this risk and ensure that at no time does it rise to the level of impermissible discrimination or a hostile workplace.

D. Minimize (and if Possible, Eliminate) Vaccination Costs to Employees

As a further way to ensure buy-in, whether for a mandatory or a voluntary program, employers should consider as many steps as possible to reduce the cost to employees of getting the vaccine. The medicine itself will be provided, free of charge, by the federal government.[33] But unless already covered by employee insurance, employees may still be charged an “administrative fee.”[34] Employers should consider covering those or other incidental costs, even if otherwise “out of plan” for workers.

Another “cost” to employees is that of time—such as the time to travel off-site to get a vaccine. Contracting with a third-party provider to conduct on-site vaccination can help reduce this cost and may provide further liability protection.

Finally, for the small minority of workers who experience symptoms or bad reactions to the vaccine, employers should consider adopting a permissive approach to allowing (or extending further) paid sick leave to the extent necessary, even if a worker might otherwise not be entitled to it.

As shown above, such measures, while they may not be legally required in certain circumstances (depending on wage-hour and sick leave laws, among other things), are likely to be critical to increase and encourage buy-in.

E. Take a Thoughtful Approach to Continued PPE and Distancing Requirements

One common question will be whether a vaccination policy can or should supplant mask requirements, distancing, and other measures. Because the vaccines are not one-hundred percent effective, and because it is unknown if vaccinated individuals can still spread the virus, there is no guarantee that even a vaccinated employee will be fully protected. Further, employers should also be mindful of the safety of individuals who, for medical or religious reasons, are unable to be vaccinated. Finally, even the most optimistic projections indicate that, for at least some period of time, there will not be enough vaccines to cover everyone in the workforce.[35] Each of these considerations suggests that, at least in the short term, policies like masks and social distancing may still be needed.

In the long run, however, providing the prospect of a return to relative normal for those who are vaccinated could be a powerful force toward boosting morale and commitment to a vaccination program, and toward getting greater employee buy-in.

F. Be Aware of Labor Law Issues

One further area to be aware of in rolling out a vaccine policy is the possibility of concerted labor action. Section 7 of the NLRA protects certain “concerted activity” regarding working conditions,[36] which might extend to protests or other labor action regarding a vaccine policy. Crucially, however, the NLRA does not protect non-compliance with workplace safety rules (such as employees attempting to style refusal to be vaccinated as a legally protected labor protest).[37] Further, to the extent there is a risk of labor activity against a vaccine mandate, employers should be aware that there is a countervailing risk of labor activity for a mandate, such as strikes by employees who refuse to come to work until their colleagues have been vaccinated.

G. Don’t Lean Too Hard (or Perhaps at All) on Waivers

Finally, for those employees who, whether by choice or a valid exemption, are not vaccinated, some employers are considering requiring a waiver indicating that the employee understands the medical risks of this decision and accepts any associated risk. Given the limitations on the enforceability and permissibility of such waivers, however, a robust disclosure may be a better format. OSHA, for instance, has long required an attestation for employees in the context of bloodborne pathogen vaccines acknowledging their understanding of the risks should they not be vaccinated.[38] Seeing the risks of declining the vaccine clearly laid out in writing may, at the margin, increase buy-in.

That said, as a liability protection device, there is reason to be skeptical about such disclosures or waivers. In many jurisdictions, courts will find that employee liability waivers for workplace illnesses and injuries are not enforceable or even permissible, given the perceived imbalance of bargaining power or the operation of state workers’ compensation laws (which in some cases are read to preclude such waivers).[39] Accordingly, while it may make sense to provide certain disclosures to unvaccinated employees, an actual waiver of liability may be prohibited or unenforceable.

* * *

As noted at the outset, no one size fits all, especially given the different levels of risk of infection spread in different industries and workplaces, as well as the fast-evolving legislative and regulatory environment around COVID-19. If your company is considering rolling out a vaccination program in your workplace, or otherwise has any questions on approaching the pandemic and return-to-work operations, Gibson Dunn’s Labor and Employment Group can offer assistance.

___________________

[1] Jessica Glenza, “FDA approves Pfizer/BioNTech coronavirus vaccine for emergency use in US,” The Guardian (Dec. 11, 2020), available at https://www.theguardian.com/world/2020/dec/11/fda-approves-pfizer-biontech-covid-19-coronavirus-vaccine-for-use-in-us.

[2] Lauran Neergaard & Linda A. Johnson, “Pfizer says COVID-19 vaccine is looking 90% effective,” Associated Press (Nov. 10, 2020), available at https://apnews.com/article/pfizer-vaccine-effective-early-data-4f4ae2e3bad122d17742be22a2240ae8.

[3] Denise Grady, “Early Data Show Moderna’s Coronavirus Vaccine Is 94.5% Effective,” N.Y. Times (Nov. 16, 2020), available at https://www.nytimes.com/2020/11/16/health/Covid-moderna-vaccine.html.

[4] See, e.g., RJ Reinhart, “More Americans Now Willing to Get COVID-19 Vaccine,” Gallup (Nov. 17, 2020), available at https://news.gallup.com/poll/325208/americans-willing-covid-vaccine.aspx (survey indicating that, as of late November, 42% of Americans would not agree to be vaccinated against COVID-19, up from 34% in July); Bill Hutchinson, “Over half of NYC firefighters would refuse COVID-19 vaccine, survey finds,” ABC News (Dec. 7, 2020), available at https://abcnews.go.com/Health/half-nyc-firefighters-refuse-covid-19-vaccine-survey/story?id=74582249.

[5] For an accessible introduction to this process, see FDA, “Vaccine Development – 101,” available at https://www.fda.gov/vaccines-blood-biologics/development-approval-process-cber/vaccine-development-101.

[6] See, e.g., Testimony to the Subcomm. on Oversight and Investigation of the H. Comm. on Energy and Commerce 1 (Sept. 30, 2020) (statement of Ashish K. Jha, Dean of Brown University School of Public Health), available at https://docs.house.gov/meetings/IF/IF02/20200930/111063/HHRG-116-IF02-Wstate-JhaA-20200930.pdf.

[7] See, e.g., Carla Black et al., CDC, Health Care Personnel and Flu Vaccination, Internet Panel Survey, United States, November 2017 (2017), available at https://www.cdc.gov/flu/fluvaxview/hcp-ips-nov2017.htm (noting a 60-70% flu vaccination rate among healthcare personnel).

[8] See, e.g., CDC, Flu Vaccination Coverage, United States, 2019–20 Influenza Season (Oct. 1, 2020), available at https://www.cdc.gov/flu/fluvaxview/coverage-1920estimates.htm.

[9] See, e.g., Rita Rubin, As Their Numbers Grow, COVID-19 ‘Long Haulers’ Stump Experts, J. of Am. Med. (Sept. 23, 2020), available at https://jamanetwork.com/journals/jama/fullarticle/2771111 (noting scientific studies estimating that approximately 10% of people who have had COVID-19 experience long-term symptoms, from fatigue to joint pain, and that these effects manifested even in individuals who were not initially seriously ill).

[10] See, e.g., “Some Savannah restaurants close due to positive COVID-19 cases,” WTOC (June 19, 2020), available at https://www.wtoc.com/2020/06/24/some-savannah-restaurants-close-due-positive-covid-cases/.

[11] See, e.g., Jean Casarez, “Wrongful death lawsuit filed against long-term care facility over staffer’s Covid‑19 death,” CNN (July 10, 2020), available at https://www.cnn.com/2020/07/10/us/wrongful-death-lawsuit-care-facility/index.html.

[12] See, e.g., Eli Rosenberg et al., “Senate stimulus negotiators try to reach deal on whether companies can be sued over virus outbreaks,” Wash. Post (Dec. 8, 2020), available at https://www.washingtonpost.com/business/2020/12/08/stimulus-negotiations-liability-shield/.

[13] See discussion infra.

[14] 29 U.S.C. § 654.

[15] See generally U.S. DOL, OSHA Report 4045-06 2020, Guidance on Returning to Work (2020), available at https://www.osha.gov/Publications/OSHA4045.pdf.

[16] 42 U.S.C. § 12112 (barring discrimination on the basis of a “disability”). Because “disability,” as defined in the ADA and further defined in subsequent ADAAA, includes any “physical or mental impairment that substantially limits one or more major life activities of [an] individual,” id. § 12102, employees who do not wish to be vaccinated may argue that they have a disability that prevents them from being vaccinated.

[17] Id. § 2000e-2 (prohibiting discrimination on the basis of an “individual’s race, color, religion, sex, or national origin”).

[18] See, e.g., OSHA, Standards Interpretation of Nov. 9, 2009, available at https://www.osha.gov/laws-regs/standardinterpretations/2009-11-09 (“[A]lthough OSHA does not specifically require employees to take the vaccines, an employer may do so”).

[19] EEOC, What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws (Sept. 8, 2020), available at https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws (“An employer may exclude those with COVID-19, or symptoms associated with COVID-19, from the workplace because, as EEOC has stated, their presence would pose a direct threat to the health or safety of others.”).

[20] Note, however, that to the extent OSHA or state regulators ultimately require, as a generally applicable workplace safety rule, that certain workplace vaccination policies be put into place, such health and safety rules would likely trump contrary (that is, more permissive) CBA terms. See discussion infra; see also United Steelworkers of America v. Marshall, 647 F.2d 1189, 1236 (D.C. Cir. 1980) (noting duty to bargain with unions over safety and health matters does not excuse employers from complying with OSHA safety standards); Paige v. Henry J. Kaiser Co., 826 F.2d 857, 863 (9th Cir. 1987) (same, as applied to California’s state-level OSHA equivalent).

[21] See, e.g., Joe Sonka, “Kentucky legislator pre-files bill prohibiting colleges from mandating vaccines,” Louisville Courier J. (Dec. 4, 2020), available at https://www.courier-journal.com/story/news/politics/ky-general-assembly/2020/12/04/kentucky-bill-would-prohibit-colleges-mandating-covid-19-vaccine/3827327001/.

[22] See 42 U.S.C. §12102 (defining “disability” to include any “physical or mental impairment that substantially limits one or more major life activities of [an] individual.”).

[23] See EEOC, Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the ADA, EEOC-CVG-2003-1, Oct. 17, 2002 (“May an employer ask an individual for documentation when the individual requests reasonable accommodation? . . . Yes. When the disability and/or the need for accommodation is not obvious, the employer may ask the individual for reasonable documentation about his/her disability and functional limitations.”).

[24] See id.

[25] For analysis of an analogous question, see, for example, EEOC v. Baystate Med. Ctr., Inc., No. 3:16-cv-30086, Dkt. No. 125 (D. Mass. June 15, 2020) (Order upholding policy that required unvaccinated healthcare workers to, as a condition of employment, wear masks even though vaccinated colleagues were not required to) [Order text accessible via PACER and CM/ECF and partially reprinted at Vin Gurrieri, “EEOC Religious Bias Suit Over Hospital Worker Firing Tossed,” Law360 (June 16, 2020), available at https://www.law360.com/articles/1283456/eeoc-religious-bias-suit-over-hospital-worker-firing-tossed]; see also Holmes v. Gen. Dynamics Mission Sys., Inc., No. 19-1771, 2020 WL 7238415, at *3 (4th Cir. Dec. 9, 2020) (suggesting that as “long as [a workplace safety] requirement is valid, any employee who is categorically unable to comply . . . will not be considered a ‘qualified’ individual for ADA purposes,” and so may independently be denied a particular requested accommodation on such basis) (internal punctuation and citation omitted).

[26] Specifically, EEOC guidance indicates such protections extend to “[r]eligious beliefs include theistic beliefs (i.e. those that include a belief in God) as well as non-theistic ‘moral or ethical beliefs as to what is right and wrong which are sincerely held with the strength of traditional religious views.’” EEOC, Questions and Answers: Religious Discrimination in the Workplace, EEOC-NVTA-2008-2 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/questions-and-answers-religious-discrimination-workplace/.

[27] Id.

[28] See EEOC, Section 12 Religious Discrimination, EEOC-CVG-2008-1 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/section-12-religious-discrimination.

[29] Id.

[30] See EEOC, Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the ADA, EEOC-CVG-2003-1 (Oct. 17, 2002), available at https://www.eeoc.gov/laws/guidance/enforcement-guidance-reasonable-accommodation-and-undue-hardship-under-ada.

[31] EEOC, Questions and Answers: Religious Discrimination in the Workplace, EEOC-NVTA-2008‑2 (July 22, 2008), available at https://www.eeoc.gov/laws/guidance/questions-and-answers-religious-discrimination-workplace/.

[32] See, e.g., Robinson v. Children’s Hosp. Bos., No. CV 14-10263-DJC, 2016 WL 1337255, at *10 (D. Mass. Apr. 5, 2016) (finding that for Title VII purposes, healthcare worker’s requested accommodation of non‑vaccination based on religious beliefs would have imposed “undue hardship” on employer and so did not need to be granted).

[33] Andrea Kane, “Federal government says it will pay for any future coronavirus vaccine for all Americans,” CNN (Oct. 28, 2020), available at https://www.cnn.com/2020/10/28/health/cms-medicare-covid-vaccine-treatment/index.html.

[34] Katie Connor, “Coronavirus vaccines may be free, but you could still get a bill. What we know,” CNET (Dec. 7, 2020), available at https://www.cnet.com/personal-finance/coronavirus-vaccines-may-be-free-but-you-could-still-get-a-bill-what-we-know/.

[35] Noah Higgins-Dunn, “Trump COVID Vaccine Chief Says Everyone in U.S. could be vaccinated by June,” CNBC (Dec. 1, 2020), available at https://www.cnbc.com/2020/12/01/trump-covid-vaccine-chief-says-everyone-in-us-could-be-immunized-by-june.html.

[36] 29 U.S.C. § 157.

[37] See, e.g., Board Opinion, NLRB Case No. 12-CA-196002, Argos USA LLC d/b/a Argos Ready Mix, LLC and Construction and Craft Workers Local Union No. 1652, Laborers’ International Union of North America, AFL‒CIO, Cases 12–CA–196002 and 12–CA–203177 (Feb. 5, 2020), at 4, available at https://apps.nlrb.gov/link/document.aspx/09031d4582f8f960 (finding, in the context of cellphone-while-driving rules, that workplace rules that “ensure the safety of [workers] and the general public” do not interfere with the exercise of Section 7 rights).

[38] See, e.g., OSHA Standard 1910.1030 App A – Hepatitis B Vaccine Declination (requiring workers who opt out of the bloodborne pathogen vaccine to attest that they understand the medical risks of declining a vaccine should they decide to do so).

[39] See, e.g., Richardson v. Island Harvest, Ltd., 166 A.D.3d 827, 828-29 (N.Y. App. Div. 2018) (reasoning that employers and employees are in unequal bargaining positions, and that therefore prospective liability waivers for negligent employer conduct would be held unenforceable).

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the lawyer with whom you usually work in the firm’s Labor and Employment practice group, or the authors:

Jessica Brown – Denver (+1 303-298-5944, jbrown@gibsondunn.com)
Lauren Elliot – New York (+1 212-351-3848, lelliot@gibsondunn.com)
Daniel E. Rauch – Denver (+1 303-298-5734 , drauch@gibsondunn.com)

Please also feel free to contact the following practice group leaders:

Labor and Employment Group:
Catherine A. Conway – Co-Chair, Los Angeles (+1 213-229-7822, cconway@gibsondunn.com)
Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice. Please note, prior results do not guarantee a similar outcome.

A recent Judgment of the Court of Justice of the European Union (“Court of Justice”) in Case Groupe Canal + v. Commission (“Judgment”) provides some clarity about the sorts of commitments that defendants can give to reach a settlement with the European Commission (“Commission”) in order to avoid it adopting a Decision under Article 101(1) TFEU.[1] In its Judgment of 9 December 2020, the Court of Justice held that the Commission, when accepting commitments from defendants to overcome concerns in competition proceedings under the procedure set forth in Article 9 of Regulation 1/2003,[2] must take due account of the impact of those commitments on the position of third parties where the commitments require the defendant not to respect existing contractual obligations with third parties. This is, essentially, a proportionality test and requires the Commission to accept commitments only if they are necessary to remedy the perceived harm and if they do not have a disproportionately harmful effect on third parties.

I. Background

On 13 January 2014, the Commission opened a formal investigation into licensing agreements for the distribution of content entered into between several major US film studios (including Paramount Pictures International ltd and its parent company, Viacom Inc., together referred to as “Paramount”) on the one hand, and European pay-TV broadcasters including Sky UK Ltd and Sky plc (together referred to as “Sky”) and Groupe Canal + SA (“Canal +”), on the other.

In July 2015, the Commission adopted a Statement of Objections[3] regarding the enforceability of certain clauses in the licensing agreements concluded between Paramount and Sky and other broadcasters, namely:

restrictions on Sky’s ability to respond favourably to unsolicited requests from consumers resident in the EEA but outside the United Kingdom and Ireland, to provide access to television distribution services; and
the prohibition on broadcasters established in the EEA but outside the UK or Ireland to respond favourably to unsolicited requests from consumers resident in the United Kingdom or in Ireland.

The Commission took the preliminary view that these clauses prevented broadcasters from providing their services across EU Member State borders, and led to a situation of absolute territorial exclusivity. This was capable of constituting a restriction of competition under Article 101(1) TFEU and Article 53 of the EEA Agreement because they partitioned the European Single Market into a series of national markets.

The Commitments

In April 2016, in an attempt to meet the Commission’s concerns about the restrictive effects of its arrangements, Paramount offered the following commitments,[4] to apply throughout the territory of the EEA:[5]

when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount would not (re-)introduce contractual obligations which prevented or limited a pay-TV broadcaster from responding to unsolicited requests from consumers within the EEA but outside the pay-TV broadcaster’s licensed national territory (the “Broadcaster Obligation”);
when licensing its film output for pay-TV to a broadcaster in the EEA, Paramount would not (re-)introduce contractual obligations which required Paramount to prohibit or limit pay-TV broadcasters located outside the licensed territory from responding to unsolicited requests from consumers within the licensed territory (the “Paramount Obligation”);
Paramount would not seek to bring an action before a court or tribunal for the violation of a Broadcaster Obligation in an existing agreement licensing its film output for pay-TV; and
Paramount Pictures would not act upon or enforce a Paramount Obligation in an existing agreement licensing its film output for pay-TV.

Consistent with its administrative practice, the Commission sought comments on the proposed commitments from interested third parties, including Canal +. It then adopted a Decision on 26 July 2016 accepting the commitments offered by Paramount (the “Commitment Decision”).[6]

On appeal at first instance

As an exclusive licensee in France prior to the Commitment Decision being adopted, Canal + brought an action for the annulment of the Commitment Decision before the General Court of the European Union (“General Court”). The General Court dismissed Canal +’s action, holding that the commitments offered by Paramount were not binding on Paramount’s contracting partners (including Canal +) and that the rights of third parties were not violated because civil proceedings before national courts were still available to them.[7]

Grounds of appeal before the Court of Justice

Canal + appealed to the Court of Justice, arguing that:

by adopting the Commitment Decision, the Commission had misused its powers and was trying to circumvent the need for legislation to address the issue of geo-blocking within the EEA;
the relevant clauses in the licensing agreements were lawful under Article 101(1) TFEU and there were therefore no grounds for adopting the Commitment Decision;
the Commission had wrongly analysed the impact of the contested licensing clauses on the EEA as a whole and, in doing so, had failed to conduct individual assessments of their impact on a country-by-country basis;
the General Court erred in law in its assessment of the effects of the Commitment Decision on the contractual rights of third parties by not taking sufficient account of the fundamental legal principle of proportionality.

II. Judgment of the Court of Justice

The Court of Justice upheld the General Court’s findings with respect to the first three pleas raised on appeal.[8] However, it found that the General Court had failed to take into account sufficiently the contractual rights of third parties when adopting commitments decisions.

The Court of Justice first recalled that a commitment decision adopted on the basis of Article 9 of Regulation 1/2003 is only binding on the undertakings that have actually offered commitments. As a result, the Commitment Decision could not lead to third parties – in this case, Canal + – being bound by those commitments. Therefore, by making the commitments binding on a contracting party that had not consented to the commitments in question, the Commission was considered to have interfered with Canal +’s contractual freedom. In doing so, the Commission was considered to have exceeded its powers under Article 9 of Regulation 1/2003.

In arriving at this conclusion, the Court of Justice overturned the General Court’s finding that the third party could seek redress before a national court to enforce its contractual rights. The Court of Justice referred to the Masterfoods Case,[9] which held that the effectiveness of EU law is a fundamental legal principle[10] which must not be undermined by private parties being encouraged to approach national courts to dilute the effectiveness of EU law, as applied by the Commission in the exercise of its competition law powers.[11] The same principle is found in Article 16(2) of Regulation 1/2003, which provides that “[w]hen competition authorities of the Member States rule on agreements, decisions or practices under Article 81 or Article 82 of the Treaty [now Articles 101 or 102 TFEU] which are already the subject of a Commission decision, they cannot take decisions which would run counter to the decision adopted by the Commission”.

The Court of Justice declined to refer the case back to the General Court for the error of law to be rectified. Instead, the Court annulled the Commission Decision[12], holding that “by adopting the decision at issue, the Commission rendered the contractual rights of the third parties meaningless, including the contractual rights of Groupe Canal + vis-à-vis Paramount, and thereby infringed the principle of proportionality”.[13]

III. Implications of the Case

This is the first case in which a commitment decision has been overturned by the European courts. As such, it provides an important clarification as to the scope of commitments that parties under investigation can offer and that the Commission can accept. In practical terms, it limits the scope of commitments that the Commission can extract.

First, the Judgment confirms the principle established in the Alrosa Case, in which the Court held that “the fact that the individual commitments offered by an undertaking have been made binding by the Commission does not mean that other undertakings are deprived of the possibility of protecting the rights they may have in connection with their relations with that undertaking”.[14] However, it should not be forgotten that in Alrosa, the Court found that the Commission had not contravened the principle of proportionality – rather, it found that the General Court had been wrong to link the principle of proportionality in the context of commitment decisions adopted under Article 9 of Regulation 1/2003 to the test for proportionality for infringement decisions adopted under Article 7 of Regulation 1/2003.[15] By appearing to take the view that the doctrine of proportionality has a different scope depending on whether the Commission is adopting a commitments decision under Article 9 or an infringement decision under Article 7, the Court seems to have created an elusive shifting standard by which to apply a doctrine usually considered to be universal in its significance.[16]

In this Judgment, the Court has brought some clarity to that problematic distinction. A commitment decision short-circuits the usual procedure for infringement decisions, given that a commitment decision does not reach definitive conclusions about the legality or otherwise of the conduct in question. The procedure for commitment decisions is nevertheless still designed to ensure the effective application of Community law by allowing the Commission to take action in a more expedited manner than would otherwise be the case under the much more cumbersome procedure for infringement decisions. This trade-off means that commitments are limited to unilateral obligations agreed by defendants and there is no full investigation.

Second, it is not the case that the Commission is inexperienced in the handling of multi-party proceedings involving commitments relating to contractual obligations designed to put alleged anti-competitive conduct to an end. The Cannes Agreement[17] and Container Shipping[18] Cases are two clear examples of the Commission interfering with contractual relations, as are a series of multi-party JVs in the airline sector.[19] The Commission might be justifiably concerned, however, that its decision-making capacity will be impaired if it must in each case take into account third party contractual arrangements before agreeing commitments, especially if it has already consulted with third parties in a stakeholder consultation on the suitability of the commitments.

Third, the Commission and General Court clearly erred in finding that third parties could have recourse to national courts to enforce their contractual rights. The availability of such a remedy would clearly call into question the enforceability of the commitments, and would therefore undermine the principle that EU law must be implemented effectively. Insofar as the Court’s Ruling is based on the principle that national courts must refrain from adopting a decision that would contradict a binding Commission Decision, it is difficult to find fault with the Court’s logic.

In conclusion, it may be expected that the Commission will respond to the Court’s Canal+ Judgment by demanding more information and greater legal certainty in relation to commitments which might interfere with the contractual rights of third parties. In addition, the Commission may take the view that the Court, by asking it to pay greater attention to the rights of third parties in its proportionality analysis, has made commitment decisions too susceptible to legal challenge. If that is the case, the Commission may feel that it has little option other than to pursue infringement decisions more aggressively rather than seeking settlements under Article 9.

_____________________

[1] Judgment of 9 December 2020, Groupe Canal + v. Commission, Case C-132/19 P, EU:C:2020:1007.

[2] Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, pp. 1-25. Regulation 1/2003 sets out the procedural rules which the Commission must respect in pursuing an infringement action under Articles 101-102 TFEU. According to Article 9 of Regulation 1/2003, where the Commission takes the preliminary view that an infringement of the competition rules has taken place, the suspected undertakings can offer commitments to meet the concerns expressed by the Commission. If considered satisfactory, the Commission may by decision render these commitments binding on the undertakings concerned in a Decision.

[3] This is a preliminary assessment setting out the Commission’s views that an infringement of EU competition rules has taken place.

[4] Commitments by Paramount in Case AT.40023 – Cross-border access to pay-TV, 22.04.2016, available at: https://ec.europa.eu/competition/antitrust/cases/dec_docs/40023/40023_4638_3.pdf.

[5] At the time, the EU consisted of 28 Member States (including the United Kingdom) and the three additional jurisdictions of Norway, Iceland and Lichtenstein, which collectively constitute the European Economic Area (EEA).

[6] Commission Decision of 26 July 2016 in Case AT.40023 – Cross-border access to pay-TV adopted pursuant to Article 9 of Regulation 1/2003.

[7] Judgment of 12 December 2018, Groupe Canal + v Commission, T-873/16, EU:T:2018:904, paras. 93-98.

[8] Namely: (i) the Commission had not misused its powers on the issue of geo-blocking given that the legislative process relating to geo-blocking had thus far not resulted in the adoption of a legislative text, and this process was without prejudice to the powers conferred on the Commission under Article 101 TFEU and Regulation 1/2003; (ii) the licensing clauses under Article 101(1) TFEU were unlawful insofar as they eliminated the cross-border provision of broadcasting services and granted broadcasters absolute territorial protection; and (iii) the impact of the licensing clauses over the entire EEA territory was appropriate, without there being a necessity for the Commission to analyse those commitments on an individual basis. One would have thought that the simpler avenue for the Court of Justice would have been to agree with the appellant that the Commission had erred by not assessing each national exclusivity in terms of their competitive impacts, rather than accepting that the Commission was entitled to consider the competitive impacts of the territorial grants of exclusivity in their entirety over the territory of the EEA. By so holding, it would arguably have been more straightforward for the Court to conclude that the interference of the commitments with the appellant’s contractual right was “disproportionate” under the fourth plea.

[9] Judgment of 14 December 2000, Masterfoods and HB, C-344/98, EU:C:2000:689, para. 51.

[10] The principle of effectiveness is enshrined in Article 19 TEU, in Article 47 of the Charter of Fundamental Rights of the European Union and in numerous cases such as in the Judgment of 13 March 2007, Unibet, Case C-432/05, EU:C:2007:163. In the Judgment of 27 March 2014, Saint-Gobain Glass France SA, Joined Cases T-56/09 and T-73/06 EU:T:2014:160, paragraph 83, the General Court further emphasised that “the judicial review of the decisions adopted by the Commission in order to penalise infringements of competition law that is provided for in the Treaties and supplemented by Regulation No 1/2003 is consistent with that principle”.

[11] The doctrine of effective application of EU law is itself based on the doctrine of “sincere cooperation” between EU institutions and the Member States, as found in Article 4(3) TEU, which provides the legal basis for many of the provisions contained in Regulation 1/2003.

[12] In accordance with Article 61(1) of the Statute of the Court of Justice of the European Union.

[13] Judgment of 9 December 2020, Groupe Canal + v. Commission, C-132/19 P, EU:C:2020:1007, para. 123.

[14] Judgment of 29 June 2010, Commission v. Alrosa, C-441/07 P, EU:C:2010:377, paragraph 49.

[15] See Judgment of 29 June 2010, Commission v. Alrosa, C-441/07 P, EU:C:2010:377, paragraph 47, where the Court of Justice held that there is no reason that would explain “why the measure which could possibly be imposed in the context of Article 7 of Regulation No 1/2003 should have to serve as a reference for the purpose of assessing the extent of the commitments accepted under Article 9 of the regulation, or why anything going beyond that measure should automatically be regarded as disproportionate”.

[16] The principle of proportionality is a general principle of EU law provided in Article 5(4) TEU. This principle regulates the exercise of powers by the European Union, by requiring that the actions taken by the EU are limited to what is necessary to achieve the objectives set in the Treaties.

[17] Commission Decision of 04.10.2006 in Case AT.38681 – Cannes Agreement. The commitments offered by the Parties consisted of: (i) ensuring that collecting societies could continue to give rebates to record companies; and (ii) the removal of a non-competition clause.

[18] Commission Decision of 07.07.2016 in Case AT.39850 – Container Shipping. The commitments offered by 14 container liner shipping companies aimed to increase price transparency for customers and to reduce the likelihood of coordinating prices. See also Commission Decision of 16 September 1998 in Case no IV/35.134 – Trans-Atlantic Conference Agreement, in which the Commission imposed an obligation on the infringing undertakings to inform the customers with whom they had concluded joint service contracts that those customers were entitled to renegotiate the terms of those contracts or to terminate them forthwith.

[19] Commission Decision of 23.05.2013 in Case AT.39595 – Continental/United/Lufthansa/Air Canada; Commission Decision of 14.07.2010 in Case AT.39596 – American Airlines/British Airways Plc/ Iberia Líneas Aéreas de España; and Commission Decision of 12.05.2015 in Case AT.39964 – Air France/KLM/Alitalia/Delta. In these cases, the affected airlines committed to making slots available in order to facilitate the entry or expansion of competitors, and to enter into agreements in order to allow competitors to offer more attractive services.

Peter Alexiadis (+32 2 554 7200, palexiadis@gibsondunn.com)
David Wood (+32 2 554 7210, dwood@gibsondunn.com)
Iseult Derème (+32 2 554 72 29, idereme@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

On December 7, 2020, the Foreign Affairs Council of the Council of the European Union, adopted Decision (CFSP) 2020/1999 (the Council Decision) and Regulation (EU) 2020/1998 (the Council Regulation) concerning restrictive measures against serious human rights violations and abuses, which together establish the first global and comprehensive human rights sanctions regime to be enacted by the European Union (the EU) (the EU Human Rights Sanctions).

The EU Human Rights Sanctions will allow the EU to target individuals and entities responsible for, involved in or associated with serious human rights violations and abuses and provides for the possibility to impose travel bans, asset freeze measures and the prohibition of making funds or economic resources available to those designated.

The adoption of the EU Human Rights Sanctions emphasizes that the promotion and protection of human rights remain a cornerstone and priority of EU external action and is expected to contribute towards progressing global human rights by strengthening the international community’s ability to hold individuals and entities accountable for decisions or actions that lead to blatant or systematic human rights violations.

Background

The need for adopting a regime that specifically addresses serious human rights violations worldwide has long been the subject of debate in the EU.

In November 2018, the Dutch Government launched preliminary discussions among EU member states for a specific human rights sanctions regime. In March 2019, the European Parliament adopted a resolution calling “for the swift establishment of an autonomous, flexible and reactive EU-wide sanctions regime”. However, it was only in December 9, 2019, that the Council of the European Union formally reflected on how to improve the EU’s toolbox when it comes to addressing human rights violations, and the EU High Representative announced the launch of preparatory work on a possible sanctions regime.

More recently, on September 16, 2020, in her State of the Union Address, European Commission President Ursula von der Leyen prompted member states to “be courageous and finally move to qualified majority voting – at least on human rights and sanctions implementation”. She not only recalled that the EU Parliament had already called for a “European Magnitsky Act” many times, but also announced that the European Commission “will now come forward with a proposal”.

Moving towards this goal, on November 17, 2020, the European Council approved conclusions on the EU Action Plan on Human Rights and Democracy 2020-2024 which set out the EU’s priorities in this field and contained a commitment to developing a new EU global human rights sanctions regime.

It is important to note that the enactment of the EU Human Rights Sanctions comes after the adoption of the U.S. Magnitsky Act of 2012, and its 2016 expansion, the U.S. Global Magnitsky Human Rights Accountability Act (collectively, the Magnitsky Act), which was the first legal instrument worldwide addressing human rights violations through sanctions. Since then, Canada, Estonia, Latvia, Lithuania and the United Kingdom (for more details on the UK regime please see Gibson Dunn Client Alert of July 9, 2020) have also adopted Magnitsky-like sanctions regimes. Other countries, including Japan and Australia, are also considering adopting similar legislation.

Scope of application

Mirroring the Magnitsky Act, the new sanctions regime will provide the EU with a legal framework to target natural and legal persons, entities and bodies – including state and non-state actors – responsible for, involved in or associated with serious human rights violations and abuses worldwide, regardless of where these might have occurred.

The EU Human Rights Sanctions applied to acts such as genocide, crimes against humanity and other serious human rights violations or abuses, such as torture, slavery, extrajudicial killings, arbitrary arrests or detentions. Other human rights violations or abuses can also fall under the scope of the sanctions regime where those violations or abuses are widespread, systematic or are otherwise of serious concern as regards the objectives of the common foreign and security policy set out in Article 21 of the Treaty on European Union.[1]

Notably, contrary to the U.S. and Canadian sanctions regimes, and similarly to the United Kingdom human rights sanctions regime, the list of human rights violations does not include corruption.

Restrictive measures

Under the EU Human Rights Sanctions designated human rights offenders can be targeted by travel bans (applying to individuals) and asset freezes (applying to both individuals and entities). In addition, individuals and entities in the EU will be forbidden from making funds available, either directly or indirectly, to the designated individuals or entities. Further, it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent EU Human Rights Sanctions.

Similarly to other EU sanctions regimes, under the EU Human Rights Sanctions, the competent authorities of the member states may authorize the release of certain frozen assets and the provision of certain funds and economic resources on the basis of humanitarian grounds.

Member states may also grant exemptions from travel restrictions where travel is justified on the grounds of an urgent humanitarian need, in order to facilitate a judicial process or on grounds of attending intergovernmental meetings, where a political dialogue is conducted that directly promotes the policy objectives of restrictive measures, including the ending of serious human rights violations and abuses.

Procedural Aspects

Following the structure of existing sanctions programs, the EU Human Rights Sanctions were introduced by the Council of the European Union through a Council Decision (setting out key principles binding to the member states) and a Council Regulation (with more detailed provisions that are directly binding to any person subject to the EU’s jurisdiction).

It will now be for the Council of the European Union, acting upon a proposal from a member state or from the High Representative of the EU for Foreign Affairs and Security Policy, to establish, review and amend the list of those individuals and entities that are subject to EU Human Rights Sanctions. Designating an individual or an entity will require a significant degree of consensus, as the Council of the European Union can only proceed with designations on the basis of unanimity among all member states.

Enforcing the EU Human Rights Sanctions, including determining the applicable penalties for the infringement of the restrictive measures, falls within the competency of member states.

Outlook

Human rights violations have already been subject to EU sanctions, imposed on the basis of a sanctions framework linked to specific countries, conflicts or crises.[2] Linking the possibility of sanctioning human rights violations to specific countries or conflicts, however, limited the EU’s ability to respond swiftly whenever a new crisis emerged.

EU Human Rights Sanctions are expected to confer more flexibility and speediness to the EU’s response to significant human rights violations. Since EU Human Rights Sanctions put the emphasis on the individual responsibility of designated persons and entities (rather than on their nationality), it dissociates to a certain extent the geographical link between the perpetrator of a human rights violation and third countries. This provides the EU with the opportunity to proceed with designations, without necessarily entailing political, economic and strategic conflicts with third countries.

U.S. Secretary of State Mike Pompeo said that the U.S. “welcomes” the EU’s sanctions regime, calling it a “groundbreaking accomplishment” and encouraging the EU “to adopt its first designations as soon as possible”.

Additionally, despite welcoming the EU’s move, several civil society organizations called for additional rules to also target corruption.

The adoption of the restrictive measures under the EU Human Rights Sanctions means that companies active in the EU will be obliged to freeze the assets of designated human rights offenders and must not make funds or economic resources available to them. Further, it will limit access to the EU by imposing travel bans on those designated.

Although no specific individual or entity have yet been designated under EU Human Rights Sanctions, companies active in the EU should be mindful of this new sanctions regime and take it into consideration in their compliance efforts.

____________________

[1] Such violations may, inter alia, include: (i) trafficking in human beings, as well as abuses of human rights by migrant smugglers as referred to in that Article; (ii) sexual and gender-based violence; (iii) violations or abuses of freedom of peaceful assembly and of association; (iv) violations or abuses of freedom of opinion and expression and; (v) violations or abuses of freedom of religion or belief.

[2] See, for instance, Council Regulation (EU) 36/2012 concerning restrictive measures in view of the situation in Syria (including the continued brutal repression and violation of human rights by the Government of Syria); Council Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya (including serious human rights abuses); Council Regulation (EU) 2017/2063 concerning restrictive measures in view of the situation in Venezuela (including the continuing deterioration of human rights).

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s International Trade practice group, or the following authors:

Attila Borsos – Brussels (+32 2 554 72 11, aborsos@gibsondunn.com)
Patrick Doris – London (+44 (0) 20 7071 4276, pdoris@gibsondunn.com)
Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com)
Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com)
Maria Francisca Couto – Brussels (+32 2 554 72 31, fcouto@gibsondunn.com)
Vasiliki Dolka – Brussels (+32 2 554 72 01, vdolka@gibsondunn.com)

International Trade Group:

Europe and Asia:
Peter Alexiadis – Brussels (+32 2 554 72 00, palexiadis@gibsondunn.com)
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Nicolas Autet – Paris (+33 1 56 43 13 00, nautet@gibsondunn.com)
Susy Bullock – London (+44 (0)20 7071 4283, sbullock@gibsondunn.com)
Patrick Doris – London (+44 (0)20 7071 4276, pdoris@gibsondunn.com)
Sacha Harber-Kelly – London (+44 (0)20 7071 4205, sharber-kelly@gibsondunn.com)
Penny Madden – London (+44 (0)20 7071 4226, pmadden@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Michael Walther – Munich (+49 89 189 33-180, mwalther@gibsondunn.com)
Richard W. Roeder – Munich (+49 89 189 33-160, rroeder@gibsondunn.com)
Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com)
Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

Decided December 10, 2020

Rutledge v. Pharmaceutical Care Management Ass’n, No. 18-540

Today, the Supreme Court held 8-0 that ERISA does not preempt an Arkansas statute regulating the rates at which pharmacy benefit managers reimburse pharmacies for prescription drug costs.

Background:
Section 514(a) of the Employee Retirement Income Security Act of 1974 (“ERISA”) preempts state laws that “relate to” employee benefit plans. 29 U.S.C.§ 1144(a). In 2015, Arkansas adopted a law, Act 900, to regulate the rates and procedures by which pharmacy benefit managers (“PBMs”) reimburse pharmacies for the costs of drugs administered on behalf of benefit plans. The Pharmaceutical Care Management Association, the trade association representing PBMs, filed suit alleging that ERISA preempted Act 900.

The Eighth Circuit held that Act 900 is preempted because it has an impermissible “connection with” ERISA plans by interfering with central plan functions and nationally uniform plan administration, and also because it impermissibly “refers to” plans by regulating PBMs administering benefits for the plans.

Issue:
Does ERISA preempt Arkansas’ Act 900 regulating the rates and reimbursement procedures of pharmacy benefit managers?

Court’s Holding:
ERISA does not preempt Arkansas’ Act 900. Act 900 merely affects costs without dictating plans’ choices of benefit structure, either directly or indirectly. It has neither an impermissible connection with nor a reference to ERISA plans.

“Act 900 is merely a form of cost regulation . . . [that] applies equally to all PBMs and pharmacies in Arkansas. As a result, Act 900 does not have an impermissible connection with an ERISA plan.”

Justice Sotomayor, writing for the Court

What It Means:

The Court’s decision may lead to further state regulation of PBMs, which are engaged by the majority of employers to deliver prescription-drug benefits. Dozens of other states have already passed similar laws regulating PBM pricing, and more could follow. Today’s decision could lead to new litigation over whether other states’ laws are sufficiently distinguishable from Arkansas’ Act 900 to be preempted.
The Court’s decision also could lead to new attempts by states to regulate other aspects of plan administration, including other third-party administrators beyond the PBM context. Third parties—including claims administrators, external reviewers, and healthcare provider networks—play a vital role in many aspects of modern plan administration.
In a concurrence, Justice Thomas reiterated his previously expressed doubts about the Court’s ERISA preemption doctrine, which he believes has departed from the text of the statute.

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 leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho
+1 214.698.3233
aho@gibsondunn.com

Mark A. Perry
+1 202.887.3667
mperry@gibsondunn.com

Helgi C. Walker
+1 202.887.3599
hwalker@gibsondunn.com

Lucas C. Townsend
+1 202.887.3731
ltownsend@gibsondunn.com

Bradley J. Hamburger
+1 213.229.7658
bhamburger@gibsondunn.com

Related Practice: Employee Benefits

Richard J. Doren
+1 213.229.7038
rdoren@gibsondunn.com

Heather L. Richardson
+1 213.229.7409
hrichardson@gibsondunn.com

Geoffrey M. Sigler
+1 202.887.3752
gsigler@gibsondunn.com

Daniel J. Thomasch
+1 212.351.3800
dthomasch@gibsondunn.com

Gibson Dunn provides a discussion regarding the latest developments and trends in anti-money laundering and sanctions laws, regulations, and enforcement. This webcast includes a particular focus on international AML developments, including the increasing overlap between sanctions and AML enforcement. We also discuss updates related to the FinCEN files, FinCEN’s new enforcement guidance, virtual currency, marijuana-related businesses, and sports betting. With respect to sanctions, we cover the increasing complexity of complying with the growth in both traditional U.S. sanctions and newer export controls. We also analyze the mounting challenges for companies seeking to navigate global compliance stemming from the enforcement of “counter-sanctions” imposed by China, the European Union, and others.

View Slides (PDF)

MODERATOR:

F. Joseph Warin is co-chair of Gibson Dunn’s global White Collar Defense and Investigations Practice Group, and chair of the Washington, D.C. office’s 200-person Litigation Department. Mr. Warin’s group is repeatedly recognized by Global Investigations Review as the leading global investigations law firm in the world. Mr. Warin is a former Assistant United States Attorney in Washington, D.C. He is ranked annually in the top-tier by Chambers USA, Chambers Global, and Chambers Latin America for his FCPA, fraud and corporate investigations experience. Among numerous accolades, he has been recognized by Benchmark Litigation as a U.S. White Collar Crime Litigator “Star” for ten consecutive years (2011–2020).

PANELISTS:

Stephanie L. Brooker is co-chair of Gibson Dunn’s Financial Institutions Practice Group and member of the White Collar Group. She is the former Director of the Enforcement Division at FinCEN, and previously served as the Chief of the Asset Forfeiture and Money Laundering Section in the U.S. Attorney’s Office for the District of Columbia and as a DOJ trial attorney for several years. Ms. Brooker represents multi-national companies and individuals in internal corporate investigations and DOJ, SEC, and other government agency enforcement actions involving, for example, matters involving BSA/AML; sanctions; anti-corruption; securities, tax, and wire fraud; whistleblower complaints; and “me-too” issues. Her practice also includes BSA/AML compliance counseling and due diligence and significant criminal and civil asset forfeiture matters. Ms. Brooker has been named a Global Investigations Review “Top 100 Women in Investigations” and National Law Journal White Collar Trailblazer.

Kendall Day is a litigation partner in Washington, D.C. and was a white collar prosecutor for 15 years, eventually rising to become an Acting Deputy Assistant Attorney General, the highest level of career official in the Criminal Division at DOJ. He represents financial institutions, multi-national companies, and individuals in connection with criminal, regulatory, and civil enforcement actions involving anti-money laundering (AML)/Bank Secrecy Act (BSA), sanctions, FCPA and other anti-corruption, securities, tax, wire and mail fraud, unlicensed money transmitter, false claims act, and sensitive employee matters. Mr. Day’s practice also includes BSA/AML compliance counseling and due diligence, and the defense of forfeiture matters.

Adam M. Smith is a partner in Washington, D.C. and was the Senior Advisor to the Director of the U.S. Treasury Department’s OFAC and the Director for Multilateral Affairs on the National Security Council. His practice focuses on international trade compliance and white collar investigations, including with respect to federal and state economic sanctions enforcement, the FCPA, embargoes, and export controls. He routinely advises multi-national corporations regarding regulatory aspects of international business. Mr. Smith is ranked by Chambers and Partners and was named by Global Investigations Review as a leading sanctions practitioner.

Ella Alves Capone is a senior associate in the Washington, D.C. office. Her practice focuses primarily in the areas of white collar criminal defense, corporate compliance, and securities litigation. Ms. Capone regularly conducts internal investigations and advises multinational corporations and financial institutions, including major banks and casinos, on compliance with anti-corruption and anti-money laundering laws and regulations.

Our webcast provides a preview of what Congress is likely to investigate in the coming Congress. We look at the investigative committees, including who is likely to lead them and on what topics they are likely to focus. We discuss the impact of the Presidential election on congressional investigative and oversight priorities. We examine how recent rules changes and court cases impact the ability of congressional committees to enforce compliance with document, information and deposition requests. And we discuss strategies for responding to congressional requests. This is a fast-paced, practical look at the landscape of the 117th Congress, which promises an active slate of investigations focused on the private sector.

View Slides (PDF)

PANELISTS:

Michael Bopp is a partner in the Washington, D.C. office. He spent more than a decade on Capitol Hill running congressional investigations in both the House and Senate and brings his extensive government and private-sector experience to help clients navigate through the most difficult crises, often involving investigations as well as public policy and media challenges.

Thomas Hungar is a partner in the Washington, D.C. office. Mr. Hungar served as General Counsel to the U.S. House of Representatives from July 2016 until January 2019, when he rejoined the firm. He has presented oral argument before the Supreme Court of the United States in 26 cases, including some of the Court’s most important patent, antitrust, securities, and environmental law decisions, and he has also appeared before numerous lower federal and state courts.

Roscoe Jones is counsel in the Washington, D.C. office, and a member of the firm’s Public Policy, Congressional Investigations, and Crisis Management groups. Mr. Jones formerly served as Chief of Staff to U.S. Representative Abigail Spanberger, Legislative Director to U.S. Senator Dianne Feinstein, and Senior Counsel to U.S. Senator Cory Booker, among other high-level roles on Capitol Hill.

Megan Kiernan is an associate in the Washington, D.C. office. She practices in the firm’s Litigation Department and is a member of its White Collar Defense, Congressional Investigations, and Crisis Management Practice Groups. She defends clients in Executive and Congressional Branch investigations as well as in civil litigation at the trial and appellate level.

On December 4, 2020, the Securities and Exchange Commission (“SEC”) announced its first enforcement action against a public company for misleading disclosures about the financial effects of the pandemic on the company’s business operations and financial condition. In a settled administrative order, the Commission found that disclosures in two press releases by The Cheesecake Factory Incorporated violated Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 thereunder. Without admitting the findings in the order, the company agreed to pay a $125,000 penalty and to cease-and-desist from further violations.[1] In March 2020, the SEC’s Division of Enforcement formed a Coronavirus Steering Committee to oversee the Division’s efforts to actively look for Covid-related misconduct.

The Company’s Form 8-Ks

On March 23, 2020, the company furnished a Form 8-K to the Commission, disclosing, among other things, that it was withdrawing previously-issued financial guidance due to economic conditions caused by Covid-19. As an exhibit to the Form-8-K, the company included a copy of its press release providing a business update regarding the impact of Covid-19. The press release announced that the company was transitioning to an “off-premise” model (i.e., to-go and delivery) that would enable the company to continue to “operate sustainably.” This press release did not elaborate on what “sustainably” meant. The release also disclosed a $90 million draw down on the company’s revolving credit facility, and stated that the company was “evaluating additional measures to further preserve financial flexibility.”

On March 27, 2020, in response to media reports, the company filed another Form 8-K, disclosing that it was not planning to pay rent in April and that it was in discussion with landlords regarding its rent obligations, including abatement and potential deferral. The company also disclosed that as of April 1, it had reduced compensation for executive officers, its Board of Directors, and certain employees, and that it furloughed approximately 41,000 employees.

On April 3, 2020, the company furnished another Form 8-K to the Commission that attached a copy of an April 2, 2020 press release. This press release provided a preliminary Q1 2020 sales update, which reflected the impact of Covid-19. The release stated that “the restaurants are operating sustainably at present under this [off-premise] model.”

The SEC found that the March 23 and April 3 Form 8-Ks – but not the March 27 Form 8-K – were materially misleading.

What the Company Did Not Disclose

The company’s disclosures on March 23 and April 3 did not disclose:

a March 18, 2020 letter from the company to its restaurants’ landlords stating that it was not going to pay its rent for April 2020;
that the company was losing $6 million in cash per week;
that it had only approximately 16 weeks of cash remaining even after the $90 million revolving credit facility borrowing; and
that it was excluding expenses attributable to corporate operations from its claim of sustainability.

The SEC’s Findings

The SEC found that the company’s March 23 and April 3, 2020 Forms 8-K were materially false and misleading in violation of Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 thereunder. These sections require that every issuer of a security registered pursuant to Section 12 of the Exchange Act file with the Commission accurate and current information on its Form 8-K, including material information necessary to make the required statements made in the reports not misleading.

Observations and Takeaways

Although this is the first enforcement action against a public company based on disclosures about the financial effects of the pandemic, the findings against the company are fairly unusual.

Two observations:

First, the SEC’s order focuses on two press releases included as exhibits in Form 8-Ks that are deemed to be “furnished,” and not “filed,” under the Exchange Act. Specifically, one was filed under Item 7.01 and the other under Item 2.02. Because these Form 8-Ks are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, there is no private right of action under Section 18 that can arise in connection with these Form 8-Ks. So, although “furnishing” reports results in lower liability exposure, it does not mean that the SEC cannot take enforcement action if it believes the disclosure is misleading.
Second, the language at issue in the two Form 8-Ks is the word of the moment, “sustainably,” as in “operating sustainably.” It should be noted that, nine months after the disclosures were made, the company remains in business (and did not file for bankruptcy) and, in fact, as of the close of trading on December 4, 2020, its stock price closed near the high of the 52-week range. The concept of sustainability is generally thought to encompass the concept of over the long- or longer term, so it is not self-evident that these disclosures were materially misleading.

Some takeaways:

In using the word “sustainably” without further qualification or explanation, issuers run the risk of being misunderstood. Sustainably in what sense (as a synonym for liquidity?) or to which degree? Over what period of time? It is not self-evident what sustainability entails.
Where the subject matter involves the impact of Covid, the Commission’s order certainly demonstrates its willingness to take action even if, at worst, the disclosure at issue is vague or unclear. This was not a case in which the company claimed it had no liquidity issues when, in fact, it was experiencing significant liquidity issues. Put another way, this case raises the question as to whether Covid disclosures are attracting greater scrutiny than other corporate disclosures in the current climate.
To state the obvious, the Commission brought this action for a reason: to underscore the importance of carefully drafted disclosures with respect to the impact of Covid on issuers’ results of operations, financial condition and liquidity; and to signal its willingness to take action if issuers’ Covid-related disclosures are not carefully drafted. A quote from the SEC Chair in the press release announcing this action is a further indication of the importance the SEC is placing on this area of enforcement.[2]

_______________________

[1] Order Instituting Cease-and-Desist Proceedings, Securities Exchange Act of 1934 Release No. 90565 at 4 (Dec. 4, 2020).

[2] Press Release, Securities and Exchange Commission, SEC Charges The Cheesecake Factory For Misleading COVID-19 Disclosures (Dec. 4, 2020), available at https://www.sec.gov/news/press-release/2020-306.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Enforcement or Securities Regulation and Corporate Governance practice groups, or the following authors:

Thomas J. Kim – Washington, D.C. (+1 202-887-3550, tkim@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212-351-2433, mschonfeld@gibsondunn.com)
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Richard W. Grime – Washington, D.C. (+1 202-955-8219, rgrime@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
James J. Moloney – Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com)
Lauren Myers – New York (+1 212-351-3946, lmyers@gibsondunn.com)

Please also feel free to contact the practice group leaders:

Securities Enforcement Practice Group Leaders:
Barry R. Goldsmith – New York (+1 212-351-2440, bgoldsmith@gibsondunn.com)
Richard W. Grime – Washington, D.C. (+1 202-955-8219, rgrime@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212-351-2433, mschonfeld@gibsondunn.com)

Securities Regulation and Corporate Governance Group:
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com)
James J. Moloney – Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com)
Lori Zyskowski – New York, NY (+1 212-351-2309, lzyskowski@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

This year presented unique challenges for the Court, as New York was situated at the national epicenter of the COVID-19 pandemic. When the virus’s effects took hold in March, the Court responded by limiting access to its courthouse. By the end of the month, the Governor issued an Executive Order suspending various litigation deadlines and issued a statewide work-from-home order. New York courts—led by Chief Judge Janet DiFiore—took measures to restrict the virus’s spread. The Court closed its courthouse and elected not to hear oral argument during its remaining March, April, and May sessions. In late May, however, the Court began reopening, and it is now accepting in-person filings and hearing oral arguments with appropriate safety protocols.

Both the pace of decisions and new additions to the docket appear to have been reduced by approximately 20%. Nevertheless, the Court has continued resolving cases of exceptional importance, on a broad array of issues spanning from due process, freedom of speech, and arbitration, to class actions, statutes of limitations, consumer protection, administrative law, and employment law.

This year continued the Court’s recent lack of unanimity, with judges issuing a large number of concurring and dissenting opinions. Moreover, Judge Leslie Stein announced that she will retire in June 2021, and Judge Eugene Fahey will reach his mandatory retirement age next year. Their replacement marks a potential shift for the Court, which has been perceived by some as ideologically moderate and growing increasingly conservative on certain issues in recent years, including law enforcement and business regulation.

The New York Court of Appeals Round-Up & Preview summarizes key opinions in civil cases issued by the Court over the past year and highlights a number of cases of potentially broad significance that the Court will hear during the coming year. The cases are organized by subject.

To view the Round-Up, click here.

Gibson Dunn’s New York office is home to a team of top appellate specialists and litigators who regularly represent clients in appellate matters involving an array of constitutional, statutory, regulatory, and common-law issues, including securities, antitrust, commercial, intellectual property, insurance, unfair trade practice, First Amendment, class action, and complex contract disputes. In addition to our expertise in New York’s appellate courts, we regularly brief and argue some of the firm’s most important appeals, file amicus briefs, participate in motion practice, develop policy arguments, and preserve critical arguments for appeal. That is nowhere more critical than in New York—the epicenter of domestic and global commerce—where appellate procedure is complex, the state political system is arcane, and interlocutory appeals are permitted from the vast majority of trial-court rulings.

Our lawyers are available to assist in addressing any questions you may have regarding developments at the New York Court of Appeals, or any other state or federal appellate courts in New York. Please feel free to contact any member of the firm’s Appellate and Constitutional Law practice group, or the following lawyers in New York:

Mylan L. Denerstein (+1 212-351-3850, mdenerstein@gibsondunn.com)
Akiva Shapiro (+1 212-351-3830, ashapiro@gibsondunn.com)
Seth M. Rokosky (+1 212-351-6389, srokosky@gibsondunn.com)
Genevieve B. Quinn (+1 212-351-5339, gquinn@gibsondunn.com)

Please also feel free to contact the following practice group leaders:

Allyson N. Ho – Dallas (+1 214.698.3233, aho@gibsondunn.com)
Mark A. Perry – Washington, D.C. (+1 202.887.3667, mperry@gibsondunn.com)

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

New York partner Akiva Shapiro is the author of “Holocaust Survivors Deserve Their Day in Court,” [PDF] published by The Wall Street Journal on December 6, 2020.

1. The Competition Ordinance in a Nutshell

2. Cartels

3. Other Nonmerger Enforcement Actions taken by the Commission

4. Private Litigation

5. Mergers

I. Competition Law and Sports Associations: Case T-93/18 – International Skating Union v. Commission

II. Community Interest and Competition Law Enforcement:Case T-515/18 – Fakro v. Commission

III. Commission holds the whip-hand in the interpretation of the scope of commitments: Case T-430/18 – American Airlines

I. Deciding Who Decides: Should Employers Mandate Vaccination?

II. Playbook For Employer Vaccine Policies

I. Background

II. Judgment of the Court of Justice

III. Implications of the Case

II. Community Interest and Competition Law Enforcement:
Case T-515/18 – Fakro v. Commission