Continued FTC Crackdown on False Product Reviews
Consumer protection wins again! The Federal Trade Commission (FTC) announced a final order settling its complaint against Rytr LLC, an artificial intelligence (AI) writing assistant tool that was capable of producing detailed and specific false product reviews using AI technology.
The FTC further alleged that Rytr subscribers used the service to generate product reviews potentially containing false information, deceiving potential consumers who sought to use the reviews to make purchasing decisions. The final order settling the complaint, which was published on December 18, 2024, bars Rytr from engaging in similar illegal conduct in the future and prohibits the company from advertising, marketing, promoting, offering for sale, or selling any services “dedicated to or promoted as generating consumer reviews or testimonials.”
The decision highlights increased scrutiny against AI tools that can be used to generate false and deceptive content, which may mislead consumers. AI developers should prioritize transparency in how AI-generated content is created and used and ensure that AI services comply with advertising and consumer protection laws. The decision also reflects the need for AI developers to balance innovation with ensuring their innovations do not harm consumers.
China’s National Intellectual Property Administration Launches Belt and Road Patent Accelerated Examination Pilot Program
On January 17, 2025, China’s National Intellectual Property Administration (CNIPA) released the “Guidelines for the Belt and Road Accelerated Examination Pilot Program” (“一带一路”专利加快审查试点项目指南), effective January 20, 2025. The Belt and Road initiative is a global infrastructure program launched by China to invest in land and sea corridors to connect China to the world. The Pilot Program, which is somewhat analogous to the Patent Prosecution Highway (PPH), allows for accelerated patent examination in China when a Belt and Road country’s patent office indicates at least one claim in corresponding family member is allowable.
While the Pilot Program envisions including all Belt and Road countries (perhaps including more than 150 countries that signed a Memorandum of Understanding with China per Fudan University), it appears that Türkiye may be the only participating country at this time.
The period of the Pilot Program will commence on January 20, 2025 and end on January 19, 2027. Under the Pilot Program, the total number of applications to be accepted by CNIPA will be limited to 1000 per year, the maximum number of applications from each participating office will be limited to 100 per year. After the expiration of this two-year period, an evaluation will be conducted to determine whether the pilot program should be extended.
Requirements to participate include:
(a) The CNIPA application shall have at least one corresponding application in the participating office, which has determined that one or more claims of the corresponding application is/are patentable/allowable.
(b) All claims in the CNIPA application must sufficiently correspond to one or more of those claims determined to be patentable/allowable in the corresponding application.
(c) The CNIPA application must have been published.
(d) The CNIPA application must have entered into substantive examination stage. Note that as an exception, the applicant may file a request for accelerated examination simultaneously with the Request for Substantive Examination.
(e) The CNIPA has not begun examination of the application at the time of filing the request for accelerated examination.
(f) The CNIPA application must be electronic patent application.
More information can be found here (Chinese and English).
Out with a Bang: President Biden Ends Final Week in Office with Three AI Actions — AI: The Washington Report
President Biden’s final week in office included three AI actions — a new rule on chip and AI model export controls, an executive order on AI infrastructure and data centers, and an executive order on cybersecurity.
On Monday, the Department of Commerce issued a rule on responsible AI diffusion limiting chip and AI model exports made to certain countries of concern. The rule is particularly aimed at curbing US AI technology exports to China and includes exceptions for US allies.
On Tuesday, President Biden signed an executive order (EO) on AI infrastructure, which directs agencies to lease federal sites for the development of large-scale AI data centers.
On Thursday, Biden signed an EO on cybersecurity, which directs the federal government to strengthen its cybersecurity systems and implement more rigorous requirements for software providers and other third-party contractors.
The actions come just days before President-elect Trump begins his second term. Yet, it remains an open question whether President Trump, who has previously supported chip export controls and data center investments, will keep these actions in place or undo them.
In its final week, the Biden administration issued three final actions on AI, capping off the administration that took the first steps toward creating a government response to AI. On Monday, the Biden administration announced a rule on responsible AI diffusion through chip and AI model export controls, which limit such exports to certain foreign countries. On Tuesday, President Biden signed an Executive Order (EO) on Advancing United States Leadership in Artificial Intelligence Infrastructure, which directs agencies to lease federal sites for the development of AI data centers. And on Thursday, Biden signed an Executive Order on Strengthening and Promoting Innovation in the Nation’s Cybersecurity, which directs the federal government to strengthen its cybersecurity operations.
The new AI actions come just days before President-elect Trump takes the White House. What Trump decides to do with Biden’s new and old AI actions, as we discuss below, may provide the first indication of the direction of his second administration’s approach to AI.
Rule on Responsible Diffusion of Advanced AI Technology
On Monday, the Department of Commerce’s Bureau of Industry and Security announced a sweeping rule on export controls on chips and AI models, which requires licenses for exports of the most advanced chips and AI models. The rule aims to allow US companies to export advanced chips and AI models to global allies while also preventing the diffusion of those technologies, either directly or through an intermediary, into countries of concern, including China and Russia.
“To enhance U.S. national security and economic strength, it is essential that we do not offshore [AI] and that the world’s AI runs on American rails,” according to a White House fact sheet. “It is important to work with AI companies and foreign governments to put in place critical security and trust standards as they build out their AI ecosystems.”
The rule divides countries into three categories, with different levels of export controls and licensing requirements for each category based on their risk level:
Eighteen (18) close allies can receive a license exception. Close allies are “jurisdictions with robust technology protection regimes and technology ecosystems aligned with the national security and foreign policy interests of the United States.” They include Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Taiwan, and the United Kingdom.
Countries of concern, including China and Russia, must receive a license to export chips. A “presumption of denial” will apply to license applications from these countries.
All other countries are allowed to apply for a license, and “license applications will be reviewed under a presumption of approval.” But after a certain number of chips are exported, certain restrictions will apply for these countries.
The rule’s export controls fall into four categories depending on the country, its security standards, and the types of chips being exported.
Orders for chips of up to 1,700 advanced GPUs “do not require a license and do not count against national chip caps.”
Entities headquartered in close allies can obtain “Universal Verified End User” (UVEU) status by meeting high security and trust standards. With this status, these countries “can then place up to 7% of their global AI computational capacity in countries around the world — likely amounting to hundreds of thousands of chips.”
Entities not headquartered in a country of concern can obtain “National Verified End User” status by meeting the same high security and trust standards, “enabling them to purchase computational power equivalent to up to 320,000 advanced GPUs over the next two years.”
Entities not headquartered in a close ally and without VEU status “can still purchase large amounts of computational power, up to the equivalent of 50,000 advanced GPUs per country.”
The rule also includes specific export restrictions and licensing requirements for AI models.
Advanced Closed-Weight AI Models: A license is required to export any closed-weight AI model —“i.e., a model with weights that are not published” — “that has been trained on more than 1026 computational power.” Applications for these licenses will be reviewed under a presumption of denial policy “to ensure that the licensing process consistently accounts for the risks associated with the most advanced AI models.”
Open-Weight AI Models: The rule does “not [impose] controls on the model weights of open-weight models,” the most advanced of which “are currently less powerful than the most advanced closed-weight models.”
The new chip export controls build on previous export controls from 2022 and 2023, which we previously covered.
Executive Order on AI Infrastructure
On Tuesday, Biden signed an Executive Order on Advancing United States Leadership in Artificial Intelligence Infrastructure. The EO directs the Department of Defense and Department of Energy to lease federal sites to the private sector for the development of gigawatt-scale AI data centers that adhere to certain clean energy standards.
“These efforts also will help position America to lead the world in clean energy deployment… This renewed partnership between the government and industry will ensure that the United States will continue to lead the age of AI,” President Biden said in a statement.
The EO requires the Secretary of Defense and Secretary of Energy to identify three sites for AI data centers by February 28, 2025. Developers that build on these sites “will be required to bring online sufficient clean energy generation resources to match the full electricity needs of their data centers, consistent with applicable law.”
The EO also directs agencies “to expedite the processing of permits and approvals required for the construction and operation of AI infrastructure on Federal sites.” The Department of Energy will work to develop and upgrade transmission lines around the new sites and “facilitate [the] interconnection of AI infrastructure to the electric grid.”
Private developers of AI data centers on federal sites are also subject to numerous lease obligations, including paying for the full cost of building and maintaining AI infrastructure and data centers, adhering to lab security and labor standards, and procuring certain clean energy generation resources.
Executive Order on Cybersecurity
On Thursday, President Biden signed an Executive Order on Strengthening and Promoting Innovation in the Nation’s Cybersecurity. The EO directs the federal government to strengthen the cybersecurity of its federal systems and adopt more rigorous security and transparency standards for software providers and other third-party contractors. It directs various agencies — with some deadlines as soon as 30 days from the EO’s issuance — to evaluate their cybersecurity systems, launch cybersecurity pilot programs, and implement strengthened cybersecurity practices, including for communication and identity management systems.
The EO also aims to integrate AI into government cybersecurity operations. The EO directs the Secretary of Energy to launch a pilot program “on the use of AI to enhance the cyber defense of critical infrastructure in the energy sector.” Within 150 days of the EO, various agencies shall also “prioritize funding for their respective programs that encourage the development of large-scale, labeled datasets needed to make progress on cyber defense research.” Also, within 150 days of the EO, various agencies shall pursue research on a number of AI topics, including “human-AI interaction methods to assist defensive cyber analysis” and “methods for designing secure AI systems.”
The Fate of President Biden’s AI Actions Under a Trump Administration?
It remains an open question whether Biden’s new AI infrastructure EO, cybersecurity EO, and chip export control rule will survive intact, be modified, or be eliminated under the Trump administration, which begins on Monday. What Trump decides to do with the new export control rule, in particular, may signal the direction of his administration’s approach to AI. Trump may keep the export controls due to his stated commitment to win the AI race against China, or he may get rid of them or tone them down out of concerns that they overly burden US AI innovation and business.
Grassley Defends Constitutionality of False Claims Act’s Qui Tam Provisions in Amicus Brief
In an amicus brief filed on January 15, Senator Chuck Grassley (R-IA) urges the Eleventh Circuit to reverse a district court ruling which held that the False Claims Act’s qui tam provisions are unconstitutional.
Grassley, who authored the 1986 amendments which modernized the FCA, states that “the False Claims Act is our nation’s single greatest tool to fight waste, fraud and abuse” and calls the Middle District of Florida’s decision in Zafirov v. Florida Medical Associations a “flawed decision.”
In September, the Middle District of Florida dismissed whistleblower Claire Zafirov’s qui tam lawsuit on the grounds that the FCA’s qui tam provisions are unconstitutional as they violate the Appointments Clause of Article II of the Constitution.
In his brief, Grassley lays out the long-history of qui tam laws and details a number of qui tam provisions enacted by the First Congress. He criticizes the district court for discarding this history despite the Supreme Court’s heavy reliance on it in its decision in Vermont Agency of Nat. Res. v. United States ex rel. Stevens, which held that the FCA’s qui tam provisions do not violate Article III of the Constitution.
“The First Congress that enacted numerous statutes that featured qui tam provisions made clear that, at the time of the founding, the legislature believed that the limited rights granted relators fell within the Constitutional separation of powers many of them had personally fashioned,” Grassley’s brief states.
In the brief, Grassley also notes that “every court to have addressed the issue has concluded that the qui tam provision is in accordance with the Constitutional separation of powers.”
He further emphasizes the immense success of the FCA’s qui tam provisions in incentivizing whistleblowers to come forward and expose otherwise hard-to-detect frauds, deter would-be fraudsters, and protect the public from harm.
As Grassley notes in his brief, “the FCA is a resounding success, as Congress and the Executive Branch have both acknowledged.” According to newly released statistics from the Department of Justice (DOJ), since the FCA was modernized in 1986, qui tam lawsuits have resulted in over $55 billion in recoveries of taxpayer dollars.
Grassley’s brief joins a brief filed by the U.S. government in urging the Eleventh Circuit to reverse the district court ruling. In its brief, the government claims that the Stevens decision “makes clear that relators do not exercise Executive power when they sue under the Act… Rather, they are pursuing a private interest in the money they will obtain if their suit prevails.”
It further states that “the historical record.. suggests that all three branches of the early American government accepted qui tam statutes as an established feature of the legal system.”
During her Senate confirmation hearing on January 15, Senator Grassley asked Pam Bondi, nominee to be the Attorney General, if she would commit to defending the constitutionality of the FCA.
“I would defend the constitutionality of course of the False Claims Act,” Bondi stated. “The False Claims Act is so important, especially by what you said with whistleblowers.”
New Statute Affects Small Business Leases in California
Go-To Guide:
California Senate Bill 1103 (SB 1103) introduces changes to commercial leases, offering enhanced protections for small business tenants.
Tenants that meet the “5/10/20 rule” and provide written notice of their qualified status can seek the benefits of these new protections.
Landlords must translate leases into the tenant’s primary language for qualified commercial tenants.
Leases with qualified commercial tenants automatically renew unless landlords provide timely nonrenewal notices, aligning commercial tenancy practices more closely with residential standards.
Rent increases for short-term leases require advance notice, and any fees for building operating costs must be proportionate and documented.
Effective Jan. 1, 2025, SB 1103 makes four principal changes to commercial tenancy law:
1.
increased notice periods for rental increases on short term tenancies (month-to-month or shorter);
2.
a new requirement for translating the lease into other languages;
3.
automatic renewal of the tenancy unless the landlord objects in a timely manner; and
4.
limitations on rental increases based on building operating costs. The law provides additional leasing protections to small business commercial tenants who meet the definition of “qualified commercial tenants.”
Commercial landlords should be aware of all the related changes and should build these new requirements into their form leases, tenant notices, and operating procedures. More generally, landlords should be aware that like the protections for small commercial tenants enacted during COVID-19, these new leasing regulations indicate a legislative policy towards treating small businesses more like residential tenancies, as opposed to traditional commercial leases with larger commercial tenants.
Definition of ‘Qualified Commercial Tenant’
Businesses must meet two elements of the qualified commercial tenant definition to qualify for these new protections.
First, a business must be a “microenterprise,” a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees. A microenterprise is defined in Business & Professions Code section 18000 as a sole proprietorship, partnership, LLC, or corporation with five or fewer employees (including the owner), who may be full or part-time, and which generally lacks sufficient access to loans, equity, or other financial capital. A convenient way to remember this definition is the “5/10/20 rule,” based on the number of employees.
Second, the tenant must have provided to the landlord, within the previous 12 months, written notice that the tenant is a qualified commercial tenant and a self-attestation regarding the number of employees the tenant employs before or upon the lease’s execution and annually thereafter. In other words, the law’s provisions are not self-executing – the tenant must give notice first. The rental rates, the premises’ square footage, and the tenant’s income or wealth are not considered when determining qualified status.
With these definitions in mind, here are the four principal changes SB 1103 makes to commercial tenancy law.
The Four New Tenant Protections
1.
Notice of Rent Increase for Short Term Rentals
Existing Civil Code Section 827 provides that for short term residential leases, namely month-to-month or a shorter period, the landlord must give prior notice of a rent increase. The amount of notice required depends on how much the rent will increase.
SB-1103 extends this notice requirement to qualified commercial tenant leases. If the increase is 10% or less of the prior year’s rent, the notice mut be given at least 30 days before the increase date, and if it is greater than 10%, then the notice must be given at least 90 days prior. The notice itself must advise the qualified commercial tenant of the requirements of this amended statute.
It is unclear how relevant this provision would be to most small businesses. Unlike short term residential tenancies such as residence hotels, a commercial business is not likely to be a month-to-month tenancy unless it is a holdover from a longer fixed lease. Due to an apparently unresolved inconsistency in the Senate and Assembly versions of this section, however, its protections may extend beyond month-to-month leases. Landlords may assume this provision applies to rental increases for all commercial real property leases by a qualified commercial tenant.
Violation of this provision does not entitle the qualified commercial tenant to civil penalties, but qualified commercial tenants may be eligible for restitution of overpaid rent or an injunction to prevent further violations.
2.
Translation of Lease
Existing law in Civil Code Section 1632 requires a business to deliver a translation of a contract from English to the primary language in which the agreement was negotiated, specifically in Spanish, Chinese, Tagalog, Vietnamese, or Korean (translation requirement) but provides an exception if the other party uses their own interpreter (interpreter exception).
SB 1103 expands this requirement to a landlord leasing to a qualified commercial tenant for leases negotiated on or after Jan. 1, 2025. It requires the landlord to comply with the translation requirement but does not grant the landlord the interpreter exception. In other words, the landlord must always comply with the translation requirement.
If the landlord fails to comply with this requirement, the qualified commercial tenant (but not the landlord) is entitled to rescind the lease.
3.
Automatic Renewal
Existing Civil Code Section 1946.1 provides that a residential lease is deemed renewed unless the landlord gives 30 to 60 days’ notice of nonrenewal prior to termination, depending on whether the lease was for less than one year.
SB 1103 expands this protection to qualified commercial tenant leases and requires the landlord to give notice of the provisions of this section in the notice to a qualified commercial tenant. Qualified commercial tenants who believe their landlord has violated this section’s notice requirement can file a complaint with local housing authorities or pursue legal action.
4.
Limitation On Building Cost Charges
Existing Civil Code Section 1950.8 prohibits a landlord from demanding an extra fee to continue or renew a lease unless the amount is stated in the lease, but this requirement does not apply if the increase is for building operating costs incurred on behalf of the tenant and the basis for calculation is established in the lease.
SB 1103 adds a new law, Civil Code Section 1950.9, that applies to leases executed or renewed on or after Jan. 1, 2025. The section prohibits a landlord from charging a qualified commercial tenant a fee to recover building operating costs unless the costs are allocated proportionately, the costs were incurred in the prior 18 months or are reasonably expected to be incurred in the next 12 months, and the landlord provides a prospective tenant notice that the tenant may inspect the cost documentation.
There are some substantial enforcement teeth in this particular provision, including actual damages, attorneys’ fees and costs, and in the case of willful, oppressive, fraudulent, or malicious violations, treble damages, and punitive damages. The tenant can also raise this section as a defense to eviction.
Application
SB 113 applies to all commercial tenancies in California where the tenant is a qualified commercial tenant. Obvious applications are shopping malls, strip malls, and other buildings where a variety of small business are collected. Some commercial landlords, for example the owner of a large commercial office building leased to large businesses, might think the statute is not relevant to them, but smaller tenants such as a café or gift shop in the lobby may be covered.
Unanswered Questions
Unanswered questions remain, such as the case of subleases, where the tenant might not be a qualified commercial tenant, but the subtenant might qualify under SB 1103. Similarly, it remains to be seen how and when a landlord could challenge the tenant’s self-attestation of qualified status, particularly if that status changes during the tenancy.
OCR Issues Guidelines on Title IX’s Application to NIL Payments
As the sun sets on the Biden administration, the Office for Civil Rights of the U.S. Department of Education (OCR) provided a new Fact Sheet on Jan. 16, 2025, to “clarify” how Title IX will apply to universities’ direct payments to student-athletes for use of their names, images and likenesses (NIL) under the proposed House vs. NCAA settlement. The Fact Sheet is consistent with decades of prior OCR guidance. It is not surprising that “compensation from a school for use of a student-athlete’s NIL” under the House settlement will qualify as “athletic financial assistance” subject to Title IX. It is also not surprising that OCR reminded schools that they retain responsibility to treat male and female student-athletes equitably even when NIL payments are made by affiliated third parties like collectives.
The key, as always, to Title IX compliance is in the implementation – the details of how schools are implementing their House structures.
Title IX Applies to Schools’ House Payments
While OCR inaccurately mingled two different Title IX standards applicable to athletic financial assistance on page 4 of the Fact Sheet (which confused many commentators on social media), OCR ultimately set forth the standard in the applicable Section 4 that is consistent with Title IX regulations dating back to 1979:
“When a school provides athletic financial assistance in forms other than scholarships or grants, including compensation for the use of a student-athlete’s NIL, such assistance also must be made proportionately available to male and female athletes.” (Emphasis added.)
This is not necessarily a dollar-for-dollar proportionality test. There may be legitimate non-discriminatory justifications to explain differences in who qualifies for House payments as well as their amounts, as long as a school’s House payment structure provides for equitable availability.
Implementation Is Key
The pathway for schools to implement House consistently with federal civil rights laws remains available for those universities that choose to take it.
The keys for schools’ Title IX-compliant implementation will remain implementing an equitable NIL marketing strategy and structuring good-faith NIL valuations, as many schools have begun to do. Of course, there are many nuances to the legal implementation.
Conclusion
Because the new Fact Sheet doesn’t change long-standing Title IX guidance, this particular Biden administration action is unlikely to affect Judge Claudia Wilken’s approval of the House settlement itself, and nothing would be accomplished if this Fact Sheet were withdrawn by OCR next week because it merely reiterates existing Title IX concepts. Of course, the incoming administration or Congress may take a new legal approach to this evolving area of our industry.
Lawsuits are inevitable over Title IX’s application to schools’ House implementation strategies. Developing Title IX-compliant NIL and House frameworks now are essential for future defense strategies.
New Executive Order Bolsters the Nation’s Cyber Defenses
In a significant move to bolster the United States’ cybersecurity framework, President Biden issued an executive order (EO) on 16 January 2025 titled “Strengthening and Promoting Innovation in the Nation’s Cybersecurity” days before leaving the White House. This comprehensive directive outlines measures designed to enhance the security of federal systems, improve transparency in third-party software supply chains, and leverage emerging technologies to fortify cyber defenses.
Combating Cyber Crime, Fraud, and Ransomware
The EO includes several provisions designed to address the prevalence of cybercrime, including fraud and ransomware attacks, which have been on the rise in recent years. For example, the EO addresses the use of stolen and synthetic identities in defrauding public benefits programs. It also encourages the use of digital identity documents for identity verification, provided these requirements adhere to principles of privacy and interoperability. The EO also promotes the development of “Yes/No” validation services to reduce identity fraud, allowing for privacy-preserving verification methods.
The EO also includes specific measures aimed at countering ransomware attacks. It amends Executive Order 13694 of 1 April 2015 to block property and interests in property of persons engaged in significant malicious cyber-enabled activities, including ransomware attacks. This revision allows for the freezing of assets of individuals and entities involved in such activities, effectively creating a financial deterrent against ransomware payments.
Enhancing Third-Party Software Security and Improving Federal Systems’ Cybersecurity
The EO mandates rigorous security standards for software providers to the federal government. Within 30 days, the Office of Management and Budget, in consultation with the National Institute of Standards and Technology and the Cybersecurity and Infrastructure Security Agency (CISA), will recommend contract language requiring software providers to submit secure software development attestations and artifacts, in addition to the Software Bill of Materials currently required. This aims to ensure that only software adhering to secure development practices is used in federal systems, thereby reducing vulnerabilities.
Federal agencies are required to adopt proven security practices, including advanced identity and access management technologies. The directive emphasizes the importance of phishing-resistant authentication methods such as WebAuthn. Furthermore, CISA is tasked with developing technical capabilities to monitor threats across federal systems, which includes gaining timely access to data from agency endpoint detection and response solutions.
The EO directs the modernization of IT infrastructure and networks supporting federal missions, emphasizing the adoption of zero trust architectures and other advanced cybersecurity practices. It also seeks to establish minimum cybersecurity requirements for businesses, thereby raising the baseline of cybersecurity across various sectors.
This EO represents a comprehensive approach to strengthening the nation’s cybersecurity defenses. By setting stringent requirements for software providers, enhancing federal system security, and leveraging emerging technologies, the administration aims to create a more resilient cyber infrastructure. The provisions to combat ransomware by targeting the financial aspects of cybercrime demonstrate a proactive stance in addressing one of the most pressing cybersecurity threats facing the nation today.
Come Monday, Will It Be Alright? How Companies May Be Impacted by Immigration Priorities Under the New Trump Administration
With the inauguration of President-elect Trump on a cold Monday morning next week, there are several things that companies and their staff may want to keep in mind in preparing for possible Executive Orders and policy changes.
1. Continuity of Business Operations
Trump has vowed to crack down on illegal immigration on Day 1. This includes an aggressive push for mass deportations.
At first glance, companies may think this will not affect business since many companies use E-Verify and do not hire undocumented workers. If that’s the case, then the business may have less to worry about—but do not presume this is a worry-free zone. There are questions to ponder:
Does the company utilize the services of contractors? If so, how are the hiring practices of the contracting company? If that company was raided, could that upset the continuity of your business operations?
When did the company enroll in E-Verify? Employers who use E-Verify must begin using E-Verify for all new hires on the date the company signs the memorandum of understanding. If the company could have undocumented workers that were more easily hired prior to the use of E-Verify, and if those employees were picked up or deported, what would happen to the continuity of business operations?
2. Employee Travel – Tax and Monetary Implications
For companies in existence during the first Trump administration, you may remember that travel bans were quickly imposed by Executive Order. Although this point could also fall under the guide of business continuity, it created another unanticipated issue for companies related to taxation and costs.
One can expect based on what we learned during the first administration, any employee who is outside the U.S. and is not a U.S. citizen or permanent resident (green card holder) at the time any potential travel ban is enacted may not be able to return to the U.S. in short order.
If an employee is stuck outside the U.S., will they be in a jurisdiction where they have work authorization?
If yes, are they going to be outside the U.S. for so long that their working remotely from another country would create tax implications for the company?
If no, is the company going to sponsor that employee for work authorization where they are or cover the cost of the employee to setup shop where they are? Is there any risk in doing so?
If there are exceptions to a travel ban, and your company employs foreign workers, will the company financially support efforts to provide immigration advice to the workers on how to fall under an exception and how to make that argument?
3. Specialty Occupation Workers, Intracompany Transferees, and More
For companies that sponsor foreign nationals in various visa categories such as H-1B, L-1, TN, O-1 or others, the company may need to plan for additional resources to support such employees. Questions to ask may include:
Will the government take longer to make decisions on cases? If government processing times slow down, has the company sought to initiate cases or extensions early enough to ensure the employee and the business are protected? Should cases be initiated earlier?
Will employees who travel be subject to extreme vetting at consular appointments? This question goes to whether companies employ counsel or anyone who will prep employees for their visa interviews and whether additional support is needed in that regard. If someone is denied a visa, this rolls back up to the above point. Can the employee work remotely from a different country? What cost, tax, or other implications are there if they are unable to return to work as planned?
Will companies sponsor employees for green cards as soon as possible? With nervousness about travel bans, possible changes in how things are adjudicated or how quickly they are adjudicated, employees may seek to have the employer start the green card process as quickly as possible. Does the company have a green card policy regarding when they will be initiated? Should that be revised? Is the company prepared to pay the costs related to a possible increased number of green card requests?
The above are just a few of the things that companies may want to consider before Monday.
GAO Rejects Notion of a Pre-FPR “Continuous Registration Requirement” for SAM
The last week saw GAO sustain two protests that should put the nail in the SAM “continuous registration” coffin.
The Federal Acquisition Regulatory (“FAR”) Council recently revised the standard System for Award Management (“SAM”) registration clause (FAR 52.204-7) to make clear there is no “continuous registration requirement”—contractors need to be registered in SAM only at the time they submit their final, legally-binding proposal.
In two recent decisions, GAO has confirmed that the same was (and is) true under the prior version of FAR 52.204-7 as well. That is, if an agency allows an offeror to submit a revised proposal, and the offeror is properly registered in SAM when that final proposal is submitted, it does not matter if there was some SAM registration failure at an earlier stage of the procurement. The offeror is eligible, and it would be unreasonable for an agency to eliminate an offeror or terminate an award based on a pre-FPR SAM flaw.
In UNICA-BPA JV, LLC, B-422580.3, the protester (“UNICA”) had an active SAM registration when it submitted its final revised proposal, but the Agency later eliminated UNICA from the competition based on the fact that UNICA was not registered in SAM at the time of its initial proposal. That was unreasonable, GAO found, because UNICA had in fact met the stated requirement to be registered in SAM “when submitting an offer,” as the FAR defines “offer” as a proposal that can form a binding contract, and that definition applied only to UNICA’s final, legally-binding proposal, which was compliant. GAO thus found the Agency acted unreasonably by eliminating UNICA from the competition and sustained UNICA’s protest.
In Metris LLC, B-422996.2, the Agency proposed to take corrective action to terminate the award to Metris for having a break in its SAM registration between the time of the initial proposal submission and its final proposal submission. GAO found that Metris’s initial proposal was extinguished when Metris submitted – and the Agency accepted – Metris’s final proposal revision. Because Metris was registered in SAM at the time of the final proposal revision, Metris had an active SAM registration when it submitted its offer, in accordance with FAR 52.204-7. GAO thus recommended that the agency abandon its plans to terminate Metris’s contract award, and instead “maintain its existing award to Metris.”
These cases follow the legal reasoning of Hanford Tank Disposition Alliance, LLC v. United States, 173 Fed. Cl. 269, 312-319 (2024), and should deter agencies from eliminating any more offerors over pre-FPR SAM issues.
Nasdaq Board Diversity Rules Struck Down in Court
On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc in Alliance for Fair Board Recruitment v. SEC, held that the approval by the U.S. Securities and Exchange Commission (SEC) of the Nasdaq Board Diversity Rules was arbitrary, capricious, and in contravention of the Securities Exchange Act of 1934, and vacated the approval of those Rules.
It is unclear if the SEC will seek to appeal the decision to the U.S. Supreme Court or if that court will grant the petition for certiorari. However, in a December 12, 2024, statement, Jeff Thomas, Nasdaq’s Global Head of Listings, confirmed that Nasdaq will not seek to appeal the ruling, and companies seeking Nasdaq listing or listed on the Nasdaq stock markets will not need to comply with the Diversity Rules.
The Diversity Rules, proposed as a securities exchange listing requirement in December 2020 and approved by the SEC under Section 19(b)(1) of the Exchange Act, went into effect in August 2021. Subject to certain transition periods and exceptions, it required each Nasdaq-listed company to publicly disclose information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the members of the company’s board of directors. The Exchange also required each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are considered “diverse,” including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+. In connection with the Diversity Rules, Nasdaq provided recruiting assistance for interested public companies to recruit diverse board members.
Low-Cost Meals, High-Cost FLSA Mistakes: Lessons From the DOL’s Fining of a Minnesota Pizza Restaurant for Wage and Hour Failures
In December 2024, the U.S. Department of Labor (DOL) fined a Minneapolis pizza restaurant for numerous wage and hour violations.
Quick Hits
The DOL recently fined a Minneapolis pizza restaurant for multiple wage and hour violations, including failure to pay overtime and improper tip pooling practices.
The DOL found the restaurant in violation of the FLSA for actions such as not combining hours worked at multiple locations, allowing employees to clock in with false identities, and employing a minor outside permitted hours.
The restaurant was penalized for retaliating against an employee who cooperated with DOL investigators, resulting in more than $100,000 in back wages, liquidated damages, and civil money penalties.
Under the Fair Labor Standards Act (FLSA), employees must be paid for all hours they work and must receive overtime of one and one-half times their regular rate of pay for all hours worked in a workweek in excess of forty hours. According to the DOL, the restaurant failed to do that, and further, dismissed an employee who spoke with DOL investigators. Based on those findings, the DOL found the restaurant to be in violation of the FLSA for the following actions:
“Not combining hours employees worked at more than one location, which denied employees overtime wages when they worked more than 40 hours in a workweek.”
“Allowing at least four workers to routinely use other names and identification numbers to clock-in to avoid paying overtime.”
“Paying two employees straight-time rates for overtime hours, instead of time and one-half their regular rate of pay as required.”
“Not maintaining accurate employment records with employee start and stop dates and contact information and allowing individual workers to use others’ names to clock-in.”
“Failing to distribute tips to workers or provide records showing that tips were paid to workers properly.”
“Including managers and shift supervisors in a tip pool for servers and others allowed to receive tips, which [under the FLSA] invalidated the tip pool.”
Allowing a “15-year-old to work outside permitted hours.”
The DOL assessed the restaurant damages and penalties as follows: $44,915 in back wages and an equal amount ($44,915) in liquidated damages, and $15,954 in civil money penalties for child labor and tip-retention violations. As a result, the restaurant will have to pay a total of $105,784 in back wages, damages, and penalties to resolve the violations.
Wage and Hour Considerations
Navigating wage and hour laws, especially in the restaurant industry, is no easy feat. Indeed, the hospitality industry, by its nature, with a high volume of part-time or temporary employees who are eligible for tips, does not make compliance any easier. Nonetheless, employers can better navigate these laws by keeping in mind several points.
First, employers may want to invest in a reliable and easy time recording system, train employees on proper time recording, and have policies in place that prohibit overtime work without proper authorization. While employees themselves may be willing to forgo the rules and work “under the table,” employee consent in this context does not cure a violation, and an employer would still be subject to assessments for noncompliance. Having a proper time recordkeeping system can prevent many wage and hour violations and ensure that employees are properly compensated in accordance with the law.
Second, employees must be paid properly for all hours worked. For example, if an employee works overtime without proper authorization, the employer can address the policy violation as a disciplinary action, but the employer must still comply with the overtime laws.
Third, federal law prohibits managers and supervisors from keeping employees’ tips, whether directly or through a tip pool. In addition, while not an issue in this case, it is important to remember under Minnesota state law, employees who perform direct services to customers must be the direct beneficiaries of any gratuities paid by customers. Thus, mandatory tip pooling—requiring employees to share tips with other employees—“may not be a condition of employment” in Minnesota. While many employers in the hospitality industry, as well as employees, may feel that tip pooling treats employees more fairly, Minnesota law does not permit employers to require employees to do so.
Restaurant operators may want to ensure they have clear policies in place that no one at the restaurant, including management, can require employees to share their tips. Direct service employees may engage in tip pooling voluntarily, but employers may want to proceed with caution, as the “voluntariness” of a policy may be difficult to prove. In addition, Minnesota law provides that gratuities received through cards or electronic payment must be paid in full to employees by the next pay period.
Finally, employees who report wage and hour violations to employers or government agencies, or who participate in wage and hour investigations, are protected from retaliation. Employers may not dismiss or otherwise retaliate against employees who engage in such protected conduct. Employers in Minnesota may want to be especially careful, as the state’s whistleblower statute protects all employees who make good-faith reports of violations of law (including wage and hour), and the statute provides for additional damages for employees.
Key Takeaways
Employers may want to ensure they have a good time-recording system in place and make sure that employees are paid for all hours worked and paid at the overtime rate when appropriate. In addition, the recent matter may serve as a reminder of several points:
Employers would be well served to remain cognizant of laws that limit the hours and duties of employees who are minors.
Hospitality businesses may not allow managers to keep employees’ tips, including participation in tip pools.
Minnesota law prohibits employers from requiring employees to share their tips or contribute to tip pools.
Minnesota law requires that gratuities received through cards or electronic payment be paid in full to employees by the next pay period.
DOJ’s False Claims Act Recoveries Top $2.9 Billion in FY 2024, but Health Care Numbers Dip—What Could FY 2025 Hold for Health Care Enforcement?
On January 15, 2025, the U.S. Department of Justice (DOJ) issued a press release announcing its fiscal year (FY) 2024 False Claims Act (FCA) recoveries and reported that settlements and judgments exceeded $2.9 billion in 2024—up from $2.68 billion in FY 2023.
Recoveries from entities in the health care and life sciences industries continue to represent the lion’s share of the dollars. However, health care recoveries have dropped year over year, and 2024 saw a decrease in the number of cases pursued by the DOJ on its own. What does the future hold as we look forward to a new administration? History might provide some interesting guidance.
Overview of the Statistics
While the 423 FCA cases filed by the DOJ in FY 2024 represented a marked decrease from the 505 FCA cases filed the previous year, FY 2024 saw the highest number of qui tam actions filed in history. FY 2024, coincidentally, ended on the same day (September 30, 2024) that a Florida judge ruled in U.S. ex rel. Zafirov v. Florida Medical Associates that the qui tam provisions of the FCA were unconstitutional.
Qui tam relators, or whistleblowers, filed 979 suits in FY 2024, up from 713 in FY 2023 and eclipsing the prior record of 757 filings set in FY 2013.
Whistleblower and DOJ cases combined resulted in 558 settlements and judgments, on par with 566 last year.
Counting the $2.9 billion recovered in FY 2024, total recoveries under the FCA since the 1986 amendments now exceed $78 billion and have exceeded $2 billion annually for 16 consecutive years.
Health Care Statistics
While several of the health care statistics dipped slightly, recoveries from the health care sector remained steady at $1.68 billion (compared to $1.86 billion in FY 2023) and drove the overall FCA recovery figures.
While the FCA statistics show overall increases in total fraud recoveries and the number of cases filed by whistleblowers in FY 2024, the health care statistics portray a slightly different picture. While more health care cases were filed by relators in FY 2024 than in FY 2023, the number of cases brought by the DOJ, on its own, dropped by more than 10 percent compared to FY 2023. Other health care statistics that dropped in FY 2024 compared to FY 2023 included:
total health care fraud recoveries,
recoveries in cases pursued by the government,
recoveries in cases in which the government intervened, and
recoveries in cases where relators pursued matters on their own.
In DOJ’s press release announcing the FCA recoveries, the agency reaffirmed its commitment to enforcement in the health care sector, highlighting key recoveries in the following areas:
health care entities contributing to the opioid crisis;
providers billing federal health care programs for medically unnecessary services and substandard care;
cases alleging false claims in the Medicare Advantage program;
matters involving unlawful kickbacks and Stark Law violations;
pandemic-related fraud (including cases involving improper payments under the Paycheck Protection Program and alleged fraud affecting Medicare and other federal health care programs for services related to COVID-19 testing and treatment); and
cybersecurity enforcement and holding contractors accountable for compliance with applicable cybersecurity requirements (one example was a case against the Georgia Institute of Technology and Georgia Tech Research Corp., which we covered in an earlier blog post).
What to Expect in FY 2025
As a general matter, the FY 2024 statistics demonstrate that FCA enforcement continued to be a top DOJ priority, particularly within the health care sector.
As we look ahead to the incoming Trump administration, it is noteworthy that the first Trump administration saw almost 370 more health care FCA cases brought by relators than those filed during the Biden administration. The first Trump administration also saw the highest number of health care-related FCA cases brought in a single year by the DOJ. History would suggest a continued focus on health-care related FCA enforcement during President Trump’s second term.
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.