Proposed Legislation Targets Nonprofits Supporting Immigrant Communities
Proposed legislation introduced in the US Senate last week would deny tax-exempt status to certain organizations that support undocumented immigrants. The legislation would change the eligibility requirements for 501(c)(3) tax-exempt status.
Fixing Exemptions for Networks Choosing to Enable Illegal Migration Act
On February 10, US Senator Bill Hagerty (R-TN) introduced S.497, the “Fixing Exemptions for Networks Choosing to Enable Illegal Migration Act” or the “FENCE Act” (Act). The Act would amend Section 501(c)(3) of the Internal Revenue Code to provide that an organization is only described in Section 501(c)(3) if it “does not engage in a pattern or practice of providing financial assistance, benefits, services, or other material support” to individuals the organization “knows or reasonably should know to be unlawfully present in the United States.”
The Act states that the added language “shall not be construed … to require a religious organization to act in violation of its religious belief.” The Act also states that the provision “should not be construed to require proof of citizenship or verification of an individual’s immigration status to be presented.”
If enacted, the Act could affect both new organizations seeking tax-exempt status and existing tax-exempt organizations that serve immigrant populations. New organizations applying for tax-exempt status under Section 501(c)(3) could be required to certify or otherwise establish that they will not provide prohibited support to persons described in the Act. An organization denied exempt status may appeal that decision through an administrative process and may ultimately seek a declaratory judgment in a court proceeding if needed. Existing organizations working with immigrant populations could also be impacted by, for example, an Internal Revenue Service (IRS) audit to evaluate whether an organization continues to operate exclusively for tax-exempt purposes within the meaning of Section 501(c)(3) or is engaged in activities that would be prohibited because of the Act. During an audit of a tax-exempt organization for this purpose, the IRS may examine the organization’s activities and finances to determine whether the organization complies with the criteria for exemption under Section 501(c)(3). Based on the examination, an organization could be asked to adjust its activities to ensure compliance or face an adverse determination as to its tax-exempt status. An organization has the right to appeal an adverse determination resulting from an audit through an administrative process similar to an organization denied tax-exempt status and it may also ultimately litigate the issue in court if needed.
S.497 has been referred to the Senate Finance Committee. It currently has no cosponsors, and there is no companion bill in the US House of Representatives.
Client Alert- Corporate Transparency Act Is Back in Effect – Another Major Update
As has now been well reported, in 2021 Congress enacted the Corporate Transparency Act (the “CTA”), which empowers the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to collect information about “Beneficial Owners” of certain privately held entities for the purpose of deterring illicit activities through the operation of shell corporations and LLCs.
Entities formed on or after Jan. 1, 2024, that are subject to the CTA were to disclose to FinCEN information about their Beneficial Owners within 90 days of formation or any change for entities (Beneficial Ownership Interest Reports or “BOIR”). Entities formed prior to Jan. 1, 2024, were to have until Dec. 31, 2024, to file BOIRs. However, in the latter part of 2024, a series of lawsuits were brought challenging the constitutionality of the CTA; they have served to delay the reporting requirements of the CTA and have created confusion and uncertainty regarding the CTA for more than 30 million entities.
The most recent event occurred on Feb. 17, 2025, when the U.S. District Court for the Eastern District of Texas, Tyler Division issued a decision in Smith, et al. v. U.S. Department of the Treasury, et al., lifting the stay the Court had ordered on Jan. 7, 2025, that prevented FinCEN from enforcing the BOIR requirements on a nationwide basis.
In view of this decision, FinCEN issued guidance on Feb. 18, 2025, stating that the requirement to file BOIRs under the CTA is once again back in effect. For the vast majority of reporting companies, the new deadline to file an initial, updated, and/ or corrected BOIR is now March 21, 2025. FinCEN indicated that it will provide an update before then of any further modification of this deadline, recognizing that reporting companies may need additional time to comply with their reporting obligations once this update is provided.
The following chronology of events leading up to Feb. 18 underscores the confusion surrounding the CTA:
On Dec. 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. Garland, et al., the U.S. District for the Eastern District of Texas, Sherman Division, issued an order prohibiting the federal government from enforcing the CTA anywhere in the country. The Court determined that the CTA was likely unconstitutional, and that its implementation would irreparably harm companies if they were forced to comply.
On Jan. 7, 2025, in the case of Smith case, the U.S. District Court for the Eastern District of Texas, Tyler Division, issued an order enjoining the government from enforcing the CTA against the plaintiffs and staying FinCEN’s regulations relating to the implementation of the CTA’s reporting requirements.
On Jan. 20, 2025, President Trump signed an Executive Order titled “Regulatory Freeze Pending Review,” which provides in part:
“I hereby order all executive departments and agencies to take the following steps:
(1) Do not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.”
The impact of this Order on FinCEN’s ability to issue new filing deadlines is uncertain.
On Jan. 23, 2025, the U.S. Supreme Court stayed (i.e., halted) the injunction issued in the Texas Top Cop Shop decision but did not address the injunction in
On Jan. 24, FinCEN issued the following:
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force… However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
On Feb. 5, 2025, the federal government filed an appeal in the Eastern District of Texas challenging the injunction in Smith based on the Supreme Court’s ruling in Texas Top Cop Shop. FinCEN has indicated that if the remaining nationwide injunction in Smith is stayed, it intends to resume enforcement of the CTA and extend the reporting deadline by at least 30 days from the issuance of the stay.
On Feb. 10, 2025, the House of Representatives unanimously passed R. 736 — 119th Congress (2025-2026), the Protect Small Business from Excessive Paperwork Act of 2025. This bill would require reporting companies formed or registered before Jan. 1, 2024, to submit reports to FinCEN by Jan. 1, 2026, instead of by Jan. 1, 2025.
Prior to the above- mentioned Court decision on Feb. 17, some entities were taking take a “wait and see approach,” taking the risk of having to make a filing quickly. Other entities were more proactive and made a voluntary filing. With the February Court decision and FinCEN’s resulting position, a “wait and see approach” is no longer an option, at least not for now. But uncertainty regarding the ultimate fate of the CTA remains in view if the Executive Order described above and the possibility that the U.S. Supreme Court may rule on its constitutionality.
Stay tuned!
Why We Love Data Quality
Love is in the air this February—but at CLIENTSFirst Consulting, we have a different kind of passion: a love for data quality. While it may not be the most glamorous topic, high-quality data is the unsung hero of every successful CRM, ensuring law firms can make informed decisions, optimize business development, and enhance client relationships.
Yet, as our 2024 CRM Success Survey reveals, law firms are struggling with data quality, and it’s costing them. Let’s explore why data quality matters, what happens when it’s ignored, and how to build a CRM that firms (and their attorneys) can truly love.
Data Quality: The Foundation of CRM Success
The CLIENTSFirst 2024 CRM Success Survey found that 84.71% of law firms have a CRM in place, yet their average satisfaction score is just 5 out of 10. Even more concerning, firms rated their data quality at an abysmal 6 out of 10. If a CRM is only as good as the data inside it, then poor data quality could be the real culprit behind CRM dissatisfaction.
This is a widespread challenge—not just for law firms but across industries. Respected research organizations found that 30% of contact data degrades every year, and that rate is likely even higher in the wake of rapid workforce changes. Without proactive data maintenance, CRM systems become bloated with outdated, incomplete, and duplicate records, making them more of a liability than an asset.
The Hidden Cost of Bad Data
Poor data quality doesn’t just create frustration—it has tangible business consequences. The damage is often hidden, accumulating over time like dust in a neglected attic. At first, it’s just a few outdated contacts, a couple of bounced emails. But as time goes on, the effects snowball, creating inefficiencies, lost opportunities, and wasted resources.
1. Wasted Marketing Efforts
Imagine launching an expensive client event, only to find that half of your email invitations bounce or go to outdated addresses. Your firm has spent weeks planning, securing speakers, and finalizing logistics, but the right people never even receive the invite. Worse, if your marketing database is riddled with duplicates and old contacts, your communications may not be reaching the key decision-makers—leading to missed engagement and low ROI.
2. Attorney Resistance and CRM Fatigue
Lawyers rely on data to build and maintain client relationships, but when the CRM becomes a source of frustration instead of insight, they stop using it. Our survey found that only 29% of attorneys use the CRM consistently, a clear sign that trust in the system is lacking. Why? Because when they search for a client, they often find duplicate records, outdated information, or missing contact details. If they can’t trust the system, they won’t use it—and if they won’t use it, the CRM fails to fulfill its purpose.
3. Lost Revenue and Business Development Opportunities
Consider this: A partner at your firm is preparing for a high-stakes pitch to a potential client. They need to see past interactions, notes from previous meetings, and recent engagements. But when they open the CRM, the data is incomplete, inaccurate, or missing entirely. The meeting goes forward, but without the right context, the conversation lacks the personal touch needed to seal the deal.
In contrast, firms with high-quality data can analyze their contacts, track engagement history, and proactively spot new business opportunities. Clean data isn’t just about hygiene—it’s a revenue-driving strategy.
4. The Cost of Cleanup vs Presentation
The financial burden of reactively fixing bad data is enormous. Studies show that fixing bad data costs 10 times more than preventing it in the first place. Yet many firms still treat data quality as an afterthought, only realizing the scale of the problem when marketing ROI declines, clients stop responding, or attorneys complain that the CRM is unusable.
The reality is that poor data quality is a silent revenue leak—and the firms that get ahead of it will be the ones that thrive.
How to Make Your CRM a Data Quality Success Story
So how do you stop bad data from sabotaging your CRM? At CLIENTSFirst Consulting, we believe that data quality success doesn’t happen by accident—it requires a strategy. Here’s how to transform your CRM from a frustration point into a business powerhouse:
1. Start with a Data Quality Assessment
Would you buy a house without an inspection? Of course not. The same logic applies to your CRM. The first step to fixing data issues is understanding their full scope. We recommend a Data Quality Assessment to analyze your records, identify gaps, and prioritize what needs cleaning. It’s not about tackling every issue at once—it’s about fixing the most critical problems first.
2. Leverage Data Stewards for Continuous Quality
A one-time cleanup is not enough—data degrades constantly. Without ongoing maintenance, bad data creeps back in. A dedicated Data Stewarding team ensures that every record added is verified, updated, and correctly formatted. The firms that invest in long-term data quality management see the biggest improvements in CRM effectiveness.
3. Standardize Data Entry and Governance
One of the biggest drivers of bad data is inconsistency in how records are entered. If one person logs a contact as “J.P. Morgan Chase” and another as “JP Morgan,” searches won’t return complete results. Establishing clear data entry rules and enforcing consistent formatting can eliminate errors before they happen.
4. Align Data Strategy with Attorney Buy-In
Attorneys need to see what’s in it for them—how clean data makes their work easier. Training, dashboards, and easy-to-use interfaces are crucial. Firms that provide role-specific CRM training—showing attorneys how the data helps them win business and strengthen relationships—see higher adoption and greater CRM success.
Why We’re Passionate About Data Quality
A law firm’s CRM is more than just a database—it’s the foundation of client relationships, marketing outreach, and business development. But when data quality is poor, the CRM becomes a liability instead of an asset.
Investing in True Data Quality Success (TrueDQ™) isn’t just a best practice—it’s a competitive advantage. Firms with clean, well-structured data:
✅ Engage clients more effectively✅ Spot new business opportunities faster✅ Enhance marketing performance✅ Ensure attorneys have the insights they need, when they need them
This Valentine’s Day, we invite you to fall in love with data quality—because a CRM that works is a CRM worth loving.
NLRB Acting GC: Student-Athletes Are Not Employees
On February 18, 2025, National Labor Relations Board Acting General Counsel William Cowen rescinded a September 2021 memorandum in which former Board General Counsel Jennifer Abruzzo declared college athletes should be considered employees under the National Labor Relations Act. This was one of many memoranda he rescinded that had been issued by his Biden-administration predecessor.
Acting General Counsel Cowen’s withdrawal of the memorandum is the latest in a series of defeats for pro-employee advocates who had hoped to designate collegiate student-athletes as “employees” under the Act.
The first was the December 2024 withdrawal of an unfair labor practice charge filed by the National College Players Association (NCPA) against the NCAA, the Pac-12 Conference, and a private university in the Los Angeles area. The NCPA’s executive director stated the charge had been withdrawn considering the rise of “name, image, and likeness” (NIL) payments to players, as well as the shift in attitude on the subject under the new Trump Administration.
The second blow to proponents of the concept that student-athletes be deemed “employees” was the January 2025 decision by Service Employees International Union (SEIU), Local 560 to withdraw its petition to represent an Ivy League university’s men’s basketball players. In February 2024, a Regional Director for the Board took the historic step of determining that the university’s men’s basketball players should be considered employees under the Act. The case was filed in September 2023 after all 15 members of the men’s basketball team signed a petition to join Local 560 of the SEIU. At the time, the Regional Director determined the university’s level of control over the players was sufficient to qualify the players as employees under Section 2(3) of the Act. The Board found that traditional “team” activities, including the university’s ability to control the players’ academic schedules and the team’s regimented schedules for home and away games, weighed heavily in favor of an employment relationship. With the petition withdrawn for now, the university’s basketball players will remain non-unionized.
Given these developments, the window for student-athletes being deemed employees under the Act appears to be closed for the time being. With the uncertainty surrounding NIL and other issues around collegiate athletics, this area of law will need to be monitored for additional developments. In the interim, private collegiate institutions should be aware that they may face charges or petitions filed with the Board. Such filings must be treated seriously in light of the Regional Director decision discussed above.
Jackson Lewis’ Education and Collegiate Sports Group is available to assist universities, conferences, and other stakeholders in dealing with matters before the Board or otherwise involving the appropriate classification of student-athletes.
Navigating the H-1B Cap Registration Season: Key Dates and Fee Changes for 2025
As we approach the H-1B cap season for fiscal year 2026, it is crucial for employers and prospective H-1B candidates to stay informed about the registration process, important deadlines, and recent changes.
Key Dates for H-1B Cap Registration
Registration Period: The registration period begins on March 7, 2025, at noon EST, and will close at noon EST on March 24, 2025. During this time, employers must submit the necessary information about their prospective H-1B employees through the USCIS online registration system and pay the required fees.
Lottery Selection: Assuming USCIS receives more registrations than the allotted number of visas available (which happens nearly every year), the agency will conduct a lottery selection. By March 31, 2025, USCIS will notify employers which of their registrants were selected, if any.
Petition Filing: Employers whose registrations are selected will be given a 90-day window to file H-1B petitions starting April 1, 2025. Approved petitions will be effective on October 1, 2025.
Supplemental Lottery Selection: USCIS may conduct supplemental lotteries if the initial round does not meet the annual cap due to withdrawals, rejections, or failure to timely file H-1B petitions. They generally announce the supplemental lottery in late July or early August, with the possibility of additional lotteries if needed. Any registrants who were not selected are automatically considered in the supplemental lottery.
Increased Registration Fee
One of the most significant changes for the upcoming H-1B cap season is the increase in the registration fee. Previously set at $10, the fee has been raised to $215 per registration. This fee is non-refundable, regardless of selection result. Employers should ensure they account for this change when budgeting for the H-1B registration process.
Preparation Tips
Early Planning: Begin gathering the necessary documents and information well before the registration period opens. This includes verifying the eligibility of potential H-1B candidates and ensuring compliance with all legal requirements.
Stay Updated: Keep an eye on USCIS announcements for any changes or updates to the registration process or timeline. This will ensure you are well-prepared to meet all deadlines.
Consider Alternatives: If a registration is not selected in the lottery, explore other visa options, or consider reapplying in the next cap season.
Navigating the H-1B cap registration process can be complex, but staying informed about the important dates and changes can help streamline the experience. By preparing early and understanding the process, employers and candidates can maximize their chances of securing an H-1B visa for the upcoming fiscal year.
Texas AG Investigates DeepSeek + List of Banned Countries Expands
Texas Attorney General Ken Paxton announced on February 14, 2024, that his office has opened an investigation into DeepSeek’s privacy practices. DeepSeek, an artificial intelligence company with ties to the People’s Republic of China, has been banned on state owned devices in Texas, New York, and Virginia. The Pentagon, NASA, and the U.S. Navy have also prohibited employees from using DeepSeek.
According to Paxton’s press release, he has notified DeepSeek “that its platform violates the Texas Data Privacy and Security Act.” He sent civil investigative demands to tech companies to obtain information about their analysis of the application and any documentation DeepSeek forwarded to the tech companies before they were offered to consumers.
DeepSeek has been banned in Italy, South Korea, Australia, Taiwan, and India.
Trump Administration Outlines Plans for a ‘Golden Era’ of American Energy
The Trump Administration is beginning to roll out its policy plans to “dominate” the global energy space. These plans tackle energy transition issues in a dramatically different manner than did the Biden Administration, particularly by leaning into fostering the development of resources, including fossil fuels, nuclear, and hydroelectric power that provide reliable “baseload” supply. This comes as no surprise given President Trump’s promise to “drill, baby, drill” at the inauguration.
We previously reported on the Trump Administration’s early plans for energy policy, and in the weeks since those plans are coming into sharper focus. Key policy blueprints include the following:
A memorandum released by US Department of Energy (DOE) Secretary Chris Wright on February 5 classified as a plan for “Unleashing the Golden Era of American Energy Dominance” and framing out DOE’s initial slate of actions.
An executive order issued on February 14 establishing the “National Energy Dominance Council” to advise the president on ways to increase domestic energy production and take full advantage of the nation’s “amazing national assets” including oil, natural gas, biofuels, uranium and critical minerals, geothermal heat, and the “kinetic energy of moving water. The council is tasked with preparing a detailed report on the state of “energy dominance” to be prepared within 100 days.
The council will be made up of at least 17 cabinet members and other federal officials, and the US Secretary of the Interior will serve as the Council Chair. The executive order stresses the importance of energy dominance on national security, and the Energy Dominance Council chair will be given a seat on the National Security Council.
We break down the policy framework, which dovetails with the USEP Environmental Protection Agency’s priorities (summarized here), and accompanying context for the Trump Administration’s energy-related plans below. Highlights include:
Renewing focus on fossil fuels like oil and natural gas in place of wind and solar.
Prioritizing lowering the cost of energy to consumers instead of emissions reductions.
Promoting nuclear technology.
Preparing for increased energy demand.
Streamlining government oversight.
Renewed Focus on Oil and Natural Gas
In a stark contrast from the Biden Administration’s focus on wind and solar, the Golden Era plan focuses heavily on fossil fuels by calling to refill the Strategic Petroleum Reserve and ending the Biden Administration’s pause on natural gas exports to countries without free trade agreements. DOE announced its first natural gas export permit approval on February 14.
The 100-day Energy Dominance report will also include specific recommendations for approving natural gas pipelines in New England, California, Alaska, and other areas “underserved by American natural gas.” Separately, President Trump has promised to revive the Constitution Pipeline, intended to transport natural gas from Pennsylvania to New York, which has been stalled since 2020.
In terms of advancing renewable energy, the Golden Era plan mentions only the potential for research and development funding for geothermal and hydropower.
Pivoting From Emissions Reduction to Cost Reduction
Citing the need to reduce inflation and compete with the global economy, DOE plans to roll back Biden Administration efforts to combat climate change in favor of policies that reduce costs for industry and consumers.
Touting the ease at which America’s fossil fuel reserves can be deployed for use, DOE seeks to prioritize the development of these resources instead of Biden Administration priorities such as wind and solar. To this end, DOE’s Golden Era plan announces an end to “net-zero” policies, stating such policies result in higher energy costs and reduced energy reliability without meaningfully reducing global emissions. Additionally, DOE announced it will postpone appliance efficiency mandates and will conduct a comprehensive review of efficiency standards using consumer choice and affordability as a “guiding light.” The postponement echoes arguments made by conservatives in challenges to Biden Administration energy efficiency standards. (For more, see here.)
In addition, the Energy Dominance report will include advice on “identifying and ending practices that raise the cost of energy” as well as ways to encourage private sector and state and local government investments in energy production and infrastructure.
Promoting Nuclear Technology
DOE’s Golden Era plan also includes efforts to launch the “long-awaited American nuclear renaissance” with the goal of leading the world in the “commercialization of affordable and abundant nuclear energy.” Without many specifics, the plan announces that DOE will work to fund nuclear research and development and enable the “rapid deployment and export of next-generation nuclear technology.” The plan further acknowledges the need to modernize nuclear weapons systems and pursue nuclear nonproliferation agreements.
The “Energy Dominance” report will also include recommendations on actions federal agencies can take to facilitate bringing small modular nuclear reactors online.
Preparing for Increased Electricity Demands
The Trump Administration desires to make the United States “the Artificial Intelligence Capital of the World.” (For more, see here and here.)
Artificial intelligence (AI) technology requires significant electricity. While abandoning its predecessor’s focus on “electrification” to reduce emissions, the Trump Administration seeks to ensure electricity production necessary for new technology. The Golden Era plan calls for research and development investments into “true technological breakthroughs” including high-performance computing, quantum computing, and AI. The plan further calls for improvements and expansion of the electrical grid, including a “renewed focus to growing baseload and dispatchable generation.”
Citing the goal of leading the world in AI, the Energy Dominance report will include recommendations on “rapidly and significantly increasing electricity capacity.”
Limiting Government Oversight
Finally, in keeping with the Trump Administration’s overarching theme of government efficiency, the “Golden Era” plan promises to streamline the “burdensome federal permitting process,” with specific focus on expediting the approval and construction of energy infrastructure. As part of this process, the Trump Administration is expected to roll back enforcement of the National Environmental Policy Act (NEPA) with the announcement of an interim rule called “Removal of National Environmental Policy Act Implementing Regulations.” Of late, NEPA-related decisions, including the regulations underlying NEPA regulations, have been under increased scrutiny with cases pending before both the US Supreme Court and the DC Circuit Court of Appeals. (See discussion here.)
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Joint Cybersecurity Advisory Released on Ghost (Cring) Ransomware
The Cybersecurity & Infrastructure Security Agency, the Federal Bureau of Investigation, and the Multi-State Information Sharing and Analysis Center released an advisory on February 19, 2025, providing information on Ghost ransomware activity.
According to the advisory, “Ghost actors conduct these widespread attacks targeting and compromising organizations with outdated versions of software and firmware on their internet facing services.” They use publicly available code to exploit Common Vulnerability Exposures (CVE) that have not been patched. The CVEs used by Ghost include CVE-2018-13379, CVE-2010-2861, CVE-2009-3960, CVE-2021-34473, CVE-2021-34523, CVE-2021-31207.
The advisory urges organizations to:
Maintain regular system backups stored separately from the source systems, which cannot be altered or encrypted by potentially compromised network devices [CPG 2.R].
Patch known vulnerabilities by applying timely security updates to operating systems, software, and firmware within a risk-informed timeframe [CPG 2.F].
Segment networks to restrict lateral movement from initial infected devices and other devices in the same organization [CPG 2.F].
Require Phishing-Resistant MFA for access to all privileged accounts and email services accounts.
The advisory details how Ghost (Cring) is gaining initial access, executing applications, escalating privileges, obtaining credentials, evading defenses, moving laterally, and exfiltrating data. It also provides indicators of compromise and email addresses used by the threat actors.
Patching continues to be a crucial block-and-tackle technique, and timely patching is critical for mitigating exploitation. Blocking known malicious emails is a proven tactic to mitigate access. Review the advisory to ensure the applicable patches have been applied and the malicious emails associated with Ghost have been blocked.
Is Your Business Trapped? The Rise of “Trap and Trace” Litigation
Almost every business has a website; every website should have a privacy policy, terms of use, and, in some cases, a consumer privacy rights notice—if certain state consumer privacy rights laws apply to your business, such as the California Consumer Privacy Act as amended by the California Privacy Rights Act (collectively CCPA). What about a cookie policy? Or a cookie consent banner? Or a cookie preferences pop-up? If you haven’t looked at what types of ad tech your website uses—i.e., cookies, pixel tags, device IDs, and browser fingerprinting technologies that collect data about user behavior across multiple devices and platforms, which are essential for targeted advertising online—now is the time.
“Trap and trace” litigation and private demands for damages related to online tracking have risen significantly. “Trap and trace” litigation is related to the ad tech used on websites involving online trackers that plaintiffs’ attorneys liken to “pen registers” under state wiretap laws. These technologies allegedly collect website users’ device information and activities without their consent, which plaintiffs’ attorneys argue constitutes unauthorized interception of electronic communications under various wiretap laws. Here are some key considerations to assess your company’s website and ad tech:
Unauthorized Interception: the use of third-party trackers in ad tech is being construed as an intentional interception of electronic communications, similar to how pen registers and trap and trace devices operate by capturing dialing, routing, addressing, or signaling information.
Unauthorized Interception: the use of third-party trackers in ad tech is being construed as an intentional interception of electronic communications, similar to how pen registers and trap and trace devices operate by capturing dialing, routing, addressing, or signaling information.
Legal Risks: the use of such technologies without clear consent or transparency can lead to legal and reputational risks for your business, not to mention demands from plaintiffs’ attorneys seeking quick settlement in this unsettled area of the law, as well as class actions seeking millions of dollars in damages.
State Wiretap Laws: state wiretap laws, such as California’s Invasion of Privacy Act and Massachusetts’s Wiretap Act , have been adapted to address online tracking methods. These laws prohibit unauthorized interception of electronic communications, and plaintiffs’ attorneys are alleging that using online trackers could potentially violate these laws.
Privacy Rights: the use of certain ad tech may also constitute a privacy rights violation under state consumer privacy rights laws, like the CCPA.
Impossibility of Obtaining Prior Consent: the way most ad tech is set up to function means that website users’ data and activity are tracked instantaneously upon visiting the website, which prevents the business from obtaining prior consent (i.e., acceptance of website cookies) before the tracking begins. Knowing how to program your website’s ad tech properly is vital in steering clear of these claims and lawsuits.
Overall, the intersection of ad tech and “trap and trace” demands and litigation highlights the importance of understanding and complying with privacy laws and obtaining explicit consent from website users when collecting and using their data. Now is the time to evaluate your website, privacy policy, terms of use, and consumer privacy rights notices to confirm compliance with the ever-changing landscape of state and federal laws, while also finding balance between meeting your marketing team’s needs and your website users’ experience. Take action to avoid this trap.
DOJ Gun-Jumping Complaint Highlights Importance of Careful Preparation of Interim Operating Covenants to Avoid HSR Act Violations
A recent civil complaint from the U.S. Department of Justice (DOJ) highlights the importance of carefully planning interim operating covenants in M&A deals and structuring the process to prevent buyers from gaining control of targets too soon—before the mandatory waiting period under the Hart-Scott-Rodino Act (HSR Act) is up. This is commonly referred to as “gun-jumping.”
On January 7, 2025, the DOJ filed a complaint for civil penalties and equitable relief for violations of the HSR Act against Verdun Oil Company II LLC (Verdun), XCL Resources Holdings, LLC (XCL), and EP Energy LLC (EP Energy) for gun-jumping in Verdun’s and XCL’s $1.4 billion acquisition of EP Energy, a crude oil production company operating in Utah and Texas. The DOJ alleges that between the execution of the transaction’s purchase agreement in July 2021 and October 2021, when the purchase agreement was amended to restore EP Energy’s operational independence, EP Energy allowed Verdun and XCL, Verdun’s sister company, (i) to exert premature operational and decision-making control over significant aspects of EP Energy’s day-to-day business, (ii) to assume financial risks within EP Energy’s business, (iii) to obtain competitively sensitive information, (iv) to engage directly with customers and vendors in contract negotiations, and (v) to coordinate anti-competitive pricing and supply chain disruptions, all prior to the expiration of the waiting period obligations under the HSR Act.
Even though EP Energy, Verdun, and XCL filed the required pre-merger HSR filings with the Federal Trade Commission and the DOJ, the complaint alleges that the purchase agreement granted the buyers too much control during the waiting period because of consent rights that placed key aspects of EP Energy’s business under their control. The purchase agreement also allegedly required buyers’ express approval to conduct development operations, which prevented EP Energy from continuing its oil well-development activities and production plans, and to hire field-level employees and contractors necessary for drilling and production in its ordinary-course operations. The purchase agreement also allegedly made the buyers responsible for any financial risk and liabilities tied to the restrictions, further suggesting they were gaining effective control over the company.
In addition, XCL and Verdun allegedly took an active “boots on the ground” approach to taking over EP Energy’s operations prior to the closing of the transaction and the expiration of the HSR waiting period, allegedly coordinating with EP Energy on customer contracts, relationships, and deliveries, in addition to coordinating on pricing terms offered to customers. In assuming the operational control of EP Energy, the buyers were allegedly granted access to confidential and competitively sensitive information to include details on customer contracts, pricing, production volumes, and vendor contracts.
As a result of these allegations, XCL, Verdun, and EP Energy are facing civil fines in excess of $5.6 million.
When structuring a deal, it’s important to account for the HSR clearance timeline and closely monitor the activities between the buyer and the target. All parties involved need to know what’s okay to do before the deal closes, especially when it comes to making decisions and taking control of operations. For example, deal teams should avoid having buyers negotiate on behalf of the target with customers or vendors, and be very careful with handling sensitive competitive information to prevent anti-competitive concerns. That info should be shared carefully, using “clean team” safeguards or data rooms to keep it under control.
While these tips are general best practices for any transaction, deal teams should address and tailor HSR, anti-competition, and purchase agreement interim operating covenant considerations on a deal-by-deal and client-by-client basis.
Resources:
U.S. Department of Justice, Press Release, Oil Companies to Pay Record Civil Penalty for Violating Antitrust Pre-Transaction Notification Requirements (Jan. 7, 2025), https://www.justice.gov/archives/opa/pr/oil-companies-pay-record-civil-penalty-violating-antitrust-pre-transaction-notification.
United States v. XCL Resources Holdings, LLC, No. 25-cv-00041 (D.D.C. Jan. 7, 2025).
Corporate Transparency Act Back in Effect and Extended Deadline
On February 18, 2025, the U.S. District Court for the Eastern District of Texas lifted the nationwide injunction it had previously issued against the enforcement of the Corporate Transparency Act (CTA).1 As a result, the CTA reporting requirements are effective again.
In response, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) has extended the deadline for most reporting companies by 30 days, moving the new deadline to March 21, 2025. Reporting companies that were granted later deadlines—such as those with disaster relief extensions to April 2025—should continue to follow their original deadlines. Unlike prior deadlines, there is no distinction between companies formed before or after January 1, 2024 in terms of the deadline.
During this 30-day period, FinCEN will assess the possibility of further deadline changes and focus on prioritizing reporting from entities that pose higher national security risks. Additionally, FinCEN plans to revise the BOI reporting rule later this year to reduce the administrative burden on lower-risk businesses, including many small U.S. businesses.
However, it is unclear whether any changes will occur before the March 21, 2025 deadline.
What This Means for Your Reporting Company:
The CTA reporting requirements are back in effect.
If you do not have significant business or privacy concerns, you should submit your filings now.
If you have concerns, prepare your materials to file closer to the deadline if no updated guidelines or deadlines are issued.
New deadline for companies: March 21, 2025 (unless your reporting company has a later deadline).2
1 Background on Court Cases:
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al. On January 23, 2025, the Supreme Court ordered that the injunction be lifted.
On January 7, 2025, the same U.S. District Court issued another nationwide injunction in Smith v. U.S. Department of the Treasury. On February 18, 2025, the court lifted its injunction. With no more nationwide injunctions in place, the CTA came back into effect. The Department of Justice has filed an appeal, and the injunction will remain lifted until the appeal is completed.
2 The CTA is still not being enforced against the plaintiffs in National Small Business United v. Yellen.
Clarifying the Copyrightability of AI-Assisted Works
The U.S. Copyright Office’s long-awaited second report assessing the issues raised by artificial intelligence (AI) makes clear that purely AI generated works cannot be copyrighted, and the copyrightability of AI-assisted works depends on the level of human creative authorship integrated into the work.
With the rise of mainstream generative AI platforms, clarity has been sought by creators, artists, producers, and technology companies concerning whether works created with AI may be entitled to copyright protection. In its most recent report, the Copyright Office concludes that existing copyright legislation and principles are well-suited for the issue of AI outputs’ copyrightability and suggests that AI may be used in the creation of copyrighted works as long as there is the requisite level of human creative expression. The Copyright Office’s report also makes clear that copyright protection will not extend to purely computer-generated works. Instead, copyrightability must be assessed on a case-by-case basis analyzing whether a work has the necessary human creative expression and originality to be copyrightable. Such intensive analysis equips existing U.S. copyright law to adapt to works made with emerging technologies.
In the process of crafting the report, the Copyright Office considered input from over 10,000 stakeholders seeking clarity on the protection of works for licensing and infringement purposes. This report does not address issues relating to fair use in training AI systems or copyright liability associated with the use of AI systems; these topics are expected to be covered in separate publications.
Report on Copyrightability of AI Outputs
The Copyright Office’s report examines the threshold question of copyrightability, or whether a work can be protected and endowed with rights that are enforceable against subsequent copiers, which raises important policy questions on the incentives of copyright law and the history of emerging technologies. Overall, the Copyright Office makes clear that tangential use of AI technology will not disqualify any subsequent work of authorship from protection, but rather the level of protection hinges on the nature and extent of the human expression added to the work.
I. Scope of the Report
The Copyright Office sought to clarify several overarching questions on the copyrightability of AI outputs, including:
Whether the Copyright Clause of the Constitution protects AI-generated works.
Whether AI can be the author of a copyright.
If additional protection for AI generations is recommended, and if so what additions.
If revisions to the human authorship standard are necessary.
II. The Copyrightability Standard and Current AI Technology
Human Authorship –There is a low level of human creativity or “authorship” needed to create copyright protection in a work, and the Copyright Office believes existing legal frameworks are relevant to the assessment of AI-generated outputs. Specifically, the Copyright Office believes that determining whether the authorship standard for copyrightability has been met depends on the level of human expressive intervention in the work.
For example, a photographer’s arrangement, lighting, timing, and post-production editing are all indications of the human expression required for copyright protection, even though, technologically, the camera “assists” to capture the photo.[1] On the other hand, photos taken by animals do not create authorship in the animal because of their non-human status.[2] Similarly, “divine messages” from alleged spirits do not contain the requisite human creativity to amount to authorship.[3] In the context of AI, like a photographer using a camera, the use of new technology does not default to a lack of authorship, but like a monkey taking a picture, non-human machines cannot be authors and therefore the expressions created solely by AI platforms cannot be copyrighted.
Assistive AI – The report further comments on the incorporation of AI into creative tasks, like aging actors on film, adding or removing objects to a scene, or finding errors in software code, and concludes that protection of works using such technology would depend on how the system is being used by a human author and whether a human’s expression is captured by the resulting work.
Protection of Prompts – The Copyright Office concludes that prompts alone do not form a basis for claiming copyright protection in AI-generated outputs (no matter how complex they may seem), unless the prompt itself involves a copyrightable work. At its core, copyright law does not protect ideas because copyright seeks to promote the free flow of ideas and thought. Rather, copyright law protects unique human expressions of the underlying ideas which are fixed in some tangible medium. The Copyright Office explains that prompts do not provide sufficient human control to make AI-users authors. Instead, prompts function as instructions that reflect a user’s conception of the idea but do not control the expression of that idea. Primarily, gaps between prompts and resulting outputs demonstrate that lack of control a user has in the expression of those ideas.
Expressive Inputs – The Copyright Office uses two examples in its report to illustrate this point. The first prompt, detailing the subject matter and composition of a cat smoking a pipe, was considered uncopyrightable because the AI system fills in the gaps of a user’s prompt. Here, the prompt does not specify the breed or coloring of the cat, its size, the pose, or what clothes it should be wearing underneath the robe. Without these particular instructions in the user’s prompts, the AI system still generated an image based on its own internal algorithm to fill in the gaps, thus stripping away expressive control from the user.
In contrast, the second prompt, asking the AI system to generate a photorealistic graphic of a human-drawn sketch, was considered copyrightable because the original elements of the sketch were retained in the AI-generated output. In assessing copyrightability, the Copyright Office pointed to the copyright in the original elements of the sketch as evidence of authorship, and any output depicting identifiable elements of the sketch (directed by the human author) was viewed by the Office as a derivative work of the sketch’s copyright. The artist’s protection in the AI output would overlap with the protectable elements in the original sketch, and like other derivative rights, the AI output would require a license to the original sketch.
In sum, where a human inputs their own copyrightable work into an AI system, they will be the author of that portion of the work still perceptible in the output; the individual elements must be identifiable and traceable to the initial human expression.
The Copyright Office views the current use of prompts as largely containing unprotectable (or public domain) ideas but notes that extensive human expression could potentially make prompts protectable, just not with currently available technology. Additionally, the Copyright Office notes that current technology is unpredictable and inconsistent, often producing vastly different outputs from the same prompts, which in its view shows that prompts lack the requisite clear direction of expression to rise to the level of human authorship.
Arrangement and Modification of AI Works –The Copyright Office also concludes that human authorship can be shown by the additions to, or arrangement of, AI outputs, including the use of AI adaptive tools. For example, a comic book “illustrated” with AI but with added original text by a human author was granted protection in the arrangement and expression of the images in addition to any copyrightable text because the work is the product of creative human choices. The same reasoning applies to AI generated editing tools which allow users to select and regenerate regions of an image with a modified prompt. Unlike prompts, the use of these tools enables users to control the expression of specific creative elements, but the Copyright Office clarifies that assessing the copyrightability of these modifications depends on a case-by-case determination.
III. International AI Copyright Decisions
In its review of international responses to AI copyright questions, the U.S. Copyright Office notes the general consensus of applying existing human authorship requirements to determine copyrightability of AI works.
Instructions from Japan’s Cultural Counsel underline the case-by-case basis necessary for assessing copyrightability and noted examples of human AI input that may rise to a copyrightable level. These include the number and type of prompts given, the number of attempts to generate the ideal work, selection by the user, and any later changes to the work.
A court in China found that over 150 prompts, along with retouches and modifications to the AI’s output, resulted in sufficient human expression to gain copyright protection.
In the European Union, most member states agree that current copyright policy is equipped to cover the use of AI, and similar to the U.S., most member states require significant human input into the creative process to qualify for copyright protection.
Canada and Australia have both expressed a lack of clarity on the issue of AI, but neither has taken steps to change legislation.
Unlike other countries, some commonwealth jurisdictions like the United Kingdom, India, New Zealand, and Hong Kong enacted laws before modern generative AI allowing for copyright protection for works created entirely by computers. With recent developments in technology, the United Kingdom has considered changing this law, but other countries have yet to clarify whether their existing laws would apply to AI-generated works.
IV. Policy Implications for Additional Protection
Incentives – One of the key components of copyright policy, as written in the U.S. Constitution, is to “promote science and the useful arts.” Comments to the Copyright Office varied on whether providing protection for AI-generated work would incentivize authorship; proponents of increasing copyright protection argued that it would promote emerging technologies, while opponents note the quick expansion of these technologies shows incentivization is not necessary. The Copyright Office finds the current legal framework as sufficiently balanced, stating that additional laws are not needed to incentivize AI creation because the existing threshold requirement of human creativity already protects and incentivizes the works of human authorship that copyright law seeks to promote.
Staying Internationally Competitive – Commentators noted that without underlying copyright protection, U.S. creators would be impacted by weaker protection for AI-generated works. The Copyright Office counters that similar protections are available worldwide and align with the U.S.’s standards of human authorship.
Clarity on AI-Generated Protection – Commentators petitioned Copyright Office officials for some legal certainty that works created with AI could be licensed to other parties and be registered with the Copyright Office. The Copyright Office’s report provides assurance that works made with assistance from AI platforms may be registered under existing copyright laws and notes the difficulty of any further clarity due to the case-by case nature of copyright analysis.
Conclusion and Considerations[4]
The foundations of U.S. copyright law have been applied consistently to emerging technologies, and the Copyright Office believes those doctrines will apply equally well to AI technologies. With the Copyright Office’s affirmation that purely AI-generated works cannot be copyrighted, and that AI-assisted works must involve meaningful human authorship, businesses leveraging AI systems must consider several key legal and strategic factors:
Maintain detailed records of human prompts and modifications, such as arranging, adapting, or refining AI outputs.
Focus on enhancing human-made, copyrightable works with AI systems rather than generating works solely through uncopyrightable prompts.
For companies commissioning AI-assisted work, specify in contracts that employees or contractors provide sufficient human control, arrangement, or modification of AI works to ensure copyrightability.
For companies offering AI-assisted work as part of their services, consider mitigating risks by excluding AI generated works from standard IP representations/warranties, and further disclaiming any liability in relation to the use of such works.
Consider variations in international AI copyright laws to assess the impact on global IP strategies.
Given the unique analysis copyright cases require, and the existing precedent requiring human input for protection, copyright law is well prepared to face the challenges posed by AI platforms. Due to the unique facts of each case, creators are encouraged to check with an experienced copyright attorney who can help evaluate whether an individual AI-assisted work includes enough human intervention to be protectable.
[1] Burrow-Giles Litho. Co. v. Sarony, 111 U.S. 53, 55–57 (1884).
[2] Naruto v. Slater, No. 15-cv-04324, 2016 U.S. Dist. LEXIS 11041, at *10 (N.D. Cal. Jan. 28, 2016) (finding animals are not “authors” within the meaning of the Copyright Act).
[3] Urantia Found. v. Kristen Maaherra, 114 F.3d 955, 957–59 (9th Cir. 1997) (holding that copyright law does not intend to protect divine beings, and protects the arrangement of otherworldly messages, but not the messages’ content).
[4] As noted above, the Copyright Office’s report does not address issues relating to fair use in training AI systems or copyright liability associated with the use of AI systems; these topics are expected to be covered in a separate publication.