DEA Tightens Buprenorphine Telemedicine Prescribing Rules
The Drug Enforcement Administration (DEA) and the U.S. Department of Health & Human Services (HHS) just finalized their March 2023 proposed rule regarding telemedicine prescribing of buprenorphine. The final rule, effective February 17, 2025, allows DEA‑registered practitioners to prescribe Schedule III-V controlled substances, i.e., buprenorphine, to treat opioid use disorder (OUD) through audio-video visits and through audio-only visits in specific circumstances after certain requirements are met. Although these practices are currently allowed under the COVID-era telemedicine prescribing flexibilities through the end of the 2025, the final rule introduces additional requirements for these prescriptions.
Requirements of the Final Rule
PDMP Check
Before prescribing a Schedule III-V controlled substance approved by the U.S. Food & Drug Administration (FDA) to treat OUD via telemedicine (currently limited to buprenorphine), DEA-registered practitioners must review the prescription drug monitoring program (PDMP) database of the state in which the patient is located at the time of the encounter.
Scope of Review: Practitioners must check PDMP data for any controlled substances issued to the patient within the past year. If less than a year of data is available, practitioners must review the entire available period.
Initial Prescription:
After reviewing the PDMP data and documenting the review, practitioners may issue an initial six-month supply of buprenorphine, which may be divided across several prescriptions, totaling six calendar months.
If the PDMP data is not available but the attempt to access it is documented, practitioners may prescribe only a seven-day supply of buprenorphine. Practitioners must continue to check the PDMP database to issue subsequent prescriptions. If, after checking, the PDMP remains unavailable and access attempts are documented, practitioners may prescribe subsequent seven-day supplies, up to the six-month limit.
Follow-Up Prescriptions
After the initial six-month supply, practitioners may issue additional prescriptions if they either:
Conduct an in-person medical exam; or
Meet one of the seven narrow exceptions under the Ryan Haight Act (discussed below) for telemedicine practitioners.
Once an in-person medical exam has been conducted, the practitioner and patient are no longer considered to be engaged in the practice of telemedicine, and the obligations outlined in the final rule will no longer apply.
Pharmacist Verification
Before dispensing these prescriptions, pharmacists must verify the identity of the patient using one of the following:
A state government-issued ID;
A federal government-issued ID; or
Other acceptable documentation, such as a paycheck, bank or credit card statement, utility bill, tax bill, or voter registration card.
A Brief History
The rules stem from the Ryan Haight Act, which amended the Controlled Substances Act to restrict practitioners from prescribing controlled substances unless the practitioner conducts an in-person examination of the patient. The Ryan Haight Act (at 21 U.S.C. § 802(54)) outlines seven exceptions under which practitioners may prescribe controlled substances via telemedicine without an in-person exam. The fifth exception involves practitioners who have obtained the long-awaited special registration. (Stay tuned for our discussion on the DEA’s proposed rule establishing a special registration.) The seventh exception involves other circumstances specified by regulation.
During the COVID-19 Public Health Emergency (PHE), the DEA issued letters on March 25, 2020, and March 31, 2020, granting temporary exceptions to the Ryan Haight Act and its implementing rules that enabled DEA-registered practitioners to prescribe controlled substances without an in-person exam and with a DEA registration in only one state. These telemedicine flexibilities enabled practitioners to prescribe Schedule II-V controlled substances through audio-video visits and audio-only visits. Audio-only visits are permitted if the practitioner has the capability to use audio-video, but the patient is either unable to use video or does not consent to it.
In March 2023, in anticipation of the PHE ending, the DEA issued a proposed rule regarding the expansion of telemedicine prescribing of buprenorphine, which received significant criticism from stakeholders. In response, the DEA quickly rescinded the proposed rule and extended the COVID-era flexibilities in May 2023. The flexibilities were subsequently extended in October 2023 and November 2024 and are now set to expire on December 31, 2025. (For more details, see our previous discussions on the DEA’s proposed rules for telemedicine prescribing of controlled substances and the first, second, and third temporary rules extending COVID-era flexibilities.) Now, in an effort to not lose ground on the expansion of telemedicine prescribing of buprenorphine, especially if the telemedicine flexibilities expire with the incoming Trump administration, the DEA and HHS have revised and finalized their proposed buprenorphine rule.
Comparing the Proposed and Final Rules
The final rule introduces several changes to the proposed rule, some of which are described below:
Supply Limitation: The initial 30-day prescription supply limitation via audio-only was increased to a six-month supply.
In-Person Medical Evaluation: The requirement to have an in-person medical evaluation, with three options for conducting it, to prescribe more than the initial supply of buprenorphine was removed.
Recordkeeping: The detailed recordkeeping requirements for each prescription a practitioner issues through a telemedicine encounter, such as whether the encounter was conducted via audio-video or audio-only, were removed.
PDMP Review: Although reviewing the PDMP database of the state in which the patient is located at the time of the encounter is still required, the specifications and recordkeeping requirements for the review were changed.
The DEA and HHS state that these changes are likely to address and alleviate many of the concerns raised by commentors, acknowledging that some of the previously proposed requirements would have placed undue burdens on both patients and practitioners.
Conclusion
We anticipate that many stakeholders will be dissatisfied with the final rule, particularly with the six-month duration for an initial supply, which may still be too short, and the nationwide PDMP check requirement, which is overly burdensome given the absence of a nationwide PDMP database — a burden the DEA continues to underestimate.
If the COVID-era telemedicine prescribing flexibilities expire without further extension, the final rule offers protection for prescribing buprenorphine to treat OUD. However, that protection is contingent on establishing a legitimate special registration process, which the DEA has yet to propose or implement. Given the uncertainty surrounding the incoming Trump administration’s priorities and its views on telemedicine prescribing of controlled substances, it is unclear whether the final rule will be withdrawn or left as-is. There is also uncertainty about whether the telemedicine prescribing flexibilities will expire after 2025.
Tickled Pink No More
Federal Circuit Affirms Cancellation of CeramTec’s Trademarks for Pink Ceramic Hip Implants
January 16, 2025
Color trademarks have traditionally been difficult to obtain. Of the over 4 million trademark registrations, there were less than 1000 color trademarks as of 2019.[1] To be eligible for trademark registration, a color must have acquired distinctiveness and must not be functional. Recently, the Federal Circuit examined the functional component of the analysis and explained why it presents such a hurdle to registration—particularly when a party also obtains patent protection.
On January 3, 2025, the U.S. Court of Appeals for the Federal Circuit upheld the Trademark Trial and Appeal Board (TTAB) decision canceling trademarks claiming protection for the pink color of ceramic hip components.
CeramTec, a manufacturer of ceramic components for artificial hip implants, developed zirconia toughened alumina (ZTA) containing chromia, which imparts pink color and increased hardness. This material was protected under CeramTec’s U.S. Patent No. 5,830,816, which expired in January 2013. In 2012, CeramTec sought trademark protection for the pink color of its ceramic components. CoorsTek, a competitor, successfully petitioned the TTAB to cancel the trademarks, arguing that the pink color was functional.
On appeal, the Federal Circuit affirmed the TTAB decision, emphasizing that trademarks are not registrable or enforceable if the design is functional. The court analyzed the TTAB’s application of the Morton–Norwich factors to determine functionality:
the existence of a utility patent disclosing the utilitarian advantages of the design;
advertising materials in which the originator of the design touts the design’s utilitarian advantages;
the availability to competitors of functionally equivalent designs; and
facts indicating that the design results in a comparatively simple or cheap method of manufacturing the product.
CeramTec GmbH v. Coorstek Bioceramics LLC, No. 2023-1502, 2025 WL 29252 (Fed. Cir. Jan. 3, 2025).
The court also considered TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23 (2001), which establishes that utility patents are strong evidence of functionality. The Federal Circuit noted that the functionality doctrine ensures the public is free to use innovations after a patent expires.
Based on these findings, the court affirmed that CeramTec’s pink trademarks are functional and therefore ineligible for protection.
If you have any questions about the impact of these changes, please contact your Miller Canfield attorney or the authors of this alert.
[1] Wang, Xiaoren, Should We Worry about Color Depletion? An Empirical Study of USPTO Single-color Trademark Registrations (January 18, 2022). Available at SSRN: https://ssrn.com/abstract=4011677 or http://dx.doi.org/10.2139/ssrn.4011677
What Will the New FTC Do With the Green Guides?
The incoming administration will change the Federal Trade Commission leadership. Chair Lina Khan, whose term has expired, is leaving, making way for a new majority of three Republican Commissioners. Andrew Ferguson will become the new Chair and Melissa Holyoak will stay on as a Republican Commissioner. President-Elect Trump has stated that he intends to nominate Mark Meador to occupy the seat of the departing Chair Khan. If confirmed, Meador will become the third Republican Commissioner. Expected to stay on are Democratic Commissioners Slaughter and Bedoya. Thus, following the expected confirmation of Mr. Meador, a Republican majority will control the FTC.
The FTC proposed revisions to its well-known Green Guides two years ago. It subsequently held a workshop on Recycling Claims and an informal hearing regarding the Energy Labeling Rule. Most commentators had expected to see final revisions to the Guides released in 2024. But, this has not happened, begging the questions of “what’s the holdup,” “what changes, if any, to the current draft will Republicans seek,” and “what is the new timetable for release?”
The holdup is most likely a result of the changing administration. Commissioner Ferguson notably dissented from the new, narrowed Junk Fees Rule solely because he did not believe the outgoing Commission should issue new rules. Therefore, we certainly do not believe we will see a revision to the Green Guides before the Inauguration.
One would also not expect to see revised Guides until Commissioner Meador (or whoever takes that seat) assumes office and has an opportunity to review the draft. Assuming he agrees with the proposed Guides, one might expect to see revisions issued in mid-2025. If he or others demand changes, however, that could take longer.
The Guides will probably remain as Guides. Although speculation had circulated that recycling claims might be broken off into a new rule, the change in the composition of the Commission makes new rules less likely in general.
For these reasons, the Guides are likely to be issued in 2025. They provide much-needed clarity to marketers that is welcomed irrespective of political affiliation. However, are there adjustments one might expect from the direction that had been conjectured for the Guides?
Although FTC Staff, who work across administrations, are tight-lipped regarding the Guides’ content, a few areas seem to be more politically fraught than others.
Recycling claims are one of those areas. Although there had been considerable chatter from activists regarding the use of the term “recycling” to refer to thermal reprocessing of plastics, a firm stance in the Guides on the issue now seems less likely. Case law had generally interpreted the term “recyclable” to refer to any material that can be recycled, regardless of whether it is actually recycled, and it seems less likely that the newly constituted Commission would issue guidance attempting to influence the courts’ stance.
Moreover, many states have begun to pass their own recycling laws – often referred to as “Extended Producer Responsibility” (or “EPR”) laws. Therefore, one would expect softer language from the FTC here (or less change to the existing guidance) in favor of allowing states to implement their own rules.
“Carbon claims” is another prominent area in which many had urged the Commission to take action. The GOP has signaled mistrust of collaborations to promote “ESG”, and it seems that mistrust might carry over at the FTC to enhanced scrutiny of non-governmental efforts to promote collective actions regarding carbon emissions reduction. Carbon offsets often fall into this bucket, so we do not believe the new Commission will be particularly friendly to voluntary carbon markets. Thus, one might expect to see a new section of the Guides setting out stringent requirements regarding making carbon neutrality claims. One would also expect the Guides to require rigorous support for aspirational environmental claims relating to carbon reduction and energy savings.
Consistent with the GOP skepticism regarding the efficacy of human efforts to combat climate change, the new Guides will likely spell out the need for competent and reliable scientific evidence to bolster any corporate activity claimed to reduce climate change. That could be a tall order for many companies, so one would expect to see a softer approach to such claims going forward. I have been informed by prominent consultants that the acronym “ESG” is on shaky ground, as it has been frequently invoked to include diversity, equity and inclusion programs. As the pendulum swings back, expect to see the term “environmental” more often used in place of “ESG.”
Claims of “sustainability” are also likely to come in for enhanced scrutiny in any Guide revision. Some activities that had been touted for sustainable features may be questioned by the majority, so the use of the term could be constrained more substantially than originally contemplated. One can expect the new guides to treat “sustainability” claims as general environmental benefit claims, which must be qualified. That has already been the practice among most reputable corporations.
Given the importance of the Green Guides, revisions are long overdue. Canada and the EU have already passed new restrictions on environmental claims, so the United States lags internationally. There is likely to be pressure on the U.S. government to update these “rules for the road,” lest the international standards become the de facto rules by which corporate America must live.
Financing Battery Energy Storage Systems – Meeting the Challenges
Introduction
In this article we consider the role and application of battery energy storage systems (BESSs) in supporting renewable energy power generation and transmission systems and some of the challenges posed in seeking to project finance BESS assets.
The need for energy storage
Not so long ago, someone asked the following question at a conference on the development of African power networks attended by one of the authors: why can’t we just use renewables to meet Africa’s demand for electricity? There is, after all, abundant solar radiation across most of the continent. There are obvious challenges – it is dark at night and the winds do not always blow (and sometimes blow too hard for wind turbines), creating variations in generation capacity and, in deregulated electricity markets, price variation and volatility. BESSs offer a number of attractive solutions for shorter-term energy storage to spread supply capacity over time and to enable electricity price arbitrage.
Batteries are relatively cheap for smaller scale and shorter duration energy storage and prices of cells have historically fallen. They are also well-suited to energy storage in that their “round trip” efficiency is high (around 83 to 86% for conventional lithium ion[1] and up to 93% for lithium iron phosphate (LiFePO4) batteries[2]), which is slightly better than pumped hydro (70 to 80%) and much better than compressed air systems (42 to 67%) or compressed green hydrogen (18 to 46%, depending on the re-conversion method).
There is also a more obscure technical challenge associated with relying predominantly on renewable power generation: the need for “inertia” to ensure grid frequency stability.
What is inertia?
Ignoring HVDC transmission lines and interconnectors, electricity distribution networks operate using alternating current (AC). AC is used because it is easy to transform between different voltages using a transformer: high voltages are needed for transmission lines to minimise energy losses and lower voltages are required by consumers and other users for safety and practical reasons. In order to avoid causing problems with and possible damage to connected equipment, the frequency (typically 50 or 60 Hz), phase and voltage of the grid must be fixed within narrow tolerances.[3]
Traditional power generation systems, such as thermal power stations, utilise turbines and generators with large rotating masses which have significant real inertia, storing large amounts of kinetic energy and physically resisting changes in rotational speed. Once a generator is synchronised to the grid, this inherent inertia helps to stabilise the frequency and voltage and to slow down changes in frequency caused by changing electrical loads or supply disruptions. This property is known as “inertial response”.
If thermal generation systems are replaced by renewables such as wind[4] and solar, and the inertia response of the grid is not replaced by other inertial systems, the grid may become more vulnerable to voltage and frequency deviations that exceed permitted limits; and such excursions may trigger disconnections of generating units or other shutdowns.
In particular, certain types of wind turbine generators have a design which disconnects from the grid when the voltage falls below a minimum threshold. The distributed nature of wind turbine generators makes them vulnerable to a “chain reaction” effect which may result in a cascading disconnection of turbines from the grid.
A striking example was the South Australian blackout that occurred in 2016 following extensive storm damage to the state’s electricity transmission network. Almost the entire state lost its electricity supply as successive transmission lines and wind farms and ultimately the high voltage Heywood interconnector to Victoria tripped out owing to cascading voltage and frequency “events”. It took several days fully to restore the electricity supply to the entire state, relying initially on the Heywood interconnector to establish an initial stable state and to restart the Torrens Island Power Station because local black-start facilities were insufficient.
Synthetic inertia
Battery energy storage systems have a very useful property: using appropriate electronic control systems, high-power inverters and step-up transformers to convert their direct current (DC) output to AC at grid voltage, power can be transferred into the grid in a flexible, actively directed manner, that is able to respond dynamically and almost instantaneously to grid deviations in frequency and voltage. Such systems are in effect a form of “synthetic inertia” but offer greater flexibility than traditional “spinning” systems.[5]
The UK National Energy System Operator is developing a framework to procure a suite of “dynamic response services” from service providers, comprising dynamic containment (DC), dynamic moderation (DM) and dynamic regulation (DR) services which are planned to work together in concert to control grid system frequency and to maintain it within permitted limits, replacing to some extent the traditional inertia provided by thermal power stations. The intention is to create day-ahead frequency response markets for DC, DM and DR.
These new services are expected to be provided by energy storage systems and battery systems are well-suited to perform such roles owing to their fast response times. However, managing the battery state of charge (SoC) in advance and keeping systems within their warranty constraints (see below) poses technical and commercial challenges. Dynamic response products may also need to be “stacked” by providers (with a single BESS providing different services simultaneously, but with each MW of capacity partitioned to provide a single service) to optimise utilisation and revenues, leading to additional complexity.
BESS services more generally
BESS has many potential applications other than dynamic response services which are well suited to commercial exploitation. Notable examples are the following:
provision of additional electrical supply capacity at times of system peak demand;
energy time-shifting (allowing arbitrage between higher and lower energy prices);
transmission system congestion relief (acting as an energy sink to spread the demand on a transmission line over time);
voltage support;
black start services to provide the initial power required to start up larger power plants (for which a provider may be paid for availability, even if their services are rarely used);
transmission/distribution systems upgrade deferral (similar to congestion relief services); and
demand side services, including power reliability/UPS systems and power quality services.
Economics of BESS services
It is important to keep in mind that in economic terms, most BESS revenues are typically derived from time-shifting/price arbitrage, congestion relief and providing security of supply. Other services, including dynamic response/synthetic inertia typically provide a relatively small component of enduring revenue streams, despite their critical role in ensuring grid stability (not least because the volume of these services is relatively low, and even a small volume of market entry by flexible capacity can reduce the market clearing price for these services).
However, time shifting/price arbitrage, congestion relief and even dynamic response services are likely to involve merchant risk. For example, price arbitrage involves active trading in wholesale markets, and the UK is proposing that dynamic response services would be priced by day ahead auctions.
While operators of BESSs may “stack” different merchant revenue streams, it is clear that financing projects which rely on such sources to earn a return may be difficult. Volatility associated with merchant income is, in many jurisdictions, made worse by policy uncertainty. Policy choices drive the level of renewable investment, the extent of grid reinforcement and the extent of demand growth from newer flexible uses of power (such as electric vehicles), all of which influence market prices and the scope for time shifting and price arbitrage.
Set against the difficulty of financing BESSs is their importance to energy transition. As noted above, their ability to absorb excess intermittent renewable generation and provide a new source of synthetic inertia means they will be a fundamental part of any low carbon grid. In the UK, the “Clean Power 2030” plan for a low carbon grid foresees battery capacity between 23 and 27 GW. This may imply the need for further government intervention to support the investments.
As international electricity markets are gradually de-regulated, as is happening in many African jurisdictions, they may look overseas to historical precedents in deciding how to structure their markets and systems of government support. The UK (and to a lesser extent Europe) have historically been leaders in deregulation and electricity market innovation.
The possibility to provide support to low carbon sources of flexibility is explicitly foreseen in European legislation[6], and has been recognised in the UK government’s Review of Electricity Market Arrangements. However, there is less consensus on the design of an appropriate intervention.
In the UK, a cap and floor scheme is proposed for long duration energy storage (principally pumped hydro storage). The scheme would ensure that projects which the regulator recognises as beneficial receive a minimum level of gross margin. This floor is likely to be set at a level which ensures that reasonable levels of debt can be serviced. The quid pro quo is that the returns which plants can make will be capped. A similar regime is applied to interconnectors in the UK. The definition of “long duration” remains to be decided, but it is possible that some very long duration batteries may be eligible for this scheme.
In contrast, for shorter duration storage (more likely to be relevant for batteries), no specific scheme has yet been put forward. The government has indicated that it is considering modifications to the UK’s capacity auction arrangements. These see generators and storage operators offer to sell their availability to a central counterparty, and are designed to ensure that there is sufficient capacity on the grid to meet expected peaks in demand. At the moment the auctions are technologically neutral: fossil and non-fossil capacity competes in the same market (although there are already limits on the running hours of fossil fuelled plants).
But change may be in the air. While the final details are still being debated, the UK government might modify the auctions to ensure a minimum amount of low carbon flexibility is purchased. This would allow the price paid to low carbon flexible plants (such as batteries) to exceed that paid to other capacity (such as thermal generating plants). As with agreements concluded in today’s capacity auctions, the clearing price in such a modified auction would be indexed for 15 years and paid to investors by a central counterparty. The thinking is that this would again provide greater scope for debt financing.
Yet more variation is found in continental Europe. In Greece, the government has proposed a support regime for a pumped hydro plant (PHS Amfilochia). The effect of the arrangement would be that the plant’s investor would secure a regulated rate of return independent of merchant revenues. And in Italy, the Electricity Storage Capacity Procurement Mechanism (MACSE) also envisages provision of a largely regulated return to storage investors. In contrast to the Greek mechanism, the Italian regime would provide the potential for a small upside based on merchant returns.
As such, in looking to project finance BESSs in Europe, the scope for either long term bilateral contracts with blue-chip counterparties (e.g. to provide resilience of supply to datacentres) or policy support is likely to be an important factor in determining priority jurisdictions for investors, who will seek greater revenue and price certainty to underpin debt service and fixed operating costs and provide returns to equity. This is not to say that merchant projects are not possible. Many may still obtain financing, but only after careful diligence as to the likely evolution of merchant margins, and where stacking of revenues can provide some diversification and upside.
Key battery parameters and implications for financing BESS projects
In any discussion about structuring BESS projects and their financing, the particular properties and performance characteristics of batteries need to be taken into account.
Manufacturers of batteries define two key indicators which reflect their states and are useful in optimizing battery use and performance:
Stage-of-Charge (SoC) is a measure which compares the current level of charge in the battery as a percentage of its level when fully charged, reflecting the quantity of electrical energy stored as a ratio of the maximum possible stored energy that the battery is capable of holding. As cell health declines the maximum possible charge that may be stored also declines. Another parameter that is sometimes referred to is Depth-of-Discharge (DoD), which is the inverse of SoC, so if the SoC is 80%, the DoD is 20%.
State-of-Health (SoH) compares the maximum capacity of a fresh battery and a battery that has “aged” through use, owing to electrochemical deterioration. SoH is defined as the ratio of the maximum quantity of energy the battery is able to store at any time to its rated capacity, expressed as a percentage. As SoH degrades, the useable capacity of the battery diminishes because it will discharge sooner at a given rate of discharge (i.e. at a given output current).
Degradation in state of health (SoH)
The SoH of a lithium-ion battery declines with increasing number of battery charge and discharge cycles in a reasonably predictable manner, provided the battery is not excessively stressed. A typical rule of thumb is to assume a 10 year useable lifespan for daily charge/discharge cycles, i.e. around 4,000 cycles. However, at the upper end of the range, a well-known manufacturer’s sales literature indicates that its 68Ah cell reaches 80% SoH after 6,000 cycles,[7] representing a little over 16 years of daily cycles.
Cell lifespan may be affected by a number of factors including temperature, depth of discharge and charging current (C-rate); and achieving the upper end of the lifespan range may involve conservative assumptions about DoD and maintaining an optimum temperature within a tight range. SoH degradation curves may be non-linear and exhibit accelerated degradation with increasing number of cycles beyond a threshold point.
Useable lifetime and implications of degradation for system design
Usable battery lifetime (the point at which SoH has declined to a level which compromises the useability of a BESS) depends on the application. SoH degradation and the inherent decrease in capacity over time need to be taken into account in scoping and defining the services that a BESS project company commits to provide to an offtaker, as well as the duration of those services and the charges for those services.
If the project company’s contractual commitment is of sufficient duration, it may be necessary for it to incur capital expenditure to renew or add cells to restore the BESS’s performance; and this would be to be taken into account in calibrating service charges to be paid by the offtaker to the project company. The cost of renewing cells may however be difficult to predict; whilst cell costs have historically fallen over time, potential shortages in lithium and other essential raw materials and constraints on manufacturing capacity or increased demand might cause an unanticipated spike in prices.
In the case of a BESS that is routinely charged and discharged in daily cycles, the system lifetime and its economic life may be reasonably predictable. One example might be a BESS combined with a solar PV power plant that is charged during the daytime and discharged at night to provide power to (for example) a datacentre. Another example might be a BESS at an EV charging station which is charged during periods of low demand (at night) and discharged at times of peak EV charging demand – using such a system could relieve supply line congestion by spreading power supply demands over time.
However, in a more complex use scenario such as providing dynamic grid frequency stabilization services, the frequency of charge/discharge cycles may be more unpredictable as it may depend on more random factors such as wind speed variation/gusting. Consequently, the economic life of the BESS modules may vary widely and depend on the usage pattern.
In economic terms, an unpredictable usage pattern which may result in varying O&M costs (including capital expenditure being incurred at uncertain times to replace degraded cells) suggests a possible need to vary a portion of the charges for provision of the services according to the usage pattern (rather than merely levying a flat availability charge): this could be seen as analogous to the energy charge for a thermal power project which typically involves pass-through of variable operating costs that correlate with usage patterns.
Alternatively, the obligation to provide services could be inherently limited so that cell charge-discharge cycling constraints are respected and maintained within agreed limits.
Such factors are likely to be a key focus for potential lenders to a project who will be concerned if the project company is exposed to excessive risk in relation to the period over which the BESS is able to generate revenue and/or uncertainty over O&M costs. One option that might be considered by lenders is to sculpt the repayment schedule for their debt to take into account the rate of reduction in the system SoH to the extent that project revenues depend on the SoH and decline in tandem.
Battery warranties
Warranties are available from suppliers of batteries which guarantee their useable energy capacity (i.e. the SoH) for a defined period, typically up to ten years, based on defined usage parameters. Not surprisingly, the guaranteed capacity is related to the predicted SoH degradation curve, but it may be possible to modify the guarantee terms for a price so that they are more favourable.
One option that may be explored is an extended supplier’s warranty which artificially extends the SoH and slows the degradation curve for a fee – this is in effect a hybrid warranty/maintenance service as the supplier will inevitably have to replace degraded cells to achieve the extended BESS lifespan.
Mitigating degradation
The rate of degradation may be reduced by limiting maximum charge and depth of discharge (DoD) within a defined SoC window, which may be dynamically altered as the battery ages. Battery management systems may be programmed to manage SoC to increase lifespan at the expense of reducing useability. This is a common approach in EV battery management systems, preserving battery lifespan at the expense of maximum range.
Management of DoD and maintaining it within certain limits may also be required to preserve a valid manufacturer’s warranty or to achieve more favourable warranty terms. This has implications both for the technical design of BESS systems (and in particular battery management systems and software) and for scoping and defining the services that a BESS project company commits to provide to an offtaker and the technical limits of those services.
Environmental conditions
Cell performance and lifespan depend to a large extent on maintaining suitable environmental conditions. If the operating temperature is maintained within a relatively tight range, the cell lifespan may be enhanced and accordingly supplier warranties may be subject to specific environmental conditions being met and maintained such as maximum and minimum temperatures and limitations on the period of any temperature excursions.
In designing their systems, BESS operators will therefore need to consider how best to mitigate the risk of damage being caused to batteries or warranties being invalidated by thermal events, such as building in heating and ventilation system redundancy, incorporating back-up systems and modularization/containerisation of BESS units, so that in the worst case, only one module is compromised by any unplanned thermal excursion.
Other factors
Battery health is affected by charge and discharge rates (C-rates) but such limits should be built into the design of the battery management system and associated systems. Operators of BESSs will however wish to ensure that battery management systems (and their firmware/software) are capable of being supported over the long-term and that if they can no longer be supported, that they are readily able to be upgraded or replaced.
Second life batteries
Electric vehicle batteries that have reached the end of their usable life in mobile applications may have a second life in static BESS applications. The cost of such used batteries should be significantly lower than new batteries and their reduced energy density compared with new batteries might be less of a concern for stationary applications. For example, Nottingham City Council has installed 600kW of second life storage at its EV fleet depot to store excess electricity from on-site solar PV arrays which is then used to charge their EV fleet at peak times. The systems also aims to participate in grid services by trading stored electricity and providing vehicle-to-grid energy supply via bi-directional EV chargers.
Lenders may however have a concern about the remaining economic life of used cells and how predictable it is and may naturally be cautious and reluctant to take a view on the ability to replace such cells should they fail or reach an unacceptably low SOH. That said, the EV market is growing and the supply of used batteries should expand rapidly; and as the use of second life cells increases and the available data on their performance grows, the risks associated with such arrangements may become better understood and more predictable.
Conclusion
Battery energy storage systems represent a keystone for the transition towards a more sustainable energy generation and utilisation. Despite the value and advantages that they offer to enhance grid reliability and stability and to integrate with renewable power sources, significant challenges remain in securing financing for BESS projects. Addressing those challenges will require supportive regulatory frameworks, innovative government price and demand support arrangements, a flexible and innovative approach to project structuring, appropriate sharing of risk between operators and suppliers and technical solutions which mitigate commercial and technical risks. Overcoming these hurdles will allow the full potential of battery storage systems to be unlocked, paving the way for a more resilient and sustainable energy future.
[1] The U.S. Energy Information Administration records an average monthly round trip efficiency of 82% being achieved in 2019. The U.S. National Renewable Energy Laboratory 2021 Annual Technology Baseline figure is 86%.
[2] Data published by GivEnergy for its BESS products.
[3] For example, the UK’s National Energy System Operator has a licence obligation to maintain system frequency within a range of 50Hz +/- 1%, i.e. between 49.5 and 50.5 Hz.
[4] Wind turbines are built to be lightweight and have relatively low inertia. Variable speed wind turbines which utilise doubly fed induction generators (DFIGs) pose particular challenges: during a grid fault condition the power conversion system may be unable to handle the currents in both rotor and stator, leading to the wind turbine being disconnected from the grid.
[5] Even with high levels of synthetic inertia, a grid will still need “real” physical inertia. The UK National Grid ESO has contracted for several sources in the UK (e.g. at Deeside in England and Rassau in Wales) to provide “synchronous condensers” whereby motor-generators use grid power to spin up and maintain large masses in rotation to act as flywheels.
[6] For example, Article 19g of EU/2019/943 as amended, on “non-fossil flexibility support schemes”
[7] Lab test with 100% DoD, 1C/1C charge/discharge rate and at a temperature of 25°C.
Whistleblower Awarded $1.8 Million for Reporting Hospital Admissions Kickback Scheme
Healthcare professionals play a critical role in ensuring the integrity of the industry. However, unlawful kickbacks and fraudulent claims, if left unreported, undermine the quality of patient care and solvency of government-funded healthcare programs. A recent case involving Oroville Hospital highlights not just the consequences of violating regulations such as the False Claims Act and Anti-Kickback Statute but also the importance of whistleblowers in combatting such schemes.
Oroville Hospital Settlement Details
Oroville Hospital has agreed to pay $10.25 million to resolve allegations of participating in an illegal kickback and self-referral scheme. The settlement is divided, with $9,518,954 going to the federal government and $731,046 to the State of California.
The allegations claim that Oroville Hospital:
Paid Illegal Kickbacks to Physicians – Oroville Hospital allegedly incentivized physicians responsible for inpatient admissions by offering bonuses tied to how many patients they admitted. This practice incentivized unnecessary hospital stays, jeopardizing patient welfare and inflating healthcare costs.
Falsely Billed Medicare and Medi-Cal – The hospital allegedly admitted patients who did not need inpatient care. Furthermore, they also allegedly added false diagnosis codes such as systemic inflammatory response syndrome (SIRS) to claims, inflating reimbursements from Medicare and Medicaid (Medi-Cal in California).
The Vital Role of Whistleblowers in Healthcare Compliance
The Oroville Hospital case underscores the critical importance of whistleblowers in protecting healthcare systems from unlawful practices. The allegations in this case were originally brought forward by a private individual under the qui tam provisions of the False Claims Act.
Under the qui tam provision, whistleblowers can file lawsuits on behalf of the government and potentially receive a portion of any monetary recovery resulting from the case. The whistleblower received approximately $1.8 million or about 17% of the settlement for her role in exposing these unlawful activities.
Why Whistleblowers Are Essential
Whistleblowers are often employees or professionals working within the healthcare system who become aware of illegal or unethical practices. Here is why their role is indispensable:
1. Preventing Patient HarmUnethical behavior, such as unnecessary hospitalizations or improper medical diagnoses, can seriously harm patients. Whistleblowers bring attention to these issues and ensure medical practices prioritize patient health over profit.
2. Protecting Government ResourcesFraudulent claims and improper billing practices drain billions of dollars each year from federal programs such as Medicare, Medicaid, TRICARE, and FEHB. Whistleblowers help uncover these schemes, ensuring that taxpayer funds are used effectively and healthcare remains affordable.
3. Encouraging Transparency and AccountabilityBy exposing unlawful actions, whistleblowers hold organizations accountable and encourage others in the industry to comply with regulations such as the Anti-Kickback Statute and the False Claims Act.
4. Facilitating Internal ImprovementsWhen courts order companies to implement Corporate Integrity Agreements or similar oversight measures as a result of whistleblower actions, healthcare organizations are compelled to implement stronger compliance frameworks, reducing the risk of future violations.
Mexico Increases Textile Sector Tariffs and Amends IMMEX Decree
On Dec. 19, 2024, the “Decree modifying the tariff on the General Import and Export Tax Law and the Decree for the Promotion of the Manufacturing, Maquila and Export Services Industry” (Decree) published in the Official Gazette of the Federation, through which the Mexican government seeks to establish two measures protecting domestic textile production.
Tariff Increases
Through the Decree, the Mexican government made temporary changes in the tariffs on several items included in the General Import and Export Tax Law, which will be effective until April 23, 2026. Such adjustments, which cover 155 items, correspond to the following chapters:
15% Tariff
–
Chapter 52 (cotton)
–
Chapter 55 (synthetic or artificial staple fibers)
–
Chapter 58 (special woven fabrics, textile fabrics, lace, tapestries, trimmings, and embroidery)
–
Chapter 60 (knitted fabrics)
35% Tariff
–
Chapter 61 (articles of apparel and clothing accessories, knitted or crocheted)
–
Chapter 62 (articles of apparel and clothing accessories, not knitted or crocheted)
–
Chapter 63 (other made-up textile articles, sets, worn clothing, worn textile articles, and rags)
–
Tariff item number 9404.40.01 (footmuffs, quilts, comforters, and blankets)
These tariffs apply only to products originating in countries with which Mexico does not have free trade agreements.
Modifications to the IMMEX Program
The Dec. 19 Decree also changes the IMMEX Decree, adding new restrictions to Annex I, which lists “Goods that cannot be temporarily imported under the IMMEX program.” The IMMEX (Manufacturing, Maquiladora, and Export Services Industry Program) program is designed to promote the development of companies engaged in manufacturing and assembly activities for export purposes in Mexico. The changes to the Annex I affect several items under chapters 61, 62, and 63 of the General Import and Export Tax Law, with some exceptions. The government has also added other subheadings from this law to the restricted list.
Conclusion
The increase in tariffs on specific fractions of the textile industry, along with the addition of more restricted tariff items under the IMMEX program, could impact both importers and companies operating under IMMEX. Importers may face higher costs due to increased duties, which could affect their profit margins and competitiveness in the market. Similarly, IMMEX program participants might experience disruptions in their supply chains and increased operational costs, limiting their ability to efficiently import and export goods. These changes highlight the need for careful consideration of the potential consequences on trade and business operations.
California Attorney General Issues Two Advisories Summarizing Law Applicable to AI
If you are looking for a high-level summary of California laws regulating artificial intelligence (AI), check out the two legal advisories issued by California Attorney General Rob Bonta. The first advisory is directed at consumers and entities about their rights and obligations under the state’s consumer protection, civil rights, competition, and data privacy laws. The second advisory focuses on healthcare entities.
“AI might be changing, innovating, and evolving quickly, but the fifth largest economy in the world is not the wild west; existing California laws apply to both the development and use of AI.” Attorney General Bonta
The advisories summarize existing California laws that may apply to entities who develop, sell, or use AI. They also address several new California AI laws that went into effect on January 1, 2025.
The first advisory points to several existing laws, such as California’s Unfair Competition Law and Civil Rights Laws, designed to protect consumers from unfair and fraudulent business practices, anticompetitive harm, discrimination and bias, and abuse of their data.
California’s Unfair Competition Law, for example, protects the state’s residents against unlawful, unfair, or fraudulent business acts or practices. The advisory notes that “AI provides new tools for businesses and consumers alike, and also creates new opportunity to deceive Californians.” Under a similar federal law, the Federal Trade Commission (FTC) recently ordered an online marketer to pay $1 million resulting from allegations concerning deceptive claims that the company’s AI product could make websites compliant with accessibility guidelines. Considering the explosive growth of AI products and services, organizations should be revisiting their procurement and vendor assessment practices to be sure they are appropriately vetting vendors of AI systems.
Additionally, the California Fair Employment and Housing Act (FEHA) protects Californians from harassment or discrimination in employment or housing based on a number of protected characteristics, including sex, race, disability, age, criminal history, and veteran or military status. These FEHA protections extend to uses of AI systems when developed for and used in the workplace. Expect new regulations soon as the California Civil Rights Counsel continues to mull proposed AI regulations under the FEHA.
Recognizing that “data is the bedrock underlying the massive growth in AI,” the advisory points to the state’s constitutional right to privacy, applicable to both government and private entities, as well as to the California Consumer Privacy Act (CCPA). Of course, California has several other privacy laws that may need to be considered when developing and deploying AI systems – the California Invasion of Privacy Act (CIPA), the Student Online Personal Information Protection Act (SOPIPA), and the Confidentiality of Medical Information Act (CMIA).
Beyond these existing laws, the advisory also summarizes new laws in California directed at AI, including:
Disclosure Requirements for Businesses
Unauthorized Use of Likeness
Use of AI in Election and Campaign Materials
Prohibition and Reporting of Exploitative Uses of AI
The second advisory recounts many of the same risks and concerns about AI as relevant to the healthcare sector. Consumer protection, anti-discrimination, patient privacy and other concerns all are challenges entities in the healthcare sector face when developing or deploying AI. The advisory provides examples of applications of AI systems in healthcare that may be unlawful, here are a couple:
Denying health insurance claims using AI or other automated decisionmaking systems in a manner that overrides doctors’ views about necessary treatment.
Use generative AI or other automated decisionmaking tools to draft patient notes, communications, or medical orders that include erroneous or misleading information, including information based on stereotypes relating to race or other protected classifications.
The advisory also addresses data privacy, reminding readers that the state’s CMIA may be more protective in some respects than the popular federal healthcare privacy law, HIPAA. It also discusses recent changes to the CMIA that require providers and electronic health records (EHR) and digital health companies enable patients to keep their reproductive and sexual health information confidential and separate from the rest of their medical records. These and other requirements need to be taken into account when incorporating AI into EHRs and related applications.
In both advisories, the Attorney General makes clear that in addition to the laws referenced above, other California laws—including tort, public nuisance, environmental and business regulation, and criminal law—apply to AI. In short:
Conduct that is illegal if engaged in without the involvement of AI is equally unlawful if AI is involved, and the fact that AI is involved is not a defense to liability under any law.
Both advisories provide a helpful summary of laws potentially applicable to AI systems, and can be useful resources when building policies and procedures around the development and/or deployment of AI systems.
FTC Finalizes Long-Awaited Updates to Children’s Privacy Rule
On January 16, 2025, the FTC announced the issuance of updates to the FTC’s Children’s Online Privacy Protection Rule (the “Rule”), which implements the federal Children’s Online Privacy Protection Act of 1998 (“COPPA”). The updates to the Rule come more than five years after the FTC initiated a rule review. The Commission vote on the Rule was 5-0, with various Commissioners filing separate statements. The updated Rule, which will be published in the Federal Register, contains several significant changes, but also stops short of the version proposed by the FTC in January 2024. The Rule will go into effect 60 days after its publication in the Federal Register; most entities subject to the Rule will have one year after publication to comply.
Key updates to the Rule include:
Requirement to obtain opt-in consent for targeted advertising to children and other disclosures of children’s personal information to third parties: The Rule will require operators of child-directed websites or online services to obtain separate verifiable parental consent before disclosing children’s personal information to third parties. According to a statement filed by outgoing FTC Chair Lina Khan, this means that operators will be prohibited from selling children’s personal information or disclosing it for targeted advertising purposes unless parents separately agree and opt in to these uses.
Limits on data retention: The Rule will prevent operators from retaining children’s personal information for longer than necessary than the specific documented purposes for which the data was collected. Operators also must maintain a written data retention policy that (1) details the specific business need for retaining children’s personal information and (2) sets forth a timeline for deleting this data. Operators may not retain children’s personal information indefinitely.
Changes to key definitions: The Rule also makes several changes to the definitions that govern its application. For example, the definition of “personal information” now includes biometric identifiers that can be used for the automated or semi-automated recognition of a child (e.g., fingerprints, handprints, retina patterns, iris patterns, genetic data – including a DNA sequence, voiceprints, gait patterns, facial templates, or faceprints). In addition, the factors the Commission will take into account in considering whether a website or service is “directed to children” will be expanded to include marketing or promotional materials or plans, representations to consumers or third parties, reviews by users or third parties and the ages of users on similar websites or services.
Increased Safe Harbor transparency: FTC-approved COPPA Safe Harbor programs are required to identify in their annual reports to the Commission each operator subject to the self-regulatory program (“subject operator”) and all approved websites or online services, as well as any subject operator that left the program during the time period covered by the annual report. The Safe Harbor programs also must outline their business models in greater detail and provide copies of each consumer complaint related to a member’s violation of the program’s guidelines. In addition, Safe Harbor programs must publicly post a list of all current subject operators and, for each such operator, list each certified website or online service.
Importantly, the Rule is notable for what it does not contain.
No EdTech changes: Despite having proposed imposing a wide range of obligations on EdTech companies operating in the education space, the Rule avoids incorporating any education-related requirements. According to the FTC, because the Department of Education has indicated its intention to update its FERPA regulations (34 C.F.R. 99), the Commission sought to avoid changing COPPA in any way that might conflict with the DOE’s eventual amendments. Instead, the Commission states it will continue to enforce COPPA in the EdTech context consistent with its existing guidance.
No coverage of user engagement techniques: The Rule does not incorporate the proposal to require parental notification and consent for the collection of data used to encourage or prompt children’s prolonged use of a website or online service. The Commission indicated that, after reviewing the public comments, it believes the proposed use restriction “was overly broad and would constrain beneficial prompts and notifications.” The FTC cautioned, however, that it nevertheless may pursue enforcement under Section 5 of the FTC Act in appropriate cases to address unfair or deceptive acts or practices encouraging prolonged use of websites and online services that increase risks of harm to children.
Personalization and contextual advertising still exempted: The Rule does not limit the “support for the internal operations” exemption under COPPA to exclude operator-driven personalization or contextual advertising.
No need to tie personal information collected to specific uses: The Rule will not require that operators correlate each data element collected online from children to the particular use(s) of such data element.
In voting in support of the revised Rule, incoming FTC Chair Andrew Ferguson filed a separate statement expressing what he termed “serious problems” with the Rule, which he blamed on “the result of the outgoing administration’s irresponsible rush to issue last-minute rules.” Ferguson would have required the Rule to clarify instances in which an operator’s addition of third parties to whom they provide children’s personal information would trigger a need for updated notice and refreshed consent. He also took issue with the prohibition on indefinite retention of children’s personal information, predicting that it “is likely to generate outcomes hostile to users.” Finally, he indicated his belief that the FTC missed an opportunity to make clear the Rule is not an obstacle to the use of children’s personal information solely for the purpose of age verification.
New York City Publishes Updated FAQs for Earned Safe and Sick Time Act
On September 26, 2024, New York City published updated frequently asked questions (FAQs) for the New York City Earned Safe and Sick Time Act (ESSTA) in light of the New York City Department of Consumer and Worker Protection’s (DCWP) adoption of the October 2023 amended rules and the January 2024 law creating a private right of action for ESSTA violations.
While the FAQs provide some clarification and guidance regarding the amended rules and processes and procedures in pursuing a private right of action, they also leave some questions unanswered. In addition, the FAQs provide guidance on topics that were not included in the amended rules, including outlining possible additional uses of safe and sick leave that were not explicitly contemplated.
Quick Hits
On September 26, 2024, New York City released updated FAQs for the Earned Safe and Sick Time Act (ESSTA) to address the October 2023 amended rules and the January 2024 law allowing private rights of action for ESSTA violations.
The updated FAQs clarify and provide guidance regarding the amended rules, processes, and procedures in pursuing a private right of action, while also leaving some questions unanswered.
The updated FAQs provide guidance on additional topics regarding written safe and sick leave policies and additional uses of leave for weather-related health conditions and funerals.
Telecommuting and Remote Employees
With the advent of remote work and telecommuting, the amended rules clarify that an employee who is based outside of New York City is eligible to use safe and sick leave if the employee is “expected to regularly perform work in New York City during a calendar year” but only hours worked by such an employee in New York City will count toward the accrual of safe and sick leave. Additionally, the employee can only use accrued safe and sick leave while performing work in New York City.
While the amended rules provide some examples of how this will apply, the FAQs leave unanswered what “regularly perform work” means for purposes of determining eligibility.
Written Safe and Sick Leave Policies
For employers that have general paid time off policies, the FAQs clarify that employers must maintain written safe and sick leave policies in a single writing. Policies are not in a single writing “if they are split up across multiple documents or locations. An employer may supplement a national policy with an NYC-specific policy, provided that the national and local policies are not confusing or contradictory.”
Despite this guidance, the FAQs do not expound on the meaning of “confusing or contradictory.”
DCWP Investigations and Private Right of Action
As employees can now file a civil action in court and file a complaint with the DCWP, the FAQs provide guidance regarding those processes and procedures. As an initial matter, the FAQs clarify that there are no prerequisites to filing a lawsuit in court for ESSTA violations, and are not required to file a complaint with the DCWP first. Should an employee decide to file complaints in court and with the DCWP for the same alleged violations, the DCWP will stay its investigation until it is notified that “such a civil action has been withdrawn or dismissed without prejudice.” After a final judgment or settlement, the DCWP will then dismiss the complaint unless it “determines the complaint alleges a violation not resolved by such judgment or settlement.”
Additional Uses: Health Conditions Related to Weather Events and Funerals
The FAQs provide that employees may be able to use safe and sick leave for weather-related events, when, for example, weather-related conditions impact the health of employees or their family members such as extreme heat or poor air quality or if exposure to certain weather would pose a risk to the employee or family member due to an underlying medical condition.
In addition, the FAQs state that an employee may use safe and sick leave to attend a funeral if an employee is experiencing anxiety or depression or if a family member needs care for a mental or physical health condition.
Exhausting Available Safe and Sick Leave
Under the ESSTA, generally, it is the employee who decides whether to use safe and sick leave and how much accrued safe and sick leave to use. In reaffirming this rule, the FAQs provide that employers are “prohibited from deducting from an employee’s leave bank when the employee does not wish to use safe and sick leave to cover an absence.” Notwithstanding, the FAQs clarify that the ESSTA “does not require an employer to provide unpaid time off when an employee does not wish to use safe and sick leave to cover an absence and is not eligible for other paid leave.” However, the FAQs note that other laws may require an employer to grant unpaid time off.
Pay Statement Requirements and Unlimited Paid Time Off
The ESSTA requires employers to inform employees on their paystubs of the amount of safe and sick leave used during the pay period and the balance of accrued time remaining.
For those employers that offer unlimited safe and sick leave or unlimited paid time off, the FAQs state that “in very limited circumstances,” an employer will not be required to provide documentation showing accrual, use, and balance information each pay period. Whether this exception applies will depend on “the nature of the employer’s written safe and sick leave policy, including whether any restrictions apply, and whether in practice leave is truly unlimited.”
Even if an exception applies, the FAQs clarify that employers must still keep records showing compliance with the ESSTA.
Next Steps
Employers based in or with remote employees in New York City may wish to review their current policies and make any necessary revisions based on the updated FAQs. Employers may also want to review with and train supervisors and human resources professionals to ensure compliance and update existing practices to align with the above updates to minimize the potential for enforcement actions by the DCWP or for lawsuits by employees.
Final Regulations for New Clean Energy Production and Investment Tax Credits
Last week, the Internal Revenue Service (“IRS”) and Department of the Treasury issued the highly anticipated final regulations for the Clean Electricity Production Tax Credit set forth in Section 45Y of the Internal Revenue Code of 1986, as amended (the “Code”) and the Clean Electricity Investment Tax Credit set forth in Section 48E of the Code (the “Final Regulations”), which may be found here. The Final Regulations follow the issuance of proposed regulations (the “Proposed Regulations”) last June. The Final Regulations provide clarification regarding the definition of “qualified facility” and the mechanism for calculating the greenhouse gas (“GHG”) emissions rates for qualified facilities, although a full analysis of the GHG requirements is beyond the scope of this blog post. Further, we note that with the incoming administration, the executive branch could review and, potentially, rescind, these Final Regulations, although at this point the Trump administration has not publicly indicated support or a the lack thereof.
The Final Regulations generally apply to facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025. However, certain rules relating to the “One Megawatt Exception” under Section 1.45Y-3 of the Final Regulations and relating to qualified facilities with integrated operations have a delayed applicability date that is 60 days after publication of the Final Regulations.
When Sections 45Y and 48E of the Code were initially enacted, we posted a blog describing the new statutes, which is available here. The following is a brief, high-level, summary of the Section 45Y and Section 48E rules, but does not describe every requirement for credit qualification. The rules under Sections 45Y and 48E of the Code apply to qualified facilities that both begin construction and are placed in service, each for federal income tax purposes, on or after January 1, 2025. As such, qualified facilities that either begin construction or are placed in service before January 1, 2025, should still generally look towards the rules set forth in Section 45 of the Code for the production tax credit (the “PTC”) or in Section 48 of the Code for the investment tax credit (the “ITC”), as applicable.
The credits under Sections 45Y and 48E are available with respect to any qualified facility that is used for the generation of electricity, which is placed in service on or after January 1, 2025, and has an anticipated GHG emissions rate of not more than zero. In the case of Section 48E, a qualifying energy storage facility is also eligible for the credit. Qualified facilities also include any additions of capacity that are placed in service on or after January 1, 2025.
The credit under Section 45Y generally mirrors the PTC in that it is a credit that is based on electricity produced by a qualified facility, and the credit under Section 48E generally mirrors the ITC in that it is a credit that is based on a taxpayer’s tax basis in a qualified facility, with several differences in each case. The credit amount for each is generally calculated in the same manner as the ITC or PTC, as applicable. However, the credit amount is phased out (as set forth in the chart below) based on when construction of a qualifying facility begins after the “applicable year.” Under Sections 45Y and 48E of the Code, the applicable year means the later of (i) the calendar year in which the annual greenhouse gas emissions from the production of electricity in the United States are reduced by 75% from 2022 levels, or (ii) 2032.
Year After Applicable Year in Which Construction Begins
First
Second
Third
Thereafter
Percent of Credit Remaining
100%
75%
50%
0%
The Final Regulations apply many of the historical rules of Sections 45 and 48 of the Code, including rules surrounding the base credit amount—0.3 cents per kWh of electricity (subject to inflation adjustments) under Section 45Y and 6% under Section 48E. These credit rates may be increased in either case by satisfying either the 1 MW (AC) exception or the prevailing wage requirements—up to 1.5 cents per kWh of electricity (subject to inflation adjustments) under Section 45Y and 30% under Section 48E. Energy community and domestic content bonus credits may also increase these credit rates, although there are important differences in how these rules apply.
The below highlights several notable aspects of the Final Regulations.
Notable Rules Under Section 45Y
Under Section 45Y, a facility that initially operates with greater than zero GHG emissions (and, therefore, is not eligible for the credit under Section 45Y) may later be treated as a qualified facility—and, therefore, eligible for the credit under Section 45Y—if it meets the requirements in any taxable year during the 10-year period beginning on the date the facility was originally placed in service. For example, if an otherwise qualified facility has greater than zero GHG emissions for its first three years of operation (2025-2027, for example), but then is updated in such a way that it satisfies the zero GHG emissions requirement, then the Section 45Y credit may be claimed for years 4 through 10 of operations (2028-2034, in this example).
Similar to the PTC, electricity produced at a qualified facility must be sold by the taxpayer to an unrelated person. However, in a departure from the rules under Section 45, the statute and Final Regulations provide that, in the case of a qualified facility equipped with a metering device that is owned and operated by an unrelated person, the credit under Section 45Y of the Code is available for electricity produced at a qualified facility and sold, consumed, or stored by the taxpayer. Although this rule provides some flexibility to taxpayers, the IRS declined to adopt the Section 45 rule from IRS Notice 2008-60, which provides that electricity sales will be treated as made to an unrelated taxpayer if the producer of electricity sells electricity to a related person for resale to a person unrelated to the producer.
Notable Rules Under Section 48E
Under the Final Regulations, “qualified facilities” and “energy storage technology” (“EST”) are defined, and treated, separately. Accordingly, Section 48E does not permit combined solar and storage facilities—each facility must claim the credit under Section 48E separately as a “qualified facility” or an “EST,” as applicable. This rule could have implications for application of the prevailing wage and apprenticeship requirements, domestic content adder eligibility, and energy community adder eligibility.
Similarly, the Final Regulations define “unit of qualified facility” to include all components of functionally interdependent property, and the term “qualified facility” to mean a unit of qualified facility plus integral parts. This is significant because satisfaction of the prevailing wage and apprenticeship requirements, domestic content adder eligibility, and energy community adder eligibility are each determined on a “qualified facility” basis. To take an example, this means in many cases that prevailing wage and apprenticeship, domestic content, and energy community eligibility would be measured for a solar facility at the inverter level, rather than on a project-wide basis as is required for the ITC under Section 48 of the Code. Although this rule was in the Proposed Regulations, many commenters asked the IRS to permit some form of aggregation (similar to the energy project rules under Section 48) for purposes of Section 48E. The IRS declined this request, and the rules in the Final Regulations now will require very careful planning for prevailing wage and apprenticeship, domestic content adder, and energy community adder purposes.
In addition, under the Final Regulations, the cost of qualified interconnection property (which is similarly defined under the final regulations for Section 48) is only ITC-eligible for “qualified facilities.” For EST, the cost of interconnection property is not eligible for the credit under Section 48E. Again, this is different from the application of the ITC for qualified interconnection property for energy storage technology that is eligible for the ITC under Section 48 of the Code.
Notable Rules for both Section 45Y and 48E
The Final Regulations adopt the rule from the Proposed Regulations that the following types or categories of facilities may be treated as having an emissions rate of not greater than zero: wind, solar, hydropower, marine and hydrokinetic, geothermal, nuclear fission, fusion energy, and certain waste energy recovery property. For types or categories of facilities not listed above, taxpayers must rely on the annual table that sets forth the GHG emissions rates in effect as of the date the facility begins construction or, if not set forth on the annual table, the provisional emissions rate determined by the Secretary for the taxpayer’s particular facility.
In addition, for the types or categories of facilities not listed above, the Final Regulations confirm that certain emissions of GHGs are excluded from the requirement that the GHG rate be not greater than zero, including, for example, emissions that occur before commercial operation commences and emissions from routine operational and maintenance activities.
Both Section 45Y and 48E rely on the existing prevailing wage and apprenticeship rules contained in Sections 45(b)(7) and (8) of the Code and Sections 1.45-7, 1.45-8 and 1.45-12 and 1.48-13 of the Treasury Regulations except, as noted above with respect to Section 48E, prevailing wage and apprenticeship is measured as the qualified facility level rather than the energy project level (as it has been for the ITC).
For the 1 MW (AC) exception under both Sections 45Y and 48E, the Final Regulations incorporate similar rules for calculating nameplate capacity as provided in the final regulations under Section 48. However, the Final Regulations also provide that the nameplate capacity of a qualified facility with “integrated operations” with any other qualified facility must be calculated using the aggregate nameplate capacity of each qualified facility. A qualified facility will be treated as having “integrated operations” with any other qualified facility if the qualified facilities are of the same type of technology and (1) are owned by the same or related taxpayers, (2) placed in service in the same taxable year, and (3) transmit electricity generated by the qualified facilities through the same point of interconnection, if grid-connected, or are able to support the same end user, if not grid-connected or if delivering electricity directly to an end user behind the meter. These rules have a delayed applicability date of March 16, 2025.
Both Sections 45Y and 48E adopt the familiar 80/20 rule, which states that a facility may qualify as originally placed in service even if the unit of qualified facility contains some used components of property provided the fair market value of the used components of the unit of qualified facility is not more than 20% of the total value of the unit of qualified facility (which is determined by adding together the cost of the new components of property plus the value of the used components of property included in the qualified facility).
As the (Customs and Trade) World Turns: January 2025
Welcome to the January 2025 issue of “As the (Customs and Trade) World Turns,” our monthly newsletter where we compile essential updates from the customs and trade world over the past month. We bring you the most recent and significant insights in an accessible format, concluding with our main takeaways — aka “And the Fox Says…” — on what you need to know.
This edition provides essential insights for sectors including International Trade, Aluminum and Steel Industries, Fashion and Retail, E-commerce, Automotive, and Compliance, as well as for in-house counsel, importers, and compliance professionals.
In this January 2025 edition, we cover:
Federal Circuit deliberates on Section 301 tariffs: a landmark case for importers.
Aluminum extrusions import dispute: CIT to review ITC’s negative determination.
CBP’s proposed rule for low-value shipments: CBP’s attempts to enhance efficiency and security.
Forced labor enforcement intensifies: new challenges and strategic shifts.
Mexico’s textile and apparel tariff hikes: navigating new import challenges.
CFIUS controversy: presidential block on Nippon-US Steel deal sparks legal battle.
Temporary sanctions relief: OFAC authorizes limited transactions, maintaining key restrictions.
1. Section 301 Tariffs Appeal: Federal Circuit Hears Oral Argument
On January 8, the US Court of Appeals for the Federal Circuit (CAFC) heard the oral argument in HMTX Industries LLC v. United States, a pivotal case challenging the legality of tariffs imposed on Chinese-origin goods under Lists 3 and 4A of the Section 301 tariff regime. These tariffs, which cover approximately $320 billion in goods, have been challenged by over 4,000 importers.
Central to the case is whether the US Trade Representative’s (USTR) actions expanding tariffs to the Lists 3 and 4A qualify as a permissible “modification” of the original Section 301 action (covering Lists 1 and 2) under Section 307 of the Trade Act of 1974. The plaintiffs argued that the term “modify” allows only moderate or minor adjustments to the original tariffs, which targeted $50 billion in goods. The judges explored whether the statutory language supports such limits and considered distinctions between this case and prior rulings interpreting a different section of the Trade Act that limited “modification” to smaller adjustments.
The panel also examined whether China’s retaliatory tariffs, which formed the basis for USTR’s tariff increases under Lists 3 and 4A, were sufficiently linked to the intellectual property violations initially investigated under Section 301. The plaintiffs argued these actions were distinct, while the government claimed they were part of the broader context of unfair practices. A final issue was whether USTR’s authority to modify tariffs when an action is “no longer appropriate” could justify broader increases, with the judges probing the potential limits of this provision.
And the Fox Says…: The CAFC is expected to issue a decision before the end of this year, though further appeals could extend the litigation into 2026. A final ruling for the plaintiffs could lead to refunds of tariffs paid under Lists 3 and 4A for those participating in the litigation, and to the end of any Lists 3 and 4A tariffs. More broadly, the decision could constrain future tariff actions, particularly those being contemplated by President-elect Donald Trump in his second term or validate such escalation of tariffs.
2. Challenging the US International Trade Commission’s Decision: Implications of the Appeal on Aluminum Extrusions Imports
On November 26, 2024, the petitioners, US Aluminum Extruders Coalition (USAEC) and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW), filed a summons with the US Court of International Trade (CIT), contesting the US International Trade Commission’s (ITC) final negative determination in the aluminum extrusions’ antidumping and countervailing duty (AD/CVD) proceedings against multiple countries. As we discussed previously, on October 30, 2024, the ITC had reached a negative determination in its final phase of the antidumping and countervailing duty investigations concerning aluminum extrusions from China, Colombia, Ecuador, India, Indonesia, Italy, Malaysia, Mexico, South Korea, Taiwan, Thailand, Turkey, United Arab Emirates, and Vietnam.
The CIT will either affirm the underlying decision by the ITC, which can then be appealed to the US Court of Appeals for the Federal Circuit, or it can remand the decision back to the ITC for further consideration of certain matters. Remand could lead to a new vote from the Commissioners sitting on the Commission at that time. If the decision by the Commission becomes affirmative, and the CIT affirms, AD/CVD orders will be issued. The appeal may be taken to the US Court of Appeals for the Federal Circuit.
And the Fox Says…: Importers should closely monitor the CIT appeal. If the case is remanded and the ITC makes an affirmative determination which is affirmed by the CIT, AD/CVD orders will be imposed and estimated AD/CVD duties will have to be deposited and ultimately collected at liquidation. Please contact the AFS team if you are uncertain whether the product you import containing aluminum extrusions is within the scope of the investigations and therefore potentially subject to AD/CVD duties if the CIT remands the case and the ITC makes an affirmative determination.
3. CBP Proposes Enhanced Entry Process and Other New Rules for De Minimis Shipments
US Customs and Border Protection (CBP) has announced a notice of proposed rulemaking (NPRM) aimed at modernizing the entry process for low-value shipments, specifically those valued under $800. The proposed Entry of Low-Value Shipments (ELVS) rule is intended to increase the efficiency and security of processing these shipments in response to the rise of e-commerce. Through this process, CBP aims to expedite clearance and improve its ability to target high-risk shipments, such as those containing illicit drugs.
The ELVS rule would create a new “Enhanced Entry Process,” based on lessons learned from the Section 321 Data Pilot and Entry Type 86 test, requiring the advance electronic submission of various data elements, including the shipment contents, origin, destination, and a 10-digit Harmonized Tariff Schedule of the United States (HTSUS) classification, amongst others. An HTSUS Waiver Privilege is also included in the proposal, allowing certain filers to bypass the requirement to submit an HTSUS classification, subject to certain requirements, including documented internal controls ensuring certain compliance measures. Goods that are regulated by other federal agencies and mail importations must go through the Enhanced Entry Process.
Additionally, the “Release from Manifest Process” will be renamed the “Basic Entry Process” and revised to include additional data elements for verifying eligibility for duty- and tax-free entry. Another key change is the specification that the “one person” eligible for the de minimis exception is only the owner or buyer of the goods and no longer a consignee receiving the goods. Where a person receives multiple shipments that exceed the $800 threshold in the aggregate on a single day, none of the shipments would be eligible for the de minimis program.
And the Fox Says…: The deadline to file comments to the NPRM is March 15. The ELVS rule is the first of two NPRMs announced by the Biden Administration in September 2024. A second NPRM is expected at a later date and will likely continue to build on CBP’s aggressive multi-pronged strategy. Stay tuned for a more in-depth analysis on the NPRM and its impacts.
4. Forced Labor Enforcement Updates: CIT Case to Challenge Forced Labor Finding, Auto Industry Targeted for Detentions, More Entities Added to UFLPA Entity List, Reports Scrutinize Global Supply Chains, USTR Issues Trade Strategy to Combat Forced Labor
Kingtom Challenges Forced Labor Finding
On December 23, 2024, aluminum extrusions exporter Kingtom Aluminio, a Chinese-owned company based in the Dominican Republic, filed a complaint with CIT to challenge CBP’s forced labor finding, which authorizes CBP to seize the company’s imports of aluminum extrusion and profile products at the port. In filing the suit, the company claims in part that CBP’s issuance of the finding was arbitrary or capricious and that CBP bypassed administrative steps in failing to first issue a Withhold Release Order. See Kingtom Aluminio v. US, CIT # 24-00264.
Auto Industry Targeted for UFLPA Detentions in FY 2025
Significantly, the Uyghur Forced Labor Prevention Act (UFLPA) dashboard statistics for FY 2025 published thus far show that CBP primarily targeted the automotive and aerospace sector, with 1,239 shipments stopped for suspected violation of the UFLPA in December alone, with a total of 2,042 shipments in the first three months of FY 2025. By way of comparison, in the entirety of FY 2024, only 197 shipments in this sector were stopped. This follows scrutiny from US Congress resulting from Sheffield University and Human Rights Watch non-governmental organization (NGO) reports alleging connections to Xinjiang in every part of the auto supply chain. These statistics may reflect a shift in the industries targeted for enforcement, which have historically focused on electronics, apparel and footwear, and industrial and manufacturing materials.
DHS Adds 37 Companies to UFLPA Entity List
On January 14, the US Department of Homeland Security (DHS) announced the addition of 37 companies to the UFLPA Entity List. These entities include companies that grow Xinjiang cotton, manufacture textiles, manufacture inputs for solar modules and the energy industry, and supply critical minerals and metals. The UFLPA Entity List is nearly 150 companies.
Reports Scrutinize Supply Chains for Forced Labor Concerns
Several reports were issued last month discussing supply chains and forced labor risks:
UMASS Amherst Labor Center issued a report covering REI’s published supplier list and alleged connections to forced labor.
Transparentem issued a report covering its investigation into conditions on cotton farms in Madhya Pradesh, India. The report warned that the NGOs could not definitively link the problematic farms to the specific supply chains of brands and retailers.
The Financial Times published a report discussing billions of dollars invested by environmental, social, and governance funds linked to forced labor in Xinjiang.
In its first ever Quadrennial Supply Chain Review, the White House recommended upgrades to trade legislation to strengthen supply chains.
USTR Issues Trade Strategy to Combat Forced Labor
On January 13, USTR issued a trade strategy to combat forced labor that outlines the actions the United States is taking and considering to address forced labor in global supply chains. We will outline the USTR’s strategy in our forthcoming 2025 forced labor guide for global businesses.
And the Fox Says…: Forced labor enforcement has shown no signs of slowing down, and we anticipate that enforcement will remain steady or even increase as the Trump Administration assumes office later this month, particularly due to US Sen. Marco Rubio’s (R-FL) nomination as Secretary of State. Companies in the solar, textile, and apparel industries specifically should review the recent additions to the UFLPA Entity List to confirm whether any entities listed are in their supply chains.
Recent reports have focused on the global supply chains of fashion and apparel brands and critical industries, underscoring the importance for companies in the United States and globally to monitor these reports to ensure their supply chains are not associated with forced labor risks. While companies have been encouraged to release their supplier lists, this comes with some risk, as NGOs have scrutinized the labor practices of publicly disclosed suppliers.
Finally, as we previously discussed, the Kingtom Aluminio CIT litigation joins other cases where importers and affected companies have filed suit against CBP for issues related to forced labor enforcement. As forced labor enforcement efforts intensify, we should continue to expect legal disputes over forced labor allegations in global supply chains. To date, we have not seen a final decision on any of the cases.
5. Mexico Takes Aim at Textile and Apparel Sector With IMMEX Restrictions Focused on E-commerce and Increased Tariffs
Effective December 20, 2024, Mexican President Claudia Sheinbaum Pardo announced a decree imposing significant changes to the import regime for certain apparel and textile products, including tariff increases and restrictions on temporary imports under Mexico’s Manufacturing, Industry, Maquila and Export Services (IMMEX) program.
Mexico applied temporary tariff increases on goods imported into Mexico through April 23, 2026, as follows:
Increase to 35% for 138 Harmonized Tariff Schedule (HTS) codes covering finished textile and apparel products, including items under Chapters 61, 62, 63, and 94.
Increase to 15% for 17 HTS codes covering textile inputs, including items under Chapters 52, 55, 58, and 60.
The decree also imposes restrictions on the temporary importation of certain textile and apparel products under the IMMEX program, which allows companies to defer duties on imported products, raw materials and components, enabling duty-free importation for manufacturing, assembly, export services such as e-commerce sales, or other programs, before re-exporting. The decree imposes restrictions on finished clothing and textile articles classified under HTS Chapters 61, 62, and 63 are excluded from the IMMEX program.
Shortly after the decree was published, Mexico’s Ministry of Economy revised the decree and exempted the IMMEX restriction for six months for goods classified in HTS chapters 61, 62, 63, and subheadings 9404.40 and 9404.90, as long as certain requirements are met.
And the Fox Says…: These changes are part of Mexico’s broader strategy to bolster its domestic textile and apparel industries, tackle compliance challenges under the IMMEX program, shield its textile and clothing sectors from alleged unfair trade practices, and possibly retaliate against the incoming administration’s proposed tariffs. Mexico’s decree could significantly affect textile and apparel importers utilizing the IMMEX program to bring goods into the United States.
Companies should reassess their import strategies, explore alternative sourcing to mitigate tariff impacts, and collaborate with trade compliance experts to navigate new regulations and optimize supply chain efficiency. The AFS team is well-equipped to assist businesses in adapting to these changes, offering expert guidance on global supply chains and duty mitigation.
6. Nippon No-Go: President Uses CFIUS Authority to Block Nippon-US Steel Acquisition, Parties Sue
On January 4, President Biden issued an executive order prohibiting the acquisition of US Steel by Japanese firm Nippon Steel, pursuant to his Committee on Foreign Investment in the United States (CFIUS) authorities. CFIUS is an interagency committee charged with reviewing certain foreign investments in the United States for national security risks. If CFIUS finds that such a risk arises from a given transaction, it can recommend that the president prohibit the transaction. President Biden’s order follows a contentious CFIUS review process of the approximately $14 billion deal, which resulted in a “split recommendation.” Split recommendations to the president result when CFIUS cannot come to agreement whether a transaction creates national security risks. In response to the order, US Steel and Nippon Steel filed multiple lawsuits alleging, among other things, political interference in the process.
And the Fox Says…: CFIUS has entered into uncharted territory. Presidential prohibitions on their own are extremely rare; “split recommendations” by CFIUS are rarer still; and CFIUS litigation is almost unheard of. Regardless of the outcome, this case is likely to significantly shape CFIUS’ evolving role in the national security and investment space for many years to come. The results are unpredictable: buyer (and seller) beware.
7. General License Gives Temporary Sanctions Relief to Post-Assad Syria
The US Department of Treasury’s Office of Foreign Assets Control (OFAC) issued General License 24 on January 6, authorizing for the next six months:
Transactions with governing institutions in Syria following December 8, 2024.
Transactions in support of the sale, supply, storage, or donation of energy, including petroleum, petroleum products, natural gas, and electricity to or within Syria.
Transactions that are ordinarily incident and necessary to processing the transfer of noncommercial personal remittances to Syria, including through the Central Bank of Syria.
The license — which aims to ensure that US sanctions “do not impede essential governance-related services in Syria following the fall of Bashar al-Assad on December 8, 2024” — covers transactions that are otherwise prohibited under Syria Sanctions Regulations, the Global Terrorism Sanctions Regulations, and the Foreign Terrorist Organizations Sanctions Regulations.
There are several important exceptions to the authorization, including most — but, crucially, not all — financial transfers to blocked persons (like Hay’at Tahrir al-Sham, the organization in control of the post-Assad government) and new investments in Syria. Note that comprehensive export controls against Syria are still very much in place. Check out our full client alert here.
And the Fox Says…: Companies and individuals relying on General License 24 must make sure that their activities are in one of the three approved categories and do not fall into one of the exceptions. In the meantime, OFAC’s wait-and-see approach offers temporary but much-needed sanctions relief to the Syrian people.
William G. Stroupe II, Natalie Tantisirirat, Sylvia G. Costelloe, and Matthew Tuchband contributed to this article.
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Expungement and Reexamination Proceedings at the USPTO: Cost-Effective and Efficient Processes for Cancelling Trademarks
Businesses seeking to clear the path for their trademarks can challenge trademarks of others that are not genuinely in use. The U.S. Patent and Trademark Office (USPTO) expungement and reexamination proceedings provide businesses with tools to challenge such existing trademark registrations. The USPTO recently announced that it has successfully used such proceedings to clear more than 25,000 unused goods and services from the trademark register in 2024.
To maintain their registration, trademark owners are required to use their trademark in commerce for all the goods and services listed in the registration. However, when active trademark registrations include goods and services that no longer apply, they can block subsequent legitimate owners from registering the same or a similar mark.
Expungement and reexamination proceedings are two ways a party can challenge a registration due to nonuse in an attempt to cancel that registration. These proceedings are generally less expensive and more efficient than a formal cancellation proceeding before the Trademark Trial and Appeal Board (TTAB). If the request succeeds, the USPTO will delete those goods or services from the registration or cancel the registration altogether.
Expungement versus Reexamination
The type of proceeding depends on the particular facts. A party may institute an expungement proceeding if it can show that the owner never used the trademark in commerce with reference to some or all of the goods or services listed in the registration. Expungement is available for a registration based on use in commerce, a foreign registration, or the Madrid Protocol. Expungement must be requested between three and ten years after the trademark registration date.
On the other hand, a party may institute a reexamination proceeding if it can show that the owner did not use the trademark in commerce with reference to some or all of the goods or services listed in the registration on or before the relevant date required for showing proof of use. The “relevant date” is the date when the underlying application was initially filed based on use in commerce. When the underlying application was filed or amended to an intent-to-use basis, the “relevant date” is the date that an accepted amendment to allege use was filed or the end date of the statement-of-use period for an accepted statement of use. Reexamination must be requested within the first five years after registration.
How to Institute a Proceeding
To institute either an expungement or a reexamination proceeding, a party must submit the relevant form requesting that the USPTO institute a proceeding, including a verified statement, evidence supporting nonuse (such as past and current nonuse, fake or digitally altered specimens of use, or evidence of improper behavior that is relevant to nonuse), and a $400 fee per class of goods or services challenged. The trademark owner is notified and can submit a response. Aside from the original filing, no other documents are required. The USPTO will then consider all the evidence and make a determination. This process can take anywhere from four to twelve months.
For comparison purposes, the cost to institute a formal proceeding at the TTAB is $600 per class and can last up to three years. This does not include any legal fees incurred as a result of engaging in the adversarial proceeding, including motion filings and discovery.
Conclusion
In the past, if a registered mark were cited against an application based on a likelihood of confusion, the applicant could either respond with arguments as to why there was no likelihood of confusion or seek to cancel the registered mark. The expungement and reexamination proceedings give applicants another avenue for overcoming this type of refusal.