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August 31, 2010
Delaware Amends Escheat Law: A Good Start, with Room for Improvement
Last month the State of Delaware adopted Senate Bill No. 272, which amends the Delaware escheat law for the purpose of “providing holders with additional clarity and certainty regarding the enforcement of the Delaware unclaimed property statute.” The recent amendments comprise three categories, procedural, substantive, and ministerial. Most important is the establishment of an administrative process by which holders can seek review of an adverse audit determination made by Delaware’s Audit Manager. This update discusses the provisions of these amendments.
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- Securities and Futures Regulatory
- Complex Commercial Litigation
- Investment Funds, Advisers and Derivatives
- Financial Institutions Regulatory
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August 31, 2010
Inter-Agency Request for Comments on "Key Definitions" of Title VII
The Commodity Futures Trading Commission and the Securities and Exchange Commission on August 20, 2010 published a joint “Advance notice of proposed rulemaking; request for comments” (“RFC”) in the Federal Register, soliciting public comments on certain “Key Definitions” contained in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Comments must be submitted in writing by any of the methods provided in the RFC and must be received by September 20, 2010 at 5:00 p.m. Eastern Time. This update lists the Key Definitions and discusses their significance in forthcoming rulemaking.
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- Investment Funds, Advisers and Derivatives
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August 26, 2010
SEC Adopts New Proxy Rules Implementing Proxy Access
On August 25, 2010, the Securities and Exchange Commission adopted, by a 3-2 vote, amendments to the federal proxy rules that will implement a system of “proxy access.” Under the amendments, particularly new Rule 14a-11, a shareholder or group of shareholders meeting certain eligibility requirements can require public companies to include a limited number of director nominees selected by the eligible shareholder in the management proxy materials. The attached SEC Update contains a description of these amendments.
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- Corporate Governance and Compliance
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August 24, 2010
FDA Reopens Comment Period to Address Oversight of Laboratory-Developed Tests
Last week the U.S. Food and Drug Administration (the Agency) announced that it would reopen the comment period until September 15, 2010 to provide additional time for stakeholders to submit comments—and to update already-submitted comments—regarding the Agency’s oversight of laboratory developed tests.
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- Food, Drug and Medical Device Regulatory
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August 24, 2010
U.S. Antitrust Agencies Finalize Major Revision to Horizontal Merger Guidelines
The Federal Trade Commission and the Department of Justice have issued a major revision to the two agencies’ Joint Horizontal Merger Guidelines (“Guidelines”) that portends a more flexible, albeit less predictable, approach to merger analysis. Given the expansive scope of the revision, and the extent to which the agencies and courts rely on the Guidelines to assess the competitive effects of a merger, companies with transactions subject to antitrust scrutiny should thoroughly understand the new Guidelines.
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- Investment Funds, Advisers and Derivatives
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August 20, 2010
FTC Proposes Revisions to HSR Notification Requirements That Would Expand Many Filers’ Reporting Obligations
The Federal Trade Commission has issued for public comment proposed revisions to the notification form and rules for reporting acquisitions to the FTC and Department of Justice under the Hart-Scott-Rodino Act. The most significant changes would impose new reporting obligations with respect to an acquirer’s “associates,” particularly for investment funds and certain other types of acquirers, and would expand in several respects the document submission requirements for all HSR filers.
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- Investment Funds, Advisers and Derivatives
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August 20, 2010
New Regulations Target Non-U.S. Financial Institutions with Ties to Iran
On August 16, 2010, the U.S. Treasury Department’s Office of Foreign Assets Control issued the Iranian Financial Sanctions Regulations (IFSR) to implement the Comprehensive Iran Sanctions Accountability, and Divestment Act (CISADA), enacted on July 1, 2010. CISADA restricts the ability of U.S. financial institutions to do business with certain non-U.S. financial institutions with ties to Iran. The IFSR gives the U.S. Treasury Secretary leverage to persuade non-U.S. financial institutions to cease commercial ties to Iran’s Islamic Revolutionary Guard Corps and designated Iranian financial institutions or risk losing their ability to maintain correspondent or payable-through accounts with U.S. financial institutions.
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- Financial Institutions Regulatory
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August 20, 2010
New York State Retroactively Amends Its Power of Attorney Statute to Exclude Powers of Attorney Given Primarily for a Business or Commercial Purpose
On August 13, 2010, the Governor of the State of New York, David A. Paterson, signed into law amendments (the “2010 Amendments”) to Title 15 of Article 5 of the New York State General Obligations Law (the “Statute”) with respect to powers of attorney. The 2010 Amendments are intended to correct certain provisions of the amendments to the Statute that became effective September 1, 2009 and to clarify which types of transactions using powers of attorney are excluded from the Statute. The 2010 Amendments, which become effective as of September 12, 2010, with retroactive effect to September 1, 2009, significantly narrow the application of the Statute by excluding from the Statute powers of attorney given primarily for a business or commercial purpose. This update discusses the provisions of the 2010 Amendments.
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- Investment Funds, Advisers and Derivatives
- Private Equity and Venture Capital Funds
- Private Real Estate Funds
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August 17, 2010
SEC and GAO Issue Reports Regarding Life Settlements
The United States Government Accountability Office (“GAO”) and a Task Force of the United States Securities and Exchange Commission (“SEC”) staff each separately recommends that steps be taken to regulate life settlements more consistently and to increase protection for policy owners, investors and intermediaries. The key recommendations of the SEC Life Settlements Task Force Staff Report and the GAO Report are discussed in this Client Alert.
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- Life Accumulation and Life Settlement Programs
- Securities and Futures Regulatory
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August 17, 2010
What Is a “Swap”?
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, mandates comprehensive changes to the U.S. over-the-counter (“OTC”) derivatives market. We are commencing a series of updates, “Dodd-Frank Essentials for End Users of OTC Derivatives,” aimed at our end-user or buy-side clients to discuss the implications of this law in their day-to-day activities. This update, the first in the series, provides an overview of the types of products that are covered by Title VII, including swaps, security-based swaps, mixed swaps and foreign exchange swaps.
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- Investment Funds, Advisers and Derivatives
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August 13, 2010
U.S. Supreme Court Allows Transfer of Mojave War Memorial Cross
A divided Court issued a plurality opinion in Salazar, et al. v. Buono, 130 S. Ct. 1803 (2010), that underscores the unsettled nature of the law regarding Article III standing to bring an Establishment Clause challenge as well as how such a challenge should be assessed and cured. Even without a clear majority, however, Buono highlights the differing approaches that the Justices are bringing to Establishment Clause challenges.
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August 12, 2010
U.S. State Department Proposes to Relax Controls on Exports to Dual and Third-Country Nationals
On August 11, 2010, the U.S. State Department issued a proposed rule that, if adopted, will relax the controls associated with the export of defense-related items to non-U.S. entities that employ individuals of various nationalities. Such entities would instead be required to conduct due diligence on their employees to prevent diversions to countries subject to U.S. defense trade embargoes. Comments on the proposed rule must be submitted by September 10th.
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August 11, 2010
D.C. Circuit Upholds EPA Interpretation That Used Material Becomes A “Spent Material” Subject to RCRA Regulation After It Can No Longer Serve Purpose of Its Initial Use
The D.C. Circuit issued a 2-1 decision on August 6, 2010 that could expand the scope of what constitutes a “spent material” subject to regulation under the Resource Conservation and Recovery Act , and thus could limit the re-use and sale of materials that companies have used in their processes.
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August 10, 2010
Another Sign of Aggressive FCPA Enforcement: The SEC Brings Anti-Bribery Charges Against a Non-Issuer
On July 7, 2010, the Securities and Exchange Commission (“SEC”) announced the settlement of Foreign Corrupt Practices Act (“FCPA”) charges against ENI, S.p.A., an Italian company, and its former indirect Dutch subsidiary Snamprogetti Netherlands B.V. (“Snamprogetti”). The Department of Justice (“DOJ”) also announced settlement of FCPA-related charges against Snamprogetti on the same date. ENI and Snamprogetti will pay a total of $365 million in penalties and disgorgement to settle the SEC and DOJ charges, marking the fourth largest settlement ever in an FCPA case. But the settlement with ENI and Snamprogetti has significance beyond the magnitude of the penalties, specifically, in demonstrating that the SEC now takes the view that it has the authority to bring anti-bribery claims against a non-U.S. Company which is not, and never has been, an issuer.
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- Corporate Governance and Compliance
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August 10, 2010
Retained Asset Account Class Action Merits Victory Affirmed By Second Circuit
The U.S. Court of Appeals for the Second Circuit issued a complete affirmance on July 21, 2010 of the trial court’s summary judgment in favor of an insurance company in a class action case that challenged so-called retained asset accounts. The case, Rabin v. MONY Life Insurance Company, No. 09-4907-cv (2nd Circuit July 21, 2010), is the first appellate court ruling confirming the bona fides of retained asset accounts. Sidley Austin LLP represented MONY in the lawsuit.
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- Insurance Class Action Defense
- Financial Services/Consumer Class Actions
- Insurance/Financial Services Class Actions
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August 9, 2010
U.S. Legislation on Foreign Manufacturer Liability Could Have Consequences for Wide Range of Companies
Proposed U.S. legislation would require all foreign manufacturers of certain products and product components to consent to be sued in U.S. courts as a condition for their goods to be imported into the United States. The bill, the Foreign Manufacturers Legal Accountability Act, may have significant consequences for foreign manufacturers and any U.S. corporate affiliates, and for U.S. importers – including U.S. manufacturers that source their components overseas.
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- Market Access and Regulatory Barriers
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August 8, 2010
Grandfathered Health Plans
Interim final rules published by the Treasury Department, the department of Labor and the Department of Health and Human Services describe what is a grandfathered health plan and the limited changes that can be made to a plan without losing its grandfathered status.
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August 4, 2010
July Edition of Notable Cases and Events in E-Discovery
This Month’s Case Notes includes discussion of the U.S. Supreme Court’s decision in City of Ontario v. Quon upholding the right of an employer to access and review employee messages under reasonable circumstances and a federal district court ruling that a party could argue that ESI was nor reasonably accessible under Rule 26(b)(2)(B) even though that party had made the ESI inaccessible by failing to impose a timely litigation hold.
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- Complex Commercial Litigation
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August 4, 2010
Proposed Measures to Improve Regulation of Fund Distribution Fees and Enhance Disclosure for Investors
On July 21, 2010, the Securities and Exchange Commission held an open meeting to consider a recommendation from the Staff of the Division of Investment Management to propose new rules and amendments designed to improve the regulation of fund distribution fees and provide enhanced disclosure for investors. The new rules and amendments would replace rule 12b-1 under the Investment Company Act of 1940, which currently permits registered open-end investment management companies to use fund assets to pay for the cost of promoting sales of fund shares. The Commission voted unanimously to propose the new rules and amendments as recommended by the Division of Investment Management and described in this Sidley update.
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- Investment Funds, Advisers and Derivatives
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August 4, 2010
Singapore Authorities Increase Enforcement of Healthcare products
The Health Sciences Authority (HSA) of Singapore has this year evinced an increasing vigilance over medical devices, unapproved health products and good manufacturing practices. This is in addition to Singapore’s active growth in the biotechnology and device manufacturing arenas, where the country offers a highly sophisticated platform and technology support. The most recent enforcement effort came in July, when HSA issued a press release alerting the public about two traditional medical products sold in Singapore that contained an undeclared western medicinal ingredient.
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- Food, Drug and Medical Device Compliance and Enforcement
- Food, Drug and Medical Device Regulatory
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August 3, 2010
Technology and Other Manufacturers Must Disclose Use of Conflict Minerals Under New U.S. Law
Manufacturers that are subject to reporting requirements administered by the U.S. Securities and Exchange Commission (SEC) will have to make new annual disclosures under regulations to be promulgated by the SEC by April 2011 if conflict minerals are “necessary to the functionality or production” of their products. These requirements pose unique challenges and administrative burdens for affected manufacturers, which should begin analyzing their supply chains now to ensure compliance. Manufacturers that are not publicly traded in the United States but that use conflict minerals in their products may also be impacted by the new law.
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August 2, 2010
SEC Adopts Amendments to Form ADV Part 2 – The Investment Adviser “Brochure”
On July 21, 2010, at an open meeting, the Securities and Exchange Commission unanimously adopted long-anticipated amendments to Form ADV Part 2. Part 2 — commonly referred to as the “brochure” — is the component of the investment adviser registration document provided to clients that seeks to explain, among other things, the investment adviser’s qualifications, investment strategies and business practices. This update discusses the major provisions of the amendments.
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- Investment Funds, Advisers and Derivatives
- Private Equity and Venture Capital Funds
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July 30, 2010
Proposed Amendment to New York Insurance Regulation
On July 22, the New York State Insurance Department issued a Proposed Tenth Amendment to Regulations No. 17, 20 and 20-A (11 NYCRR 125) with respect to New York’s credit for reinsurance regulations. The proposed amendment modifies these regulations by: (1) introducing an alternative standard for determining credit for reinsurance provided by unauthorized reinsurers that meet certain ratings, financial, solvency and other related criteria established by the New York State Superintendent of Insurance; (2) excluding foreign ceding insurers domiciled in NAIC-accredited states from the application of Regulation 20; (3) obligating ceding insurers to demonstrate prudent reinsurance credit risk management in a number of specified ways; and (4) providing the Superintendent with flexibility to reduce the amount required to be held in a New York State trust fund by non-U.S. reinsurers that have discontinued underwriting new business secured by the trust for at least three full years.
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July 29, 2010
Energy Regulatory Update: The Dodd-Frank Act’s Effect on Hedging Activities of Energy Companies and Large Energy Consumers
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). This update examines how Title VII of the Act may affect the risk hedging activities of energy companies and major consumers of energy that have traded or may be interested in trading in over-the-counter (“OTC”) derivatives. This information may be of particular interest to end-users of OTC derivatives, such as electric and natural gas utilities, oil companies and refiners, other sellers or traders of petroleum products, electricity, natural gas and other forms of energy, and companies that are major consumers of energy and wish to hedge their risk exposure to energy price fluctuations.
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- Natural Gas Pipeline Regulation
- Project Finance and Infrastructure
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July 29, 2010
Service Provider Fee Disclosure Rules: Interim Final Regulation Under Section 408(b)(2) of ERISA
Interim final regulations issued by the DOL require certain plan service providers to disclose to plan fiduciaries information relating to their compensation. The disclosure is necessary for the compensation received by a service provider to be exempt from the prohibited transaction provisions of ERISA and section 4975 of the Code. Disclosure is required to be provided no later than July 16, 2011.
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- Investment Funds, Advisers and Derivatives
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July 27, 2010
Waxman TSCA “Reform” Bill Would Radically Expand Chemical Regulation and Impose New Safety and Reporting Requirements
On July 22, Rep. Henry Waxman (D-CA) introduced H.R. 5820, the “Toxic Chemicals Safety Act of 2010.” A major step in the Toxic Substances Control Act (“TSCA”) “reform” initiative, H.R. 5820 would impose significant new burdens on industry, increase TSCA obligations on companies that have historically avoided this statute (including food, food additive and drug companies regulated by the FDA), and far exceed EU’s Registration, Evaluation and Authorization of Chemicals (“REACH”) chemical requirements.
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July 23, 2010
Two Employment Regulations Affecting Federal Contractors Take Effect
Two federal regulations have taken effect in the past month that expand the rights and protections of employees of federal contractors. First, a Department of Defense interim rule implementing the so-called “Franken Amendment” to the 2010 Department of Defense Appropriations Act bars certain federal defense contractors from entering or enforcing certain pre-dispute arbitration agreements. Second, a Department of Labor final rule implementing President Obama’s Executive Order titled “Notification of Employee Rights Under Federal Labor Laws” applies to federal contractors generally and requires employers to post a notice of employee rights under the National Labor Relations Act.
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- Labor, Employment and Immigration
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June 30, 2010
House Approves Conference Report on Dodd-Frank Wall Street Reform and Consumer Protection Act
On June 25, 2010, by separate votes along strict party lines of 20 to 11 and 7 to 5, House and Senate conferees separately approved the Conference Committee Report on the financial regulatory reform bill, H.R. 4173, now known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) . Different versions of the Act had been approved by the House in December and by the Senate in May. Following reaction by some legislators to the so-called “bank tax” to fund the estimated $22 billion administrative and other costs of the Act over ten years, conferees reconvened on June 29 to adopt an alternative funding mechanism provision by a similar partisan vote. House Financial Services Chairman Barney Frank presided over the seven-plus days of televised public hearings of the conferees. The Act was approved by the House on June 30 by a 237 to 192 vote, with Senate action to follow. President Obama is expected to sign the measure into law shortly after final approval by the Senate. Except for certain provisions that we have highlighted, the Act will generally take effect one day after the date of enactment. This Sidley update discusses the key provisions of the Act.
On July 13, we hosted a program to explain the new Financial Regulatory Reform legislation. Sidley lawyers from a range of practice disciplines discussed the implications of the new legislation. The program was presented as a webinar, and a digital audio replay of the presentation is available until Monday, September 13, 2010 at 11:59 p.m. Eastern. The dial-in numbers are (USA) (800) 475-6701 or (International) (320) 365-3844. Enter Access Code: 164512. Please note this replay option is not approved for CLE credit.
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- Financial Institutions Regulatory
- Financial Services/Consumer Class Actions
- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
- Structured Finance and Securitization
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July 22, 2010
Recent Privilege Decision Suggests That Corporations Should Check the Bar Status of In-House Lawyers
A recent decision by a federal Magistrate Judge held that the attorney-client privilege did not protect corporate personnel’s communications with the in-house legal counsel for the company, because at the time of those communications the individual in question was not authorized by any state to engage in the practice of law, and because the company’s belief that the individual was a lawyer was unverified and therefore unreasonable. As a result of this ruling, in the future corporations that employ in-house attorneys may want to protect internal privileged communications by establishing procedures to confirm the good standing and active bar status of each person they hire for an in-house legal position, verify compliance with any applicable local registration requirements of their in-house lawyers who are licensed only in states outside of the state in which they work and on an ongoing basis, periodically reconfirm the continued good standing of their in-house lawyers under applicable rules.
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- Accountants/Professional Service Firms Liability
- Corporate Governance and Compliance
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July 22, 2010
Vermont Amends Gift Ban and Disclosure Law to Require Drug and Device Manufacturers to Report Product Samples
In the latest example of the proliferation of laws aimed at sales and marketing practices in the pharmaceutical and medical device industries, Vermont recently amended its existing gift ban and disclosure law to require manufacturers of pharmaceuticals, medical devices, and biological products to report annually to the Vermont Office of the Attorney General certain information related to free products and samples provided to Vermont health care providers. The law took effect on July 1, 2010.
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July 21, 2010
Financial Regulatory Reform Provisions of Particular Interest to Private Fund Advisers
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Barack Obama on July 21, 2010. This client update summarizes certain provisions of the Act that are likely to have a significant effect on investment advisers to private funds, including (1) registration and reporting requirements for advisers to private funds and other investment managers (including registration requirements and exemptions for non-U.S. advisers to private funds), (2) financial stability and prudential risk regulation, (3) the so-called “Volcker Rule,” (4) investor protection and securities reform measures and (5) regulation of over the counter derivatives.
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- Investment Funds, Advisers and Derivatives
- Exchanges and Clearing Organizations
- Private Equity and Venture Capital Funds
- Private Real Estate Funds
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July 21,2010
Ninth Circuit Decision Alters Internet Law of Trademarks in Domain Names
Corporations that use their trademarks as part of their Internet domain names should take note of a recent decision by the United States Court of Appeals for the Ninth Circuit penned by Chief Judge Alex Kozinski. By reasoning that “consumers don’t form any firm expectations about the sponsorship of a website until they’ve seen the landing page—if then,” the decision in Toyota Motor Sales v. Tabari could make it much more difficult for trademark holders to police the use of their marks in “confusingly similar” domain names. This decision potentially marks a significant judicial sea change regarding domain names that conflicts with several prior cases that found trademark infringement based on confusing domain names even where disclaimers in the websites themselves later dispelled the confusion.
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- Privacy, Data Security and Information Law
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July 21, 2010
President Signs into Law the Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), approved by the U.S. Senate on July 15, 2010 and the U.S. House of Representatives on June 30, 2010.
Many of the provisions of the Act require rulemaking by the applicable regulator before the related provisions of the Act become effective. However, for those provisions of the Act that do not require rulemaking, unless a later date is specified in the Act, the Act or the amendments made by the Act become effective after the date of enactment of the Act.
On June 30, we released a client update summarizing the Act entitled “House Approves Conference Report on Dodd-Frank Wall Street Reform and Consumer Protection Act” available at http://www.sidley.com/sidleyupdates/Detail.aspx?news=4479. There have been no changes to the Act’s provisions since the client update was prepared.
On July 13, we hosted a program regarding the Act. Sidley lawyers from a range of practice areas discussed the implications of the Act. The program was presented as a webinar, and a digital audio replay of the presentation is available until Friday, August 13, 2010 at 11:59 p.m. Eastern. The dial-in numbers are (USA) (800) 475-6701 or (International) (320) 365-3844. Enter Access Code: 164512. Please note this replay option is not approved for CLE credit.
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- Financial Institutions Regulatory
- Financial Services/Consumer Class Actions
- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
- Structured Finance and Securitization
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July 21, 2010
Whistleblower Provisions in Dodd-Frank Wall Street Reform and Consumer Protection Act
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law on July 21, 2010, there are increased incentives for whistleblowers to report alleged violations of the securities laws, including the Foreign Corrupt Practices Act. This update provides details about the whistleblower program and identifies considerations for companies impacted by the new provisions.
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July 20, 2010
DOL Issues Final Regulations Relating to the Timing and Order of QDROs
The Department of Labor (“DOL”) recently published final regulations clarifying certain issues relating to the timing and order of qualified domestic relations orders (“QDROs”). The regulations finalize the interim rule published on March 7, 2007 which was adopted pursuant to the Pension Protection Act of 2006. The regulations provide that a domestic relations order (“DRO”) cannot fail to be a QDRO solely because (i) it is issued after, or revises another DRO or QDRO, or (ii) because of the time at which it is issued. The final regulations are effective August 9, 2010.
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July 16, 2010
Shifting Foundations for European Investment Treaties
The European Commission has released a Draft Regulation and policy statements on the status of EU Member States’ bilateral investment treaties and the processes for negotiating future investment treaties. The Draft Regulation, which is triggered by the Commission’s new competence in the field of investment under the Treaty of Lisbon, heralds a period of uncertainty for investors relying on the more than 1100 Member State bilateral investment treaties to structure and protect their investments around the world.
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- International Arbitration (Commercial and Treaty)
- Investment Treaty Arbitration
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July 15, 2010
EU Court Pharmaceutical Ruling May Embolden Commission
In a long-awaited judgment handed down on July 1, 2010, the EU’s General Court has upheld a landmark 2005 European Commission (“Commission”) decision finding that AstraZeneca had abused a dominant position in relation to Losec, its blockbuster antacid. Although the judgment contains a number of observations that may provide a degree of comfort to the innovative pharmaceutical industry, the most notable outcome seems likely to be that the Commission will be emboldened in its prosecution of pharmaceutical company conduct that it considers anticompetitive.
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July 15, 2010
New Developments in Foreign Military Sales and Foreign Military Financing
In recent months, several government agencies have issued rules, decisions and guidelines regarding the U.S. Department of Defense (DoD) Foreign Military Sales (FMS) and Foreign Military Financing (FMF) Programs. The following client update provides a summary of the revised Guidelines for Foreign Military Financing of Direct Commercial Contracts issued by the DoD’s Defense Security Cooperation Agency; the Government Accountability Office’s decision rejecting the position taken by the U.S. Army opposing cost reimbursement of FMS contractors; and the new DoD rule regarding the continuation of essential FMS contractor services in time of crisis.
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- Complex Commercial Litigation
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July 14, 2010
Clayworth v. Pfizer: California Supreme Court Rejects "Pass-On" Defense
On July 12, 2010, the California Supreme Court issued a unanimous opinion in Clayworth v. Pfizer, Inc., deciding an issue of first impression: whether a “pass-on” defense is available with respect to claims under the Cartwright Act, California’s state antitrust law. Unlike federal law, which limits antitrust damage claims to “direct purchasers,” the Cartwright Act allows indirect purchasers as well to sue on antitrust claims. The issue presented in Clayworth was whether defendants could defeat a Cartwright Act claim by showing that the plaintiff passed on any overcharge. Reversing the lower courts’ grant of summary judgment in favor of the pharmaceutical manufacturer defendants, the Court held “that under the Cartwright Act, as under federal law, generally no pass-on defense is permitted.”
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- Complex Commercial Litigation
- Financial Institutions Regulatory
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July 14, 2010
Supreme Court Invalidates For-Cause Removal of Public Company Accounting Oversight Board Members
On June 28, 2010, the Supreme Court issued its opinion in Free Enterprise Fund, et al. v. Public Company Accounting Oversight Board, et al., 561 U.S. ___, No. 08-861. The case involved a constitutional challenge to the Public Company Accounting Oversight Board, established by the Sarbanes-Oxley Act of 2002. In a 5-4 decision, the Court struck down the provisions of the Act that restrict the authority of the Securities and Exchange Commission to remove PCAOB members, holding that those removal provisions violate constitutional separation of powers principles. The Court left standing the remainder of the Act, holding that the PCAOB and its exercise of regulatory authority pose no constitutional problems so long as PCAOB members may be removed by the SEC at will. The Court thus allowed the PCAOB to continue its work prospectively without interruption, without addressing the validity of the Board’s past actions.
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- Accountants/Professional Service Firms Liability
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July 12, 2010
D.C. Circuit: Documents Reflecting Client’s Attorney Work Product Disclosed To Or Drafted By Independent Auditor Retain Work Product Protection
On June 29, 2010, in United States v. Deloitte LLP, the D.C. Circuit issued an important opinion on the disclosure of a client’s work product to an auditor conducting a financial statement audit, holding that documents containing information prepared in anticipation of litigation are entitled to attorney work product protection even if those documents are disclosed to—or drafted by—an auditor. The decision, which explicitly rejects contrary authority such as United States v. Textron Inc., 577 F.3d 21 (1st Cir. 2009) (en banc), represents a strong re-affirmation of the work product doctrine and the limits of waiver of work product.
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- Accountants/Professional Service Firms Liability
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July 9, 2010
Pharmaceutical Sales Representatives Eligible for Overtime
On July 6, 2010, the Court of Appeals for the Second Circuit vacated the decision of the Southern District of New York and issued an opinion that will allow pharmaceutical sales representatives to collect overtime pay under state and federal wage and hour law. The decision could result in the imposition of hundreds of millions of dollars in back pay liability for employers in the industry, and could also force pharmaceutical companies to re-evaluate how they promote sales of their products.
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- Labor, Employment and Immigration
- Labor and Employment Class and Collective Actions
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July 7, 2010
China Heightens Crackdown on Commercial Bribery in Pharmaceutical Industry
On June 21, 2010, the Ministry of Health of China published a notice in which it identifies key measures that local health authorities are required to take to crack down on commercial bribery in the pharmaceutical industry (the “Notice”). Measures include a blacklist system and two-year ban for drug manufacturers and distributors engaging in commercial bribery, transparent prescription practices and robust internal control of hospitals, and cross-agency cooperation in enforcement. The Notice is expected to be followed by proactive enforcement actions at local levels, and companies need to be wary of heightened commercial bribery risks for marketing drugs in China. For companies performing audits in China, the new initiative bears consideration in the development of protocols.
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- Food, Drug and Medical Device Regulatory
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July 7, 2010
EPA Proposes New Air Emission Transport Rules for Power Plants in Eastern U.S.
Yesterday, the United States Environmental Protection Agency (EPA) proposed updated and corrected rules that would require sulfur dioxide (SO2) and nitrogen oxide (NOx) emission reductions from fossil fuel fired power plants across 31 eastern states and the District of Columbia. The proposed rule is called the Clean Air Interstate Rule (CAIR) and, if finalized, would replace the original version of the CAIR rule that EPA issued in 2005. EPA estimates that the rule will affect 5,000 fossil-fuel fired units, which account for 84% of nationwide SO2 emissions and 73% of nationwide NOx emissions. The comment period will be open for 60 days after the proposed rule is published in the Federal Register.
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July 7, 2010
Financial Crimes Enforcement Network Releases Proposed Rule Applying Bank Secrecy Act Regulations to Non-Bank Issuers of Prepaid Access Products
On June 21, 2010, the Financial Crimes Enforcement Network (“FinCen”) released a proposed rule that would impose new registration, anti-money laundering program, recordkeeping, identity verification and suspicious activity reporting requirements on certain nonbank entities involved in the sale of prepaid products. FinCEN is seeking comment on all aspects of the Proposed Rule, including fifteen specific questions, which are summarized in this Client Update. The proposal was published in the Federal Register on June 28, 2010, and comments are due on or before July 28, 2010.
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- Financial Institutions Regulatory
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July 6, 2010
June Edition of Notable Cases and Events in E-Discovery
This month’s Case Notes discuss the Report on Phase One of the Seventh Circuit’s Electronic Discovery Pilot Program, an order by Judge Shira Scheindlin amending her decision in Pension Comm. of U. of Montreal Pension Plan v. Banc of America Securities, a California federal court decision finding that private messages sent using Facebook and MySpace were governed by the Stored Communications Act and not subject to disclosure by the provider pursuant to civil subpoena, and two New York federal court decisions imposing sanctions for failure to comply with discovery obligations, including one that also addressed the issue of IP Spoofing.
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- Complex Commercial Litigation
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July 6, 2010
SEC Adopts Rule to Eliminate “Pay-to-Play” Practices
On June 30, 2010, the U.S. Securities and Exchange Commission, in a unanimous vote, approved new Rule 206(4)-5 (the “Rule”) under the Investment Advisers Act of 1940 designed to eliminate “pay-to-play” practices. Among other things, the Rule places restrictions on receiving compensation for providing investment advisory services to a government client after for a period of time upon providing contributions to certain candidates or elected officials, restricts the use of placement agents and bans solicitations or “bundling” of contributions for certain candidates or elected officials. This Sidley update discusses the key provisions of the Rule.
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- Investment Funds, Advisers and Derivatives
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July 6, 2010
Securitization Reform Legislation - House Approves Dodd-Frank Wall Street Reform and Consumer Protection Act; Senate Still to Act
Since December 2009, both the House and the Senate have passed versions of financial reform legislation – H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009,” passed by the House on December 11, 2009 and S. 3217, the “Restoring American Financial Stability Act of 2010,” passed by the Senate on May 20, 2010. The two versions were reconciled by a conference committee, and on June 30, 2010, the House passed the reconciled version of the bill which is now known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Act”). The Senate is expected to pass the reconciled version during July. If the Senate approves the Act, it is expected that it would then be signed into law by President Obama. This update summarizes certain provisions of the Act relevant to securitization.
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- Structured Finance and Securitization
- Asset-Backed Securitization
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July 2, 2010
Dodd-Frank Wall Street Reform and Consumer Protection Act - General Application to Public Companies
On June 30, 2010, the U.S. House of Representatives approved the Dodd-Frank Wall Street Reform and Consumer Protection Act and it is expected that Senate action will follow in early July. President Obama is expected to sign the measure into law shortly after final approval by the Senate.
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- Corporate Governance and Compliance
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July 2, 2010
U.S. Enacts Further Sanctions Against Iran
On July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (H.R. 2194) (the Act). Because the United States already maintains a nearly comprehensive embargo of Iran, this Act largely targets the activities of non-U.S. companies doing business in that country, particularly in its petroleum sector. However, even U.S. companies – especially U.S. financial institutions and U.S. government contractors – may be affected by the Act’s wide-ranging provisions
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- Financial Institutions Regulatory
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July 2, 2010
United States Announces New Strategies for Intellectual Property Enforcement
On June 22, 2010, the Obama Administration released its 2010 Joint Strategic Plan on Intellectual Property Enforcement to enhance the enforcement of intellectual property (IP) rights at home and abroad, to protect innovation and creativity and to combat IP infringement. Reflecting input from eight federal agencies, the plan provides valuable insight into U.S. IP enforcement priorities for the near and mid-term. Companies active in industries targeted by infringers and counterfeiters, including pharmaceuticals, medical devices, textiles and consumer electronics, may reap significant benefits from the new programs identified in the strategic plan.
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- Intellectual Property Litigation
- International Intellectual Property
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June 28, 2010
DOL Interprets FMLA to Cover Employees Who Assume Parental Obligations Regarding a Child Even Absent a Biological or Legal Relationship to the Child
The U.S. Department of Labor recently clarified that an employee who assumes parental responsibility for a child, including in the context of a same-sex or other domestic partner relationship, can be eligible for leave under the federal Family and Medical Leave Act to care for that child even if the employee is not the biological or legal parent of the child.
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- Labor, Employment and Immigration
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June 28, 2010
Supreme Court Rejects Attempts to Restrict the Patentability of Software and Life Science Technology in Bilski v. Kappos
Today, by a 5-4 majority, the Supreme Court decided Bilski v. Kappos, ruling that business methods are not, per se, ineligible to be patented, leaving for another day the determination of the precise scope of eligible subject matter. Bilski may be remembered more for what it did not decide than for the guidance it provides for future cases. This client alert explains the issues on appeal and the Court’s ruling on when methods or processes are eligible for patent protection.
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- Intellectual Property Litigation
- Patent and Intellectual Property Rights Appeals
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June 25, 2010
BIS Liberalizes Export Controls for Encryption Items
On June 25, 2010, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published an interim final rule implementing major changes to the U.S. export controls applicable to encryption items. These changes, effective immediately, simplify the regulation of encryption software, technology and hardware and should substantially reduce the administrative burden associated with the export and reexport of such items.
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June 23, 2010
IRS Releases Application Form for Section 48D Tax Credits and Grants for Qualifying Therapeutic Discovery Projects
The Internal Revenue Service (IRS) is now accepting applications for tax credits and grants for Qualifying Therapeutic Discovery Projects under Internal Revenue Code section 48D. On June 18, 2010, the IRS released Form 8942, which applicants must complete for consideration under both the grant and tax credit programs. In addition to the IRS form, applicants also must submit a Project Information Memorandum for review by the National Institutes of Health (NIH). This form is now available on the NIH web site. Applications, including both forms, must be submitted to the IRS by July 21, 2010.
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- Healthcare Public Policy and Governmental Affairs
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June 23, 2010
New York State Bill Introduced to Protect Consumer Information Stored on Hard Drives
On June 3, 2010, Assembly Bill A11335 was introduced in the New York State Assembly, requiring retailers that sell copy machines to give purchasers written notice that the machine’s hard drive stores digital information. The bill also would require retailers to “conspicuously” post a “warning poster” on the premises to warn consumers about the fact that the copy machines contain hard drives which can pose a risk of identity theft. The bill would govern any “device used to duplicate documents and visual images on paper.”
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- Privacy, Data Security and Information Law
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June 23, 2010
Supreme Court Unanimously Upholds Employer Ability to Access and Search Employee Messages Under Reasonable Circumstances
In City of Ontario v. Quon, one of the most closely watched information privacy decisions of recent years, the Supreme Court unanimously upheld an employer’s ability to access and review employee text messages on employer-provided service and equipment under certain circumstances. The Court made clear that the right of the employer to access and review employee communications in the workplace is not unbounded. Rather, employers must consider whether the purpose and scope of such searches are legitimate and reasonable in light of the employer’s privacy policy regarding workplace monitoring and surveillance.
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- Privacy, Data Security and Information Law
- Labor, Employment and Immigration
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June 22, 2010
Stricter Interpretation of Safe Harbor Principles by German Data Protection Authorities (Due Diligence Requirements)
German data protection authorities have placed a significant new duty on German companies transferring personal data to U.S. companies on the basis of the Safe Harbor principles to inquire into the compliance practices of the U.S. Safe Harbor member. German companies should document their due diligence inquiries and responses.
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- Privacy, Data Security and Information Law
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June 22, 2010
UK Government announces abolition of FSA as part of sweeping Financial Services Regulatory Reform Proposal
Sweeping changes have been proposed by the UK Government to the current UK financial services regulatory landscape. The Financial Services Authority, the current single regulator for most of the UK financial services industry, will be abolished. The Bank of England, UK's central bank, will be given new powers to supervise financial institutions. There will also be other reforms to the UK banking industry, including the possible separation of investment banking and retail banking.
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- Financial Institutions Regulatory
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June 21, 2010
Nanotechnology Regulation Gains Momentum Worldwide
Lawmakers around the world are under increasing pressure to regulate, restrict, or even ban, nanotechnology applications. Companies who develop, supply, sell or buy products using or containing nanomaterials need to track regulatory developments and engage in advocacy now, before decisions lacking objectivity and scientific foundations restrict the promise of nanotechnology and threaten significant markets and investments.
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June 18, 2010
The Regulatory Reform Bill Currently Under Consideration Includes a Provision that Would Change the Accredited Investor Standard for Natural Persons Immediately Upon Enactment
The regulatory reform bill currently under consideration by the House and Senate includes a provision that would change the accredited investor standard for natural persons immediately upon enactment. The conference committee is scheduled to complete its work on June 24, 2010. This update describes the proposed change that may be effective immediately.
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- Investment Funds, Advisers and Derivatives
- Private Equity and Venture Capital Funds
- Private Real Estate Funds
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June 17, 2010
Brave New World of California Chemical Regulation: DTSC’s “Green Chemistry” Initiative
What is CalEPA DTSC trying to do? The examples are legion: media reports discover a “new” danger in our homes, communities or environment, a chemical is identified as the culprit, the legislature hastily regulates or bans the offending chemical and the sun sets on a safer world. The main purpose of DTSC (Department of Toxic Substances Control)’s Green Chemistry Initiative is to stop repetition of this story. DTSC is developing regulations now for a new chemical regulatory regime.
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June 15, 2010
Connecticut Enacts Law Requiring Drug and Device Manufacturers to Adopt Compliance Program
On June 8th, Connecticut enacted into law Senate Bill 428, which, among other provisions, requires pharmaceutical and medical device manufacturers to adopt compliance programs by January 1, 2011. With the passage of this bill, Connecticut joins a number of states in regulating the marketing practices of pharmaceutical and medical device companies.
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- Healthcare Public Policy and Governmental Affairs
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June 15, 2010
Cyber Attacks, such as "Advanced Persistent Threat," May Trigger New Requirements for Safeguarding Unclassified Defense Department Information and Reporting
With the growing phenomenon of cyber attacks on defense contractor information systems by hackers or even hostile foreign entities, the Department of Defense (“DOD”) has recently published an “Advance notice of proposed rulemaking” as a preliminary step toward proposed new Defense Acquisition Regulations System clauses to address “Safeguarding and Cyber Intrusion Reporting of Unclassified DOD Information Within Industry.” While Government contractors obtaining or generating classified information have long been subject to detailed and strict rules on safeguarding such information, unclassified Government information even if not cleared for public release, has not been subject to any standard FAR clause regarding data security. The DOD’s attention to these cybersecurity developments may also be instructive for companies that serve as government contractors outside the DOD realm, and for companies involved in critical infrastructure sectors of the economy.
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- Privacy, Data Security and Information Law
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June 14, 2010
CMS Releases Proposed Rule to Streamline Telemedicine Credentialing
On May 26, 2010, the Centers for Medicare and Medicaid Services (“CMS”) released a proposed rule that would change the conditions of participation for hospitals and critical access hospitals (“CAH”) that participate in Medicare and Medicaid by streamlining the credentialing process for telemedicine providers. Currently, “originating hospitals” that furnish telemedicine services to their patients must separately credential and privilege each provider offering services from a “distant-site” hospital. The proposed rule would allow originating hospitals to rely upon the decision of a distant-site hospital that has previously granted privileges to the physician.
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- Healthcare Public Policy and Governmental Affairs
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June 11, 2010
New House Bill Proposes FDA Authority to Require Drug Sponsors to Develop Companion Diagnostics
A new bill in Congress focuses on personalized medicine, which seeks to harness genomic information to improve patient care. Under the bill, FDA could require drug sponsors to develop companion diagnostic tests as a condition of drug approval or continued marketing, and to conduct postmarketing studies to identify genetic variations underlying differential drug response in certain racial or ethnic populations.
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- Food, Drug and Medical Device Regulatory
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June 10, 2010
FINRA Proposes New Registration and Qualification Requirements for Certain Operations Personnel
On May 26, 2010, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 10-25 requesting comment on new proposals to establish, for the first time, a registration category, qualification examination and continuing education requirements for certain back-office personnel. In an effort to enhance the regulatory structure of back-office operations, FINRA proposes expanding its registration requirements to include back-office individuals who are engaged in, or supervising, activities relating to sales and trading support and the handling of customer assets.
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- Securities and Futures Regulatory
- Securities Regulatory Compliance Counseling
- Securities Regulatory Employment Counseling
- Securities Regulatory Investigations and Examinations
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June 10, 2010
SEC Approves Stock-By-Stock Circuit Breaker Rules
On June 10, 2010, the Securities and Exchange Commission (“SEC”) approved rules that require the Exchanges and the Financial Industry Regulatory Authority (“FINRA”) to pause trading in stocks contained in the Standard & Poor’s 500 Index if the price of an individual stock moved by 10 percent or more within a five minute period. According to the SEC’s press release announcing approval of the rules, the SEC anticipates that the Exchanges and FINRA will begin implementing the newly adopted rules as early as Friday, June 11, 2010.
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- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
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June 9, 2010
FTC to Investigate Leakage of Consumer Information Stored on Digital Copy Machine Hard Drives
The Federal Trade Commission (FTC) is contacting digital copy manufacturers and resellers regarding the personal information that is stored on the hard drives of the machines that they manufacture and/or sell. The FTC is acting in response to a April 19, 2010 CBS News broadcast showing investigators retrieving sensitive consumer information from the hard drives of used copy machines. The FTC is asking copy manufacturers and resellers whether they have informed their customers of the risks and provided their customers with information on mitigating measures.
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- Privacy, Data Security and Information Law
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June 8, 2010
China’s New Policies for Promoting Foreign Investments
China’s State Council recently reaffirmed its policy towards encouragement of foreign investment in the release of Several Opinions on Further Improving the Work of Utilizing Foreign Investment. These Opinions came in due time as foreign companies have increasingly felt unwelcome in China because of what they believe are discriminatory government policies, inconsistent enforcement of laws, and increased protectionism restricting foreign investment in certain sectors. The major theme of the Opinions is encouraging more sustainable industries, diversifying foreign investment sectors and locations, and reforming administration mechanisms. This Sidley Update provides an overview of the Opinions.
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June 7, 2010
Draft SAIC Rules Address Key AML Enforcement Issues
On May 25, the State Administration for Industry and Commerce of China issued for public comment three draft implementation rules for China’s Anti-monopoly Law (“AML”). The draft rules provide important explanations on some key, undefined concepts in the AML, particularly “justifiable cause,” and guidance on the criteria for prohibited monopoly acts. Provisions of the draft rules cover many routine business activities and practices of companies operating in China.
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- Antitrust Government Investigations
- Antitrust Legislative and Regulatory Representation
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June 7, 2010
May Edition of Notable Cases and Events in E-Discovery
This month’s Case Notes discuss the latest decision in the Qualcomm-Broadcom discovery matter declining to impose sanctions on the attorneys involved and dissolving the order to show cause, an Illinois federal court decision finding that a party had an obligation to retain instant messages but refusing to impose an adverse inference sanction because there was no showing of harm and no evidence of bad faith or willfulness, and two decisions imposing sanctions on parties as a result of their failure to carry out their e-discovery obligations. Also noted is Twitter.com’s donation of its public tweets to the U.S. Library of Congress.
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- Complex Commercial Litigation
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June 4, 2010
Supreme Court Rules as to Recoverability of Attorneys’ Fees and Costs under ERISA
On May 24, 2010, the Supreme Court articulated when a court may award a party attorneys’ fees and costs under the Employee Retirement Income Security Act of 1974 (ERISA).
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June 3, 2010
CMS Solicits Comments from Pharmaceutical Manufacturers on Draft Model Agreement and Issues Final Guidance on Implementation of Medicare Coverage Gap Discount Program
On May 21, 2010, the Centers for Medicare and Medicaid Services (“CMS” or “the Agency”) issued a draft model manufacturer agreement and published important final guidance regarding the implementation of the Medicare Coverage Gap Discount Program beginning in 2011. The final guidance addresses critical issues for manufacturers of Medicare Part D drugs, including reversing the proposal to cover drugs in 2011 even if manufacturers do not sign an agreement and CMS’ clarification that it does not view the new discounts as replacing discounts already available to sponsors in the coverage gap. Comments on the model agreement are due by June 21, 2010, and once the agreement is finalized, CMS has indicated it will not be subject to change based upon negotiations with manufacturers.
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- Healthcare Public Policy and Governmental Affairs
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June 2, 2010
Amendments to Rule 15c2-12 Under the Securities Exchange Act of 1934
On May 26, 2010, the Securities and Exchange Commission voted unanimously to adopt amendments to Rule 15c2-12 under the Securities Exchange Act of 1934, as amended, relating to municipal securities disclosure. It also provided “interpretative guidance” to municipal securities underwriters about their obligation to determine the likelihood that issuers and obligated persons will comply with their continuing disclosure undertakings. This Sidley Update provides a summary of the amendments and interpretative guidance.
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June 2, 2010
U.S. Federal Circuit: Patent Licensor May Have Standing to Bring Infringement Action Under License Agreement, but Parties Should Beware of Potential for Joinder
In exclusive license agreements, patent licensors often retain the right to sue alleged infringers if their licensees decline to do so. Licensors accept these “secondary rights to sue” believing that they will have sufficient standing under them to bring infringement actions in U.S. courts if and when the need arises. A recent decision by a three-judge panel of the U.S. Federal Circuit confirms that a licensor can have standing under a secondary right-to-sue license provision. Alfred E. Mann Foundation for Scientific Research v. Cochlear Corp., No. 2009-1447 (Fed. Cir., May 14, 2010).
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May 27, 2010
Corporate Governance, Executive Compensation and Disclosure Requirements in Financial Regulation Reform Bill Passed by Senate
On May 20, 2010, the U.S. Senate passed S. 3217, entitled the “Restoring American Financial Stability Act of 2010.” The Senate Bill will go to a conference committee to be reconciled with the bill adopted by the House of Representatives last December. For information about the Senate Bill generally, see our comprehensive Client Alert dated May 24, 2010.
The Bill is focused in large part on the regulation of the financial services industry. It does, however, include a number of corporate governance, executive compensation and disclosure-related provisions that, if adopted into law, would apply to public companies more broadly. This alert describes these more broadly applicable provisions.
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- Executive Compensation Disclosure
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May 26, 2010
SIFMA Compliance and Legal Annual Seminar 2010
On May 5 through May 7, 2010, the Securities Industry and Financial Markets Association (“SIFMA”) held the SIFMA Compliance and Legal Conference at the Gaylord Conference Center near Washington, D.C. This Client Update summarizes key statements from various regulators from the Securities and Exchange Commission (“SEC” or “Commission”), the Financial Industry Regulatory Authority (“FINRA”), the Department of Justice, and certain state regulators that participated in the conference.
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- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
- Securities Regulatory Investigations and Examinations
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May 25, 2010
IRS Releases Guidance Implementing Section 48D Tax Credits and Grants for Qualifying Therapeutic Discovery Projects
On May 21, 2010, the IRS issued Notice 2010-45 establishing the “qualifying therapeutic discovery project” program, which will allow small-scale developers of drugs, biologics, and other medical technologies to apply to receive a tax credit or cash grant of up to $5 million under new section 48D of the Internal Revenue Code. Although a tax incentive program, this program is notable in that it makes available cash grants in lieu of tax credits, which can be a potent source of financing for companies without tax liability to offset against a tax credit. This is not a “check-the-box” program, but instead contemplates a competitive process in which up to $1 billion in awards will be made after a competitive evaluation of applicants’ projects by the Department of Health and Human Services and certification of eligibility by the Department of the Treasury.
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- Healthcare Public Policy and Governmental Affairs
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May 25, 2010
Supreme Court Ruling on NFL’s Collaborative Licensing Program Addresses Antitrust Treatment of Joint Ventures
On May 24, 2010, the Supreme Court unanimously ruled that that the National Football League’s joint licensing of its teams’ intellectual property constitutes collective action not categorically immune from scrutiny under §1 of the Sherman Act. See American Needle v. National Football League et al. In so holding, the Supreme Court reversed the Seventh Circuit’s decision that the NFL acted as a single entity in jointly marketing and licensing its teams’ logos and other intellectual property, and provided guidance regarding application of §1 to other joint ventures.
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- Complex Commercial Litigation
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May 24, 2010
A Status Update on the EU Directive on Alternative Investment Fund Managers - "Third Country" Issues as Voted in the May 2010 Parliament and Council Meetings
The European Parliament and Council committees voted on 17 and 18 May, 2010 on their positions on the proposed EU Directive on Alternative Investment Fund Managers. The "third country" provisions (relating to non-EU funds and managers), in particular, remain controversial. This Regulatory Update addresses those issues as the proposed Directive goes into its final stages of preparation.
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- Investment Funds, Advisers and Derivatives
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May 24, 2010
Senate Passes Financial Regulatory Reform Bill; Conference Committee to Address Major Differences with House Bill
On May 20, 2010, by a vote of 59 to 39, the U.S. Senate passed S. 3217 entitled the “Restoring American Financial Stability Act of 2010 (herein the “Senate Bill”). In response to the global credit crisis, the Obama administration outlined its framework for financial regulatory reform in its release “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation.” On December 11, 2009, the House of Representatives approved a comprehensive financial regulatory reform bill, H.R. 4173 (the “House Bill”), entitled the “Wall Street Reform and Consumer Protection Act.” Significant differences between the House Bill and the Senate Bill must be reconciled before a conference committee. The conference process is expected to take several weeks, and proponents of the legislation hope to have the compromise bill approved by the House and Senate and delivered to the President by the 4th of July holiday. This Sidley update discusses the key provisions of the Senate Bill and highlights the most significant differences between the Senate Bill and the House Bill.
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- Financial Institutions Regulatory
- Financial Services/Consumer Class Actions
- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
- Structured Finance and Securitization
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May 21, 2010
BaFin Decrees on Short Selling Enacted on May 18, 2010
On May 18, 2010 the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – "BaFin") published three general decrees (Allgemeinverfügung) banning (a) “naked short sales” of shares in ten specifically named German financial enterprises, (b) naked short sales of government bonds of the Member States of the Eurozone and (c) naked CDS relating to government bonds of the Member States of the Eurozone.
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- Investment Funds, Advisers and Derivatives
- Financial Institutions Regulatory
- Securities and Futures Regulatory
- Structured Finance and Securitization
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May 20, 2010
American Power Act Proposed by Sens. Kerry and Lieberman: Key Preemption Provisions and Differences From Other Proposals
Sens. John Kerry and Joseph Lieberman have released their climate and energy legislation, the “American Power Act”. The 1000-page bill would cap greenhouse gas (GHG) emission and create GHG allowances and an associated trading system. The bill varies in important respects from previous climate proposals considered by Congress, but like several of those proposals contains crucial provisions related to preemption of Environmental Protection Agency and state authority to regulate GHGs.
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May 20, 2010
FDA Proposes New Requirements for Medical Device Imports
The Food and Drug Administration (FDA) recently proposed changes to certain medical device import requirements that would impact both non-U.S. medical device manufacturers and their U.S. importers. The importation of medical devices into the United States is subject to a complex regulatory regime administered by FDA and U.S. Customs and Border Protection. Medical devices that do not meet regulatory requirements may be detained upon entry, which can result in significant business disruption. Comments on FDA’s proposed changes to the medical device import regime are due by June 24, 2010.
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May 19, 2010
FDA Signals Intent to Regulate Direct-to-Consumer Genetic Tests
Last week, FDA sent an untitled letter to Pathway Genomics Corporation in which the agency asserted that the company’s Genetic Health Report, a genetic test marketed directly to consumers, is a medical device for which the agency was unable to locate a clearance or approval number.
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- Food, Drug and Medical Device Compliance and Enforcement
- Food, Drug and Medical Device Regulatory
- Food, Drug, Device and Cosmetic Law
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May 18, 2010
EPA Issues Final "Tailoring Rule" For Greenhouse Gas Emissions
On May 13, 2010, the Environmental Protection Agency (EPA) released its final Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas (GHG) “Tailoring Rule.” See the full rule here. The Tailoring Rule frames how GHG emissions will be addressed under EPA’s two principal permitting programs for stationary sources – the PSD pre-construction permitting program, and the Title V operating permit program. While Congress considers GHG legislation, EPA is proceeding to regulate GHGs in a way that will have a profound impact across our economy.
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May 18, 2010
Federal Appeals Court Strikes Down Key Anti-Dumping Regulation Used In Cases Involving Imports from China and Vietnam
The U.S. Court of Appeals for the Federal Circuit has struck down a U.S. Department of Commerce regulation used to value labor rates in anti-dumping proceedings involving products from non-market economy countries. The surprising invalidation of the regulation, which has been in effect for thirteen years, introduces new uncertainty in the Department’s dumping calculations and is anticipated to cause dumping margins to decline on labor-intensive products from NME countries, primarily China and Vietnam.
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- Antidumping, Countervailing Duties and Trade Remedies
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May 18, 2010
IRS Clarifies Tax Treatment of Employer-Provided Health Coverage for Certain Adult Children Pursuant to Health Care Reform
The IRS recently issued Notice 2010-38 which clarifies that coverage provided under an employer-sponsored group health plan to an adult child who is under the age of 27 as of the end of the taxable year is excludable from an employee’s gross income, effective retroactively to March 30, 2010. Employers should review their group health plans to determine how the change affects those plans and whether any plan amendments may be necessary this year to address the change.
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May 17, 2010
FDIC Proposes Revised Safe Harbor for Securitizations
On May 11, 2010, the Federal Deposit Insurance Corporation approved by a vote of 3-2 a Notice of Proposed Rulemaking (“NPR”) that would clarify the safe harbor in a conservatorship or receivership for securitizations issued after September 30, 2010. This client update summarizes the NPR.
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- Financial Institutions Regulatory
- Structured Finance and Securitization
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May 12, 2010
Council of Medical Specialty Societies Issues Voluntary Code for Interactions with Pharmaceutical and Medical Device Industry
The Council of Medical Specialty Societies (CMSS) recently issued a voluntary Code for Interactions with Companies (the CMSS Code) that sets forth guidelines for interactions of medical societies and key leaders of those societies with pharmaceutical and medical device companies. The release of the CMSS Code follows on the heels of significant developments in federal law that require industry disclosure of financial relationships with physicians and other entities. In light of this latest development, pharmaceutical and medical device manufacturers may wish to review their current policies and procedures to ensure that their interactions with medical societies are consistent with current best practices.
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- Healthcare Public Policy and Governmental Affairs
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May 12, 2010
HHS Solicits Prompt Input on New HITECH Electronic Health Record Patient Accounting Obligations
On May 3, 2010, the HHS Office of Civil Rights issued a Request for Information to assist it in the development of regulations implementing the expanded HITECH rights individuals have to an accounting of protected health information disclosures through an electronic health record. Currently, individuals have a right under HIPAA to an accounting of certain uses and disclosures of their PHI. This accounting excludes disclosures made for the purposes of “treatment,” “payment,” or “healthcare operations.” Beginning January 1, 2011, HITECH eliminates these accounting exceptions in the event the disclosure is through an Electronic Health Record.
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- Privacy, Data Security and Information Law
- Healthcare Information and Privacy
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May 6, 2010
CMS Solicits Immediate Comments on Significant Draft Guidance on Implementation of Medicare Coverage Gap Discount Program
On April 30, 2010, the Centers for Medicare and Medicaid Services (CMS) published a significant draft guidance regarding the implementation of the Medicare Coverage Gap Discount Program beginning in 2011. Although the guidance is addressed to sponsors, it deals with issues of significance to manufacturers, including the adjudication process for the new coverage gap point-of-sale discounts, Part D bidding considerations, CMS invoices to manufacturers for the coverage gap discounts, exceptions to manufacturer participation in the Coverage Gap Discount Program in 2011, and other issues. Significantly, comments on the draft guidance are due May 14, 2010. We would be pleased to assist clients with the preparation of comments.
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May 6, 2010
Notable E-Discovery Cases and Events
This month’s EDTF Case Notes discuss an important Texas federal court decision by Judge Lee Rosenthal setting forth a legal standard of bad faith for imposition of severe sanctions and emphasizing proportionality and reasonableness in reviewing discovery conduct, in contrast to the standards set forth in the recent Pension Committee decision by Judge Shira Scheindlin. The Case Notes also report on a New Jersey Supreme Court decision holding that an employee had a reasonable expectation of privacy and had not waived privilege with respect to emails sent to her lawyer from a password-protected, web-based personal email account on a company-issued laptop. The Case Notes also discuss a recent report by the New York State Unified Court System on improving e-discovery in the New York state court system.
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- Complex Commercial Litigation
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May 6, 2010
Pennsylvania and Philadelphia Tax Amnesties
The Commonwealth of Pennsylvania and City of Philadelphia have each initiated a tax amnesty program to provide penalty and interest relief for taxpayers satisfying their outstanding liabilities before June 18, 2010, for the Commonwealth and June 25, 2010, for the City. This Sidley Update summarizes the eligibility and relief provisions of the amnesty programs for interested taxpayers seeking relief.
A number of other state and local taxing jurisdictions have enacted or are considering the enactment of an amnesty program with varying effective dates, eligibility requirements, and available relief. Although this Tax Update only addresses the Pennsylvania and Philadelphia amnesty programs, other programs are currently available and may be available in the future. In the event that relief is sought in a state without an amnesty program, other relief may be available through a negotiated voluntary disclosure agreement.
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May 3, 2010
Bill Introduced in New York Legislature to Regulate 'Credit Default Insurance' Based on NCOIL Model
Assembly Bill 10783 (the NY Bill) was recently introduced in the New York Assembly proposing to regulate the sale of Credit Default Insurance (CDI) in New York. The NY Bill is substantially similar to the Credit Default Insurance Model Legislation adopted by the National Conference of Insurance Legislators last November. If adopted, the NY Bill would replace existing Article 69 of the New York Insurance Code, which applies to financial guaranty insurers, and would effectively ban ‘naked’ credit default swaps in New York and would restrict ‘covered’ credit default swaps to only those issued in the form of CDI by licensed Credit Default Insurance Corporations.
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April 29, 2010
Securities and Exchange Commission Proposes Amendments to Rule 610 of Regulation NMS
On April 14, 2010, the Securities and Exchange Commission announced a proposal to amend Rule 610 of Regulation NMS under the Securities Exchange Act of 1934 to promote fair and efficient access to displayed quotations by prohibiting options exchanges from imposing “unfairly discriminatory” terms, and to limit access fees that an options exchange may charge investors for access to its best bid and offer for listed options. The proposal would essentially expand existing provisions of Rule 610 that currently apply only to transactions in exchange-listed NMS stocks to cover the listed options markets as well.
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- Securities and Futures Regulatory
- Securities Regulatory Aspects of Transactional Work
- Securities Regulatory Compliance Counseling
- Securities Regulatory Investigations and Examinations
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April 29, 2010
Supreme Court Resolves Disagreement over the Limitations Period in Section 10(b) Claims
The Supreme Court unanimously held that plaintiffs’ section 10(b) claim was timely, and in an opinion for a six-justice majority written by Justice Breyer, the Court held that the two-year limitations period does not begin to run until a plaintiff has discovered, or a reasonably diligent plaintiff would have discovered, the “facts constituting the violation,” including the “fact” that the defendant acted with scienter. After this decision, plaintiffs may attempt to file complaints more than two years after notice of a misstatement, arguing that they had discovered facts of scienter well after they learned of the misstatement. From the defense perspective, the Court shed some helpful light on interpreting the pleading standard in private securities fraud actions and is a warning to plaintiffs that they cannot survive a motion to dismiss without including in their complaint reference to “specific information suggesting the fraud.
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- Accountants/Professional Service Firms Liability
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April 29, 2010
Supreme Court Rules Class Arbitration May Not Be Imposed Absent An Agreement to Engage in Class Arbitration
On April 27, 2010, the Supreme Court issued a significant decision regarding whether class arbitration may be imposed where parties have expressly agreed only to traditional arbitration. In Stolt-Nielsen v. AnimalFeeds, the Court, in a 5-3 decision, held that absent an agreement to class arbitration, it was improper to infer from the parties’ silence on the issue of class arbitration the requisite consent to arbitrate.
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- Complex Commercial Litigation
- International Arbitration (Commercial and Treaty)
- Financial Institutions Regulatory
- Labor, Employment and Immigration
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April 28, 2010
Ninth Circuit Issues Important Class Action Decision in Wal-Mart Discrimination Case
On April 26, 2010, an en banc panel of the U.S. Court of Appeals for the Ninth Circuit issued a long-awaited decision in Dukes v. Wal-Mart that addresses a number of important class action issues, including: (1) whether courts may resolve factual disputes that relate to the merits in ruling on class certification motions and (2) whether a court may certify a class seeking both injunctive and monetary relief under Federal Rule of Civil Procedure 23(b)(2).
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- Complex Commercial Litigation
- Financial Services/Consumer Class Actions
- Labor, Employment and Immigration
- Employment Discrimination Litigation
- Labor and Employment Class and Collective Actions
- Class Action and Multidistrict Litigation
- Consumer and Other Financial Services Litigation
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April 27, 2010
Fraud and Abuse Changes in the New Laws Enhance Government Enforcement Power and Heighten Industry Transparency Obligations
President Obama recently signed into law two pieces of legislation that, together, represent the most comprehensive reform that the U.S. health care system has seen in decades. In addition to providing for sweeping changes to health insurance coverage, healthcare delivery, and healthcare funding mechanisms, these laws substantially expand the government’s investigative and enforcement authority in connection with healthcare fraud and abuse. Additionally, the new laws include increased penalties for fraud and abuse in several contexts, as well as heightened disclosure and compliance obligations for providers, manufacturers, and other entities as part of government efforts to reduce fraud and to increase transparency.
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April 26, 2010
Supreme Court Rules on Level of Deference Afforded to ERISA Plan Administrators
On April 21, 2010, the Supreme Court issued a significant decision regarding the level of deference afforded to plan administrators in interpreting provisions of plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA). In Conkright v. Frommert, the Court, in a 5-3 decision, overruled the Second Circuit’s affirmance of the district court’s decision not to give deference to a plan administrator’s interpretation of a plan provision.
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April 26, 2010
Unclaimed Property: A Panacea for State Budget Woes?
The current economic downturn has taken a heavy toll on state governments, many of which were experiencing severe budgetary pressures even prior to the financial crisis. One way that states are seeking to narrow those deficits is by increasing their efforts to collect unclaimed property through legislative, judicial, and regulatory initiatives.
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- Securities and Futures Regulatory
- Complex Commercial Litigation
- Escheat Counseling and Litigation
- Financial Institutions Litigation
- Investment Funds, Advisers and Derivatives
- Financial Institutions Regulatory
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April 23, 2010
Highlights From “SEC Speaks in 2010” (Day Two)
The Practising Law Institute held Day Two of its annual “SEC Speaks” conference in Washington, D.C. on March 26, 2010. This Sidley Update summarizes the highlights of Day Two of the conference.
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- Corporate Governance and Compliance
- Investment Funds, Advisers and Derivatives
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April 22, 2010
U.S. Antitrust Agencies Issue Proposed Revision of Horizontal Merger Guidelines for Public Comment
The Federal Trade Commission and the U.S. Department of Justice have released for public comment a proposed revision of the agencies’ joint Horizontal Merger Guidelines that, if adopted, would result in several noteworthy changes.
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April 21, 2010
New SEC Proposed Rule - Large Trader Reporting System
On April 14, 2010, the Securities and Exchange Commission proposed new Rule 13h-1 to establish a large trader reporting system. The rule would require large traders of NMS securities to identify themselves to the SEC by filing the proposed Form 13H and obtain a unique large trader identification number, which would then be provided to their registered broker-dealers. Registered broker-dealers would be required to keep records of transactions effected by large traders and report such transaction information to the SEC upon request and monitor compliance by large traders with the proposed rule.
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- Investment Funds, Advisers and Derivatives
- Securities and Futures Regulatory
- Securities Regulatory Aspects of Transactional Work
- Securities Regulatory Compliance Counseling
- Securities Regulatory Investigations and Examinations
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April 20, 2010
NAIC Committees Work on Regulatory and Solvency Modernization
This Update reviews and summarizes the various NAIC groups that are currently working on aspects of insurance regulatory and insurance company solvency modernization.
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- Insurance/Reinsurance Disputes
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April 19, 2010
Summary of SEC Proposals Regarding Asset-Backed Securities and Other Structured Finance Securities
On April 7, 2010, the SEC unanimously approved for public comment proposed rules that would significantly modify and expand the regulations governing structured finance securities. Comments on the proposed rules are due 90 days after their publication in the Federal Register.
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- Structured Finance and Securitization
- Asset-Backed Securitization
- Risk Transfer and Insurance Securitization
- Mortgage-Backed Securitization
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April 16, 2010
“Cloud Computing” and Revisions to the Electronic Communications Privacy Act
The House Judiciary Committee has announced it will hold hearings this spring to consider revisions to the Electronic Communications Privacy Act of 1986 (ECPA), which provides some of the most significant protections for the privacy of online communications. Interest in this subject has been heightened due to the increasing prominence and importance of Cloud Computing, and the complications inherent in applying a statute that is viewed as anachronistic.
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- Privacy, Data Security and Information Law
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April 16, 2010
Employer Monitoring: Arguments in Support from the U.S. Solicitor General
In a case pending before the United States Supreme Court that may have potential implications for privacy in the workplace, the Solicitor General of the United States, Elena Kagan, submitted an amicus curiae brief on behalf of a government employer accused of improperly monitoring its employee’s electronic communications. The principal issue addressed in the brief is whether Jeff Quon, a government employee, had a reasonable expectation of privacy in text messages sent through government-issued communications equipment after having notice of a written policy that such messages were subject to monitoring without notice, but being told that the policy would not be enforced. We believe the positions and arguments advanced by the Solicitor General are worthy of note with respect to privacy policies and employer monitoring generally, and as an expression of the views of the federal government.
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- Privacy, Data Security and Information Law
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April 16, 2010
FLSA Amended to Require Reasonable Break Time for Nursing Mothers
The federal Fair Labor Standards Act was recently amended by the Patient Protection and Affordable Care Act of 2010 to require unpaid breaks for nursing mothers.
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- Labor, Employment and Immigration
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April 14, 2010
Finally – New Anti-Bribery Legislation for the UK
New Anti-Bribery legislation was enacted in the UK on 8 April 2010. The Bribery Act 2010 abolishes old common law offences, repeals a raft of acts from the late 1880’s and creates a new regime of bribery offences.
It is telling as to its importance that this was one of the last laws enacted prior to the UK election. With the new Act in its weaponry Parliament has also signalled its intention to strengthen enforcement measures.
The Act together with a recent court decision in the UK regarding plea agreements with the Serious Fraud Office have changed the landscape for businesses operating in the UK. This alert discusses how businesses should be reacting to counter these developments.
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- Complex Commercial Litigation
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April 14, 2010
Third Circuit Fires a Warning Shot Across the Bow of Settling PRPs and Contribution Plaintiffs in Superfund Matters
A decision handed down by the Third Circuit on April 12, 2010 will have a broad-reaching effect on potentially responsible parties (PRPs) who resolve their Superfund liability to the United States or a state and later seek to recover some of their costs from other PRPs. See Agere Systems, Inc., et al. v. Advanced Environmental Technology Corporation, et al., ___ F.3d ___, No. 09-1814 (3rd Cir. April 12, 2010). The decision raises two key warning flags for all PRPs who settle with the United States or a state pursuant to Sections 106 or 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
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April 14, 2010
Use of a “Municipal Shelf” in Municipal Bond Financings
Interest rates in the tax exempt marketplace can often be volatile, rising and falling dramatically in a short period of time. Borrowing costs are thus affected by when, and how quickly, an issuer or borrower is able to access the market.
Preparation of disclosure materials and the due diligence process associated with a financing is a time consuming process. The ability to issue bonds during a rising interest rate environment can be adversely affected by the time it takes to complete this process. The use of a “municipal shelf” approach to disclosure will permit access to the credit markets on an expedited basis.
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- Public Finance Derivatives
- Public Finance Securitization
- Financial Reporting and Disclosures
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April 13, 2010
Hundreds of Temporary Import Duty Suspensions Are On Hold Indefinitely
A partisan Congressional battle over the use of earmarks means that many U.S. companies are currently paying duties on products that had been duty-free before this year – and many other companies are missing out on getting temporary relief from duties on additional products they had hoped would get the benefit starting this year. Earmarks are usually provisions in legislation that direct that funds be used for a particular project (usually in the home district or state of the Member of Congress who proposes it), but a decision by Republicans in the House of Representatives to adopt “a unilateral moratorium on all earmarks, including tax and tariff related earmarks” has ensnared bills that direct that import duties not be collected. The time may be ripe for a significant reconsideration of the process by which these bills are considered.
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April 9, 2010
FCC Proposal Could Adversely Affect How Companies Communicate with Their Customers
The Federal Communications Commission has requested comment on proposed revisions to its rules under the Telephone Consumer Protection Act. In light of the increasing reliance by consumers on wireless telephones, the proposal has raised concerns across a variety of industries that rely on efficient communications with their customers for account-related or similar purposes. Comments on the proposal are due by May 21, and reply comments are due by June 21.
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- Privacy, Data Security and Information Law
- Financial Institutions Regulatory
- Financial Information and Privacy Law
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April 9, 2010
The Seventh Circuit Holds Sidley Internal Investigation Privileged and Protected from Disclosure in Discovery
On March 30, 2010, the Seventh Circuit Court of Appeals issued an important ruling protecting attorney-led internal investigations from discovery on grounds of the attorney-client privilege and work product doctrine. In that case, Sandra T.E., et al. v. South Berwyn School District 100 and Sidley Austin LLP, No. 08-3344, the Seventh Circuit held that the interview notes and memoranda of Sidley Austin attorneys that were created as part of their internal investigation on behalf of the South Berwyn School Board were protected from disclosure in discovery in related civil litigation brought against the School District.
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- Complex Commercial Litigation
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April 8, 2010
Federal Court Approves Amendments to “Global Research Settlement,” Including Change to Facilitate Research Participation in Due Diligence
A federal court in New York approved on March 15, 2010 significant changes to the securities research rules that twelve investment banking firms agreed to follow in 2003 and 2004 as part of the “global research settlement.” One of the changes will facilitate the participation of research analysts in a firm’s due diligence deliberations.
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- Securities and Futures Regulatory
- Securities Regulatory Aspects of Transactional Work
- Securities Regulatory Compliance Counseling
- Securities Regulatory Investigations and Examinations
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April 8, 2010
Federal District Court Permits Life Insurer to Retain Premiums in Connection With Rescission of Policy
On March 2, 2010, the U.S. District Court of Minnesota entered a partial judgment which rescinded a life insurance policy ab initio while permitting the life insurer to retain the previously paid insurance premiums. This case represents a second ruling since July 2009 in which a court has permitted an insurer to retain premiums after declaring the life insurance policy in question void ab initio. Both courts relied heavily upon the particularly egregious nature of the fraud involved in reaching this unusual result, since an insurer is ordinarily required to return previously received insurance premiums upon a rescission of a life insurance policy as a means of restoring the insurer and policy owner to similar positions that existed prior to the issuance of the policy.
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- Life Accumulation and Life Settlement Programs
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April 7, 2010
Consumer Product Safety Commission Acts To Define Key CPSIA Terms While Congress Ponders Amendments
The reinvigorated U.S. Consumer Product Safety Commission (CPSC or Commission) is promulgating a series of guidelines to put manufacturers, importers and retailers on notice as to how the Consumer Product Safety Improvement Act, which was enacted in August 2008 following a series of high profile unsafe product incidents involving a range of items from toys to pet food, will be interpreted by the U.S. Government. Last week, the CPSC’s final interpretative rule on the factors it will consider in setting civil penalties for violations of the laws it enforces was published in the Federal Register and is now in force. This week, another proposed interpretative rule, to explain how the agency will identify “children’s products,” is being published, marking the beginning of a 60-day public comment period.
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- Corporate Governance and Compliance
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April 7, 2010
State Attorneys General Intensify Post-Leegin Assault on RPM
Two recent state enforcement actions that rely solely on state law to attack the practice of minimum resale price maintenance (RPM) provide the latest indication that states are eschewing federal antitrust law in their increasingly vigorous efforts to police RPM agreements in the aftermath of the Supreme Court’s decision in Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
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April 6, 2010
Landmark Supreme Court Decision Confirms Mutual Fund Fee Principles
On March 30, 2010, in Jones v. Harris Associates L.P., the Supreme Court in a unanimous decision overturned the Seventh Circuit’s rejection of the long-standing Gartenberg standard, which, for over 25 years, had provided the framework for a mutual fund Board’s consideration of the advisory fees paid by the fund. Under the Gartenberg standard, liability under Section 36(b) of the Investment Company Act of 1940 requires that “an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.” To the Gartenberg standard the Court did add one factor—that Boards should consider the relevance of a comparison of the fees paid to the adviser by its other clients, including institutional clients, with those paid by the fund.
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- Investment Funds, Advisers and Derivatives
- Financial, Securities and Accountants Liability Appeals
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April 6, 2010
New Voluntary Guidance for Climate Change Financial Disclosures
On April 1, 2010, ASTM International, an organization that develops voluntary standards, released its Standard Guide for Financial Disclosures Attributed to Climate Change (E2718-10) (Guide). The Guide is designed to assist companies identify material financial impacts arising from climate change that may be disclosed in financial statements and draft appropriate disclosure. Reporting entities, though, should be mindful that the Guide is intended for use on a voluntary basis and is not designed to assist them fulfill their legal obligations.
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April 6, 2010
Notable E-Discovery Cases and Events
This month’s EDTF Case Notes discuss the requirements for ordering restoration of backup tapes, service of process by email, production of Electronically Stored Information (ESI) that is not reasonable accessible, and the waiver of privilege by a non-party served with a subpoena.
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- Complex Commercial Litigation
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April 2, 2010
EPA Issues Final Motor Vehicle Greenhouse Gas Emissions Rule, Triggering Eventual Stationary Source Regulation
On April 1, the Environmental Protection Agency and the National Highway Traffic Safety Administration released their final Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards (Motor Vehicle Rule). The Rule sets the first standards on carbon dioxide (CO2 ) and other greenhouse gas emissions from certain cars and trucks. However, by regulating mobile sources under the Clean Air Act, the Rule may also trigger a dramatic increase in permitting requirements for stationary sources under the Act.
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April 2, 2010
Federal District Court Rules That Isolated Human DNA Is Not Patentable Subject Matter
On March 29, 2010, the U.S. District Court for the Southern District of New York held that isolated human genes are not patentable under Section 101 of the U.S. Patent Act. The Court invalidated patent claims directed to “isolated DNA” containing the Breast Cancer Susceptibility Gene 1 (BRCA1) and the Breast Cancer Susceptibility Gene 2 (BRCA2), as well as methods of analyzing, comparing, and using that DNA. Mutations in the DNA sequences of these two genes are associated with a predisposition for breast and ovarian cancer, and their sequences are used for diagnosing cancer patients. In addition, one of the patent claims invalidated by the Court is directed to using a form of BRCA1 with an altered sequence for research and development of anticancer therapeutics. This update summarizes the Court’s opinion.
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- Intellectual Property Litigation
- Patent Assessment and Due Diligence
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April 2, 2010
Major FDA-Related Aspects of Health Care Reform Legislation
On March 23, 2010, President Obama signed into law H.R. 3590, the Patient Protection and Affordable Care Act (Pub. L. No. 111-148) (the “Reform Act”). The Reform Act includes a number of provisions of relevance to the Federal Food, Drug, and Cosmetic Act (FDCA) and FDA regulatory requirements, as well as important provisions linking FDCA violations to the federal criminal laws.
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- Food, Drug and Medical Device Regulatory
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April 1, 2010
Consumer Groups Seek FTC and USDA Action on Organic Personal Care Products
Consumers Union (CU) and the Organic Consumer Association (OCA) filed on March 12th a petition with the Federal Trade Commission (FTC), requesting that the FTC “investigate the widespread, misleading use of ‘organic’ claims on personal care products.” The letter asserts that because the United States Department of Agriculture’s National Organic Program has not required all personal care products labeled as organic to be USDA-certified, there is widespread consumer confusion. Certain operations, CU and OCA allege, are taking advantage of the large number of industry-based organic certification programs by using the term “organic” on their products without making clear what standard is being used.
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- Communications Regulatory
- Corporate Governance and Compliance
- Antitrust Government Investigations
- Antitrust Legislative and Regulatory Representation
- Mass Media Communications
- Telecommunications, Broadband and Video
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April 1, 2010
U.S. Commerce Department May Rethink the Retrospective Import Duty System
The United States is the only major economy in the world that employs a “retrospective” system for assessing and collecting antidumping and countervailing duties on imports. At the direction of the U.S. Congress, the Department of Commerce’s International Trade Administration (ITA) is seeking public comment on the relative merits of the existing retrospective system versus a “prospective” system. Given the significance of the potential change to the U.S. duty assessment system suggested by this initiative, interested parties should consider submitting written comments by the deadline of April 20, 2010, and notifying the ITA of their interest in participating in a hearing on this issue by the deadline of April 13, 2010.
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- Antidumping, Countervailing Duties and Trade Remedies
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March 31, 2010
EPA Issues Interpretive Memo Setting January 2, 2011 as the Date Greenhouse Gases Become Subject to Clean Air Act Permitting Programs
On March 29, 2010, EPA released a final interpretive memorandum entitled “Reconsideration of Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” that addresses when a pollutant becomes “subject to regulation” under the Clean Air Act (EPA Memo). By this decision, EPA intends to delay the introduction of greenhouse gases to Clean Air Act permitting programs until January 2, 2011. The EPA Memo reconsiders an earlier memo on the same topic originally issued in December 2008 by then-EPA Administrator Stephen Johnson.
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March 30, 2010
Deregulation of Fund Transfer in Japan
In June 2009, the Japanese Diet passed legislation concerning Fund Settlement (the Fund Settlement Act). That legislation is expected to become effective as of April 1, 2010. Changes to the Fund Settlement Act include regulations whereby the fund transfer of JPY1 million or less, for example, for the purpose of online shopping, will be possible without the license required for a banking business. On the other hand, server-based electronic money will be regulated in the same manner as vouchers and prepaid cards.
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March 29, 2010
Federal Reserve Releases Final Gift Card Rule
On March 23, 2010, the Board of Governors of the Federal Reserve System released a final rule (Rule) regarding gift certificates, gift cards and general-use prepaid cards (prepaid cards, collectively). The Rule amends Regulation E and implements certain provisions of the Credit CARD Act that become effective on August 22, 2010. Generally, the relevant Credit CARD Act provisions established limits on dormancy, inactivity, or service fees in connection with prepaid cards, as well as certain expiration date restrictions for such cards.
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- Financial Institutions Regulatory
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March 26, 2010
Senator Dodd’s Updated Regulatory Reform Bill Leaves Committee with Numerous Democratic Amendments; Republicans Withdraw and Reserve Amendments for Further Debate on the Senate Floor
Introduced on March 15, 2010, Senator Dodd’s (D-CT) regulatory reform bill was approved by the Senate Committee on Banking, Housing and Urban Affairs with only Democratic amendments incorporated during the scheduled markup session. All Republican amendments were withdrawn and reserved for full Senate deliberations. When Congress returns after Easter and Passover recess, further changes to the bill are expected. We will closely monitor the legislative process and will continue to publish updates at critical stages.
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March 26, 2010
The Proposed United States Covered Bond Act of 2010
On March 18, 2010 Representative Scott Garrett (R-NJ) introduced into the United States House of Representatives the proposed United States Covered Bond Act of 2010 (the Act).The Act would create a comprehensive United States statutory regime for the issuance of covered bonds by banks, bank holding companies and certain other eligible issuers similar to that which exists for issuers in many European jurisdictions. This update discusses the implications of the proposed Act.
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- Financial Institutions Regulatory
- Structured Finance and Securitization
- Securities and Futures Regulatory
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March 24, 2010
European Commission Adopts New EU Insurance Block Exemption Regulation
The European Commission’s Directorate General for Competition (Commission) today published the final text of its 2010 insurance Block Exemption Regulation, which will apply from April 1, 2010 until March 31, 2017. Although the final text accommodates a number of (re)insurance industry comments on the Commission’s October 2009 proposal, it still represents a significant departure from the 2003 Block Exemption (which expires on March 31, 2010) and gives industry only six months to ensure full compliance with the new regime.
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March 24, 2010
Proposed Rules on Investment Advice Exemption for 401(k) Plans and IRAs
On February 26, 2010, the Department of Labor published proposed regulations to implement the prohibited transaction exemption for investment advice to participants in participant-directed individual account plans and individual retirement accounts. The proposed regulations would permit the provision of investment advice by advisers compensated on a level-fee basis and by unbiased computer models, subject to certain safeguards and conditions. The regulations are substantially similar to the withdrawn regulations that were published in January 2009.
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March 23, 2010
NFA Adopts Rule 2-46 Requiring Quarterly Reporting by Commodity Pool Operators
The NFA has adopted Compliance Rule 2-46, which requires each CPO to report on a quarterly basis certain information for each pool it operates that has a reporting obligation under CFTC Regulation 4.22. For each such pool, Rule 2-46 requires reporting of certain key relationships, changes in net asset value, monthly performance and any investment that exceeds 10% of net asset value. Rule 2-46 applies to both non-exempt pools and exempt pools under CFTC Regulation 4.7.
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- Investment Funds, Advisers and Derivatives
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March 23, 2010
Ninth Circuit Issues Two Religion Opinions
Within the last few weeks, the Ninth Circuit issued two important religion opinions. The first of the two involved the application of the “ministerial exemption” to an overtime claim brought under a state statute. The second involved a challenge to the “under God” phrase contained in the Pledge of Allegiance.
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March 19, 2010
FDA Surveying U.S. Cosmetics for Asbestos-Contaminated Talc
In response to reports of asbestos contamination in cosmetics abroad, the Food and Drug Administration (FDA) is reviewing talc and talc-containing cosmetic products for the presence of the carcinogen in products marketed in the U.S.
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- Food, Drug, Device and Cosmetic Law
- Food, Drug and Medical Device Compliance and Enforcement
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March 19, 2010
Private Fund Adviser Regulation Addressed in the 2010 Revised Regulatory Reform Bill
On March 15, 2010 Christopher Dodd (D-CT), Chairman of the Senate Banking, Housing, and Urban Affairs Committee, released a second draft financial regulatory reform bill, including provisions requiring investment advisers to private funds to register with the Securities and Exchange Commission under the Investment Advisers Act of 1940.
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- Investment Funds, Advisers and Derivatives
- Private Equity and Venture Capital Funds
- Exchanges and Clearing Organizations
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March 18, 2010
Foreign Account Tax Compliance Measures Signed into Law
Earlier today, President Obama signed the Hiring Incentives to Restore Employment Act into law. The Act contains certain tax provisions that are of great significance to persons engaged in cross-border transactions with the United States.
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- Financial Institutions Regulatory
- Investment Funds, Advisers and Derivatives
- Structured Finance and Securitization
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March 17, 2010
Revised Senate Discussion Draft of Proposed Securitization Reform Legislation
On March 15, 2010, Chairman of the Senate Banking, Housing, and Urban Affairs Committee Chris Dodd released a second draft bill for financial regulatory reform (the revised Dodd draft), including securitization reform. The revised Dodd draft was introduced after months of negotiations regarding Chairman Dodd’s original financial reform legislation proposed in November 2009 had yet to produce a financial reform bill with bipartisan support. Senator Dodd has indicated he will continue to work with Republicans to generate bipartisan support but has stated that he wishes to move to markup stage without further delay, with plans to hold a full committee markup the week of March 22, 2010. While the revised Dodd draft is substantially similar to the original Dodd draft, it differs in two material respects – the risk retention threshold has been reduced from 10% to 5% and, similar to the securitization reform provisions contained in the financial reform bill passed by the U.S. House of Representatives in 2009, it specifically contemplates exemptions from (or reductions to) the risk retention requirements if certain underwriting standards are met as to the characteristics of the loans securitized.
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- Structured Finance and Securitization
- Asset-Backed Securitization
- Mortgage-Backed Securitization
- Risk Transfer and Insurance Securitization
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March 17, 2010
Senator Dodd Introduces Updated Regulatory Reform Bill Without Bipartisan Support; Numerous Amendments Are Expected at the Committee Level
On Monday, March 15, 2010, Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing and Urban Affairs (the Senate Banking Committee), introduced a 1,336 page bill entitled “Restoring American Financial Stability Act of 2010” (the 2010 Dodd Bill). Numerous amendments are expected at the committee level during the upcoming markup stage, currently scheduled for next week. We will closely monitor the legislative process and will continue to publish updates at critical stages.
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March 16, 2010
Chinese Soil Pollution Law To Be Modeled On United States Superfund Statutes
In an attempt to tackle the increasing soil pollution and effectively control the risks caused by soil pollution to human health and environment, the Ministry of Environmental Protection (the MEP) of the People’s Republic of China (the PRC) issued the draft Provisional Rules on Environmental Management of the Soil of Contaminated Sites (the Draft Rule) on December 15, 2009. The MEP seeks comments at the same time from the relevant ministries and departments under the State Council of the PRC.
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March 16, 2010
Significant Setbacks for Efforts to Expand Liability for Secondary Actors Under the Securities Laws
Efforts to expand liability under the securities laws for attorneys, auditors, bankers, and other secondary actors were significantly affected on two different fronts this week. On March 10, 2010, the First Circuit, sitting en banc, in SEC v. Tambone, rejected the SEC’s argument that secondary actors may be primarily liable for implied - rather than actual - representations. In addition, on March 15, 2010, legislative language that would allow private actions for aiding and abetting violations of the securities laws was removed from Senator Christopher Dodd’s Restoring American Financial Stability Act, which is expected to proceed to Committee markup next week. These developments are welcome news for anyone working for issuers of securities.
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March 16, 2010
U.S. Trade Negotiators Seek Public Comment on Elimination of Import Duties on Pharmaceutical Products
Over 9,000 pharmaceutical and chemical intermediates enjoy duty free treatment under the customs regime of the United States and other countries that participate in the World Trade Organization Pharmaceutical Agreement. The Office of the U.S. Trade Representative is seeking public comment on the possible expansion of the list of products subject to this reciprocal duty free treatment. Companies in the pharmaceutical industry interested in submitting comments on this issue must do so by April 9, 2010.
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March 15, 2010
Illinois Senate President Proposes Tax on Partnership Income other than Self-Employment and Retirement Income
Illinois Senate President James Cullerton has recently proposed limiting the allowable reasonable compensation deduction for partnerships (and other entities treated as partnerships for federal income tax purposes) subject to the Replacement Tax. If enacted, Illinois-based managers would have significant taxable income subject to the 1.5% Replacement Tax.
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- Investment Funds, Advisers and Derivatives
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March 12, 2010
House Drug Safety Hearing Highlights FDA Focus on Product Safety and Supply Chain Obligation
On March 10, 2010, Dr. Joshua M. Sharfstein, Principal Deputy Commissioner of the Food and Drug Administration (FDA), presented testimony at the House of Representatives’ Committee on Energy and Commerce, Subcommittee on Health hearing on drug safety. The hearing addressed the Food and Drug Administration Amendments Act of 2007, imported drug safety, and FDA’s Sentinel, Drug Safety, and Regulatory Science Initiatives. Drug manufacturers can expect further FDA focus on supplier qualification and audit measures.
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- Food, Drug and Medical Device Regulatory
- Food, Drug and Medical Device Compliance and Enforcement
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March 11, 2010
New Rules Ease U.S. Sanctions for Agricultural Exports and Free Speech
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) promulgated two final rules this week that ease sanctions against Cuba, Iran and Sudan with respect to key areas of authorized trade. OFAC’s new rules will make it easier for exporters to supply agricultural commodities to Cuba, as well as to support Internet-based personal communications in Cuba, Iran and Sudan. Companies in the agricultural and communications industries should consider whether OFAC’s new rules create additional opportunities for them in these markets.
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March 8, 2010
Federal Reserve Proposes Limits on Credit Card Penalty Fees and Required Review of Rate Increases
In order to implement the final provisions of the Credit CARD Act of 2009, the Federal Reserve has issued proposed regulations that would significantly limit card issuers’ ability to charge penalty fees, and would require issuers to review regularly the interest rates on all accounts for which the rate was previously raised. A final rule will be effective on August 22, 2010.
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- Financial Institutions Regulatory
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March 8, 2010
SEC Adopts Amendments to Investment Company Act Rules Relating to Money Market Funds
On February 23, 2010, the SEC issued a release describing final rule amendments to the regulatory framework for money market funds. These rule amendments are designed to address primarily the difficulties faced by money market funds and money market fund investors during the recent market events.
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- Investment Funds, Advisers and Derivatives
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March 5, 2010
FDA Letter to Congress Signals More Individual Prosecutions in Connection With Corporate Cases
In the wake of a Government Accountability Office report on the Food and Drug Administration’s (FDA) oversight of its Office of Criminal Investigations (OCI), Commissioner Margaret Hamburg, M.D., sent a letter to Sen. Charles Grassley on March 4, 2010, setting forth the steps that FDA was taking both to exert more control over OCI and to increase communication between OCI and the regulatory components of FDA, its Centers and the Office of Regulatory Affairs.
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- Food, Drug and Medical Device Compliance and Enforcement
- Food, Drug and Medical Device Regulatory
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March 4, 2010
New Information-Posting Requirements for Issuers, Sponsors and Underwriters of Rated Structured Finance Securities
Rules adopted in November 2009 by the Securities and Exchange Commission (the “SEC”) under the Credit Rating Agency Reform Act of 2006 will require issuers, sponsors or underwriters (referred to as “arrangers”) of structured finance securities to post on a password-protected internet website, the information provided by arrangers to credit rating agencies hired by an arranger to rate or monitor the credit ratings of the securities. The new rules will require the arranger to provide access to the website to other credit rating agencies that provide the arranger with a required certification. The deadline for compliance with these new rules is June 2, 2010.
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- Asset-Backed Securitization
- Structured Finance and Securitization
- Risk Transfer and Insurance Securitization
- Mortgage-Backed Securitization
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March 4, 2010
Notable E-Discovery Cases and Events
This Month’s case notes features a decision by Magistrate Judge Facciola discussing the standards under Fed. R. Evid. 502 governing the reasonableness of efforts to prevent inadvertent disclosure of privileged material. It also includes cases addressing the production of ESI in native format as well as decisions that award sanctions of over $4.1 million for discovery violations and that appoint a third party expert to assess a party’s compliance with its preservation and production obligations.
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- Complex Commercial Litigation
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