Will Pillar Two Crumble Before It’s Built?
Over 135 jurisdictions signed up for a global Organisation for Economic Cooperation and Development (OECD) project in October 2021 aimed at reforming the international taxation system. A Two-Pillar approach was developed to combat base erosion and profit-shifting strategies, which large multinational enterprises (MNEs) employ to move their profits to low or no-tax jurisdictions or to lower their tax bases through deductible expenses. On the first day in office of his second term, President Donald Trump withdrew from this “Global Tax Deal.” The threat of punitive measures now looms over countries that impose tax on US MNEs under their domestic Pillar Two legislation.
Pillars One and Two
In summary, Pillar One reallocates the profits of MNEs from jurisdictions where they earn income to those where they have substantial engagement (i.e., where they sell goods and supply services). Pillar Two imposes a minimum effective tax rate of 15 percent on MNEs (with over €750 million in turnover) in every country in which they operate, regardless of local tax rates or available reliefs. Pillar Two comprises a set of Global Anti-Base Erosion (GloBe) rules that include two key tax collecting mechanisms (applicable where the effective tax rate in a jurisdiction is lower than 15 percent):
Income Inclusion Rule (IIR): a top-up tax is paid in the jurisdiction of the ultimate parent entity or of the intermediate parent entity.
Undertaxed Payment Rule (UTPR): if the IIR does not collect all the top-up tax in a certain jurisdiction, the UTPR assigns the liability to pay the top-up tax to the other constituent entities (in other jurisdictions) of that MNE group.
Executive Orders
Among the numerous executive orders that President Trump has signed since his inauguration, two are particularly relevant here. First, as mentioned, President Trump withdrew all US commitments to the Global Tax Deal, stating that it “allows extraterritorial jurisdiction over American income,” and ordered that the Secretary of the Treasury shall investigate whether any foreign countries have put in place or are likely to put in place any tax rules that are “extraterritorial or disproportionately affect American companies” and develop options for protective measures. Second, the Secretary of Commerce and the Office of the United States Trade Representative have been tasked with investigating if any foreign countries subject US citizens or corporations to “discriminatory or extraterritorial taxes pursuant to section 891 of title 26, United States Code.” Section 891 allows for the doubling of US tax rates on foreign citizens and corporations without prior approval from Congress. Importantly, Section 891 has been on the statute book for approximately 90 years but has never been invoked.
What Might Happen Now?
President Trump has been highly critical of Pillar Two for several years, and it has long been speculated that under a Trump administration, countries may be reluctant to apply the UTPR to US corporations for fear of retaliation, specifically in the form of tariffs on their exports to the United States. As such, the withdrawal from the Global Tax Deal comes as no real surprise. However, two important questions arise: (i) how does this affect the US income of foreign individuals and corporations, and (ii) where does this leave the future of the Global Tax Deal?
As opposed to the retaliatory tariffs, doubling taxes under Section 891 would not only directly affect a significant number of corporations but also the income of individuals. The threat of invoking Section 891 is startling, given this is likely one of the most extreme options President Trump has at his disposal in this context. Several questions also remain unanswered. For example, how would these measures work in practice, what would their interactions be with Double Taxation Treaties (which generally take precedence over domestic rules) or how would this affect US dual citizens?
Section 891 measures seem so radical that they could be viewed as an exaggerated but unlikely threat. However, the US House Committee on Ways and Means has introduced a more realistic form of potential retaliatory measures in the form of the Defending American Jobs and Investment Act. This proposes the following: first, countries that impose “discriminatory taxes” on US businesses would be identified. The UTPR is given as an example of such “discriminatory taxes.” Then, the tax rates on the US income of individual investors and corporations from those countries would increase by 5 percent each year for four years, after which the tax rates would remain elevated by 20 percent while “the unfair taxes are in effect.” Though undoubtedly a lesser risk than the doubling of tax rates, this proposal would still result in a heavy financial and administrative burden on corporations (and individuals), affecting their profitability. Many corporations and individuals may also have to rethink or restructure planned business ventures, resulting in additional legal and advisory costs.
At the same time, numerous corporations have already incurred significant administrative costs in preparing for Pillar Two to come into effect — and around 50 countries have already implemented Pillar Two rules. However, with President Trump’s executive order withdrawing US support of the Global Tax Deal, Pillar Two’s future is now uncertain.
It is universally acknowledged that the success and future of Pillar Two rests on collective effort and cooperation between countries. The threat of the retaliatory measures as described above, including the potential for the imposition of tariffs by the United States (which is still highly pertinent), may give rise to two outcomes. On the one hand, many jurisdictions may be slower to adopt Pillar Two rules or avoid implementing them all together. This will likely depend on the severity of any retaliatory measures proposed rather than purely based on US withdrawal from the deal (given that House Republicans, who held a majority when Pillar Two came into being, were against its implementation — US implementation was never guaranteed).
On the other hand, US retaliation to Pillar Two implementation may escalate global economic tensions. Countries may recognize and use their existing leverage to fight such measures. For example, several countries have frozen their digital services taxes (which the United States has long opposed) due to the implementation of the Global Tax Deal, thereby benefitting US tech giants. As such, countries have the option of reinstating these taxes at their disposal.
Amongst so much uncertainty, one thing is clear: both corporations and individuals must monitor any updates in this area vigilantly. Developments, with respect to either the implementation (or lack thereof) of Pillar Two by countries or US retaliatory measures, may be highly consequential. Keeping on top of them will be key to proactively and effectively addressing resulting challenges as and when they arise.
*Georgia Griesbaum, trainee in the Transactional Tax Planning practice, contributed to this article.
FTC Chairman Ferguson Appoints Deputy Directors for Bureau of Consumer Protection
On February 18, 2025, the Federal Trade Commission announced that Chairman Andrew N. Ferguson appointed David Shaw as Principal Deputy Director and Kelse Moen as Deputy Director of the agency’s Bureau of Competition, and Douglas C. Geho as Deputy Director of the Bureau of Consumer Protection.
Shaw is an experienced antitrust lawyer with expertise in high-stakes litigation and contentious merger review. During the first Trump Administration, Shaw served in the Department of Justice’s Antitrust Division in a variety of roles, from the front lines as a trial attorney to the front office as acting chief of staff. As a trial attorney, Shaw served on multiple trial teams, including the first litigated vertical merger challenge in forty years.
While serving in DOJ’s front office, he held a leadership role in the Big Tech investigations and successfully coordinated a bipartisan coalition of state attorneys general joining the DOJ complaint in the Google search monopolization case.
In addition to his government service, Shaw was a partner in the antitrust practice of a large international law firm.
Moen is an experienced antitrust attorney, with a career in both government service and private practice. Most recently, he served as senior counsel to the U.S. Senate Judiciary Committee for Senator Lindsey Graham, where he focused on antitrust, technology, and intellectual property issues, a position that he held until his appointment to the FTC.
Before joining the Judiciary Committee staff, Moen spent nearly a decade practicing antitrust law at major international law firms, representing businesses and individuals in high-stakes and high-profile government investigations, class actions, civil and criminal litigation, and merger reviews. He clerked for Judge Robert Mariani of the U.S. District Court for the Middle District of Pennsylvania.
Geho possesses extensive enforcement, regulatory and litigation experience. During the first Trump Administration, Geho served at the Department of Labor as Counsel and Policy Advisor, and then Counselor to the Assistant Secretary for Policy, where he advanced efforts relating to regulatory and enforcement reform, worker safety and training, and additional Administration priorities. He then served as a lead attorney for the House Judiciary Committee and two of its subcommittees. Gebo also managed investigations for the Senate Committee on Homeland Security and Governmental Affairs.
Most recently, Geho served as an Attorney Advisor to Commissioner Melissa Holyoak handling consumer protection matters for her office. He clerked for Judge Alice M. Batchelder on the U.S. Court of Appeals for the Sixth Circuit.
New HSR Premerger Notification Requirements Take Effect
The new Hart-Scott-Rodino (HSR) Premerger Notification and Report Form (the “Form”) went into effect on February 10, 2025.
The new Form institutes several changes to the HSR process, including slightly expanding the category of individuals required to provide responsive documents (traditionally referenced as 4(c) documents), as well as broadening the requirement for when a draft presentation must be included in the 4(c) documents.
As to the latter, the new requirement is that a draft presentation, shared with a single member of an organization’s board of directors, must be included in the filing, even if a final version of the presentation is also included. However, whether the draft needs to be included depends on whether the recipient received the presentation in their capacity as a board member or in some other capacity, such as the CEO of an organization. In addition, the Federal Trade Commission’s (FTC’s) guidance provides that when board members have access to a collaborative drafting tool or document, the various drafts need not be provided, but a statement of noncompliance must accompany the filing.
Those attorneys who may have been looking forward to hearing live guidance from the FTC on the new HSR process may be disappointed, as the new chair issued a directive prohibiting FTC political appointees from speaking at or attending any American Bar Association (ABA) conference or event and barring the use of FTC funds for any ABA membership, participation, or event attendance. Presumably, the dictate will also scuttle the traditional agency update with the FTC Bureau Directors at the ABA Antitrust Law Spring Meeting.
DOJ Gun-Jumping Complaint Highlights Importance of Careful Preparation of Interim Operating Covenants to Avoid HSR Act Violations
A recent civil complaint from the U.S. Department of Justice (DOJ) highlights the importance of carefully planning interim operating covenants in M&A deals and structuring the process to prevent buyers from gaining control of targets too soon—before the mandatory waiting period under the Hart-Scott-Rodino Act (HSR Act) is up. This is commonly referred to as “gun-jumping.”
On January 7, 2025, the DOJ filed a complaint for civil penalties and equitable relief for violations of the HSR Act against Verdun Oil Company II LLC (Verdun), XCL Resources Holdings, LLC (XCL), and EP Energy LLC (EP Energy) for gun-jumping in Verdun’s and XCL’s $1.4 billion acquisition of EP Energy, a crude oil production company operating in Utah and Texas. The DOJ alleges that between the execution of the transaction’s purchase agreement in July 2021 and October 2021, when the purchase agreement was amended to restore EP Energy’s operational independence, EP Energy allowed Verdun and XCL, Verdun’s sister company, (i) to exert premature operational and decision-making control over significant aspects of EP Energy’s day-to-day business, (ii) to assume financial risks within EP Energy’s business, (iii) to obtain competitively sensitive information, (iv) to engage directly with customers and vendors in contract negotiations, and (v) to coordinate anti-competitive pricing and supply chain disruptions, all prior to the expiration of the waiting period obligations under the HSR Act.
Even though EP Energy, Verdun, and XCL filed the required pre-merger HSR filings with the Federal Trade Commission and the DOJ, the complaint alleges that the purchase agreement granted the buyers too much control during the waiting period because of consent rights that placed key aspects of EP Energy’s business under their control. The purchase agreement also allegedly required buyers’ express approval to conduct development operations, which prevented EP Energy from continuing its oil well-development activities and production plans, and to hire field-level employees and contractors necessary for drilling and production in its ordinary-course operations. The purchase agreement also allegedly made the buyers responsible for any financial risk and liabilities tied to the restrictions, further suggesting they were gaining effective control over the company.
In addition, XCL and Verdun allegedly took an active “boots on the ground” approach to taking over EP Energy’s operations prior to the closing of the transaction and the expiration of the HSR waiting period, allegedly coordinating with EP Energy on customer contracts, relationships, and deliveries, in addition to coordinating on pricing terms offered to customers. In assuming the operational control of EP Energy, the buyers were allegedly granted access to confidential and competitively sensitive information to include details on customer contracts, pricing, production volumes, and vendor contracts.
As a result of these allegations, XCL, Verdun, and EP Energy are facing civil fines in excess of $5.6 million.
When structuring a deal, it’s important to account for the HSR clearance timeline and closely monitor the activities between the buyer and the target. All parties involved need to know what’s okay to do before the deal closes, especially when it comes to making decisions and taking control of operations. For example, deal teams should avoid having buyers negotiate on behalf of the target with customers or vendors, and be very careful with handling sensitive competitive information to prevent anti-competitive concerns. That info should be shared carefully, using “clean team” safeguards or data rooms to keep it under control.
While these tips are general best practices for any transaction, deal teams should address and tailor HSR, anti-competition, and purchase agreement interim operating covenant considerations on a deal-by-deal and client-by-client basis.
Resources:
U.S. Department of Justice, Press Release, Oil Companies to Pay Record Civil Penalty for Violating Antitrust Pre-Transaction Notification Requirements (Jan. 7, 2025), https://www.justice.gov/archives/opa/pr/oil-companies-pay-record-civil-penalty-violating-antitrust-pre-transaction-notification.
United States v. XCL Resources Holdings, LLC, No. 25-cv-00041 (D.D.C. Jan. 7, 2025).
Small-Market Segment Can Still Satisfy Domestic Industry Requirement
The US Court of Appeals for the Federal Circuit affirmed a US International Trade Commission finding, explaining that small-market segments can be significant and substantial enough to support the Commission’s domestic industry requirement. Wuhan Healthgen Biotechnology Corp. v. International Trade Commission, Case No. 23-1389, (Fed. Cir. Feb. 7, 2025) (Moore, Chen, Murphy, JJ.)
Ventria Bioscience Inc. owns a patent directed to cell-culture media, which supplies nutrients to cells grown in artificial environments. Ventria filed a complaint at the Commission alleging that Wuhan Healthgen Biotechnology violated § 337 of the Tariff Act by importing products that infringed the patent. The Commission ultimately found that Healthgen imported infringing products and that Ventria had satisfied the domestic industry requirement. Healthgen appealed.
The Federal Circuit affirmed the Commission’s domestic industry finding. The Court began by explaining the long-standing principle that patent infringement-based violations of § 337, which establishes unlawful import practices, require that “an industry in the United States, relating to the articles protected by the patent…exists or is in the process of being established.” This requirement is divided into economic and technical prongs. Here, Healthgen conceded that the technical prong was satisfied by a Ventria product (Optibumin) that practiced the patent.
The economic prong considers three factors, any of which are sufficient to satisfy the prong. As identified by the subsections of § 337(a)(3), “there is in the United States, with respect to the articles of the patent…(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.” The Commission found that each of these factors was met because, among other things, Ventria had 100% of its relevant investments in Optibumin located within the United States. The conclusion was further supported by a comparison of the investments to Obtibumin’s revenue.
Healthgen argued that the investments were too small to be significant or substantial, and that Optibumin’s revenue was low, which inflated investment-to-revenue ratios. The Federal Circuit rejected Healthgen’s argument, stating that “[s]mall market segments can still be significant and substantial enough to satisfy the domestic industry requirement.” The Court continued, stating that a domestic industry analysis “cannot hinge on a threshold dollar value or require a rigid formula; rather, the analysis requires a holistic review of all relevant considerations that is very context dependent.” Here, the Court found that “[t]hough the dollar amounts of Ventria’s Optibumin investments are small, the Commission found all of the investments are domestic, all market activities occur within the United States, and the high investment-to-revenue ratios indicate this is a valuable market.” The Court found that the Commission’s findings were supported by substantial evidence and affirmed the Commission.
Diamond in the Rough: Federal Circuit Polishes § 101’s Abstract Idea Test
The US Court of Appeals for the Federal Circuit reversed and remanded a determination by the US International Trade Commission regarding subject matter ineligibility under 35 U.S.C. § 101. The Court concluded that the Commission’s “loose and generalized” analysis did not adequately consider the specific and technical improvements specified by the claims. US Synthetic Corp. v. International Trade Commission, Case No. 23-1217 (Fed. Cir. Feb. 13, 2025) (Dyk, Chen, Stoll, JJ.)
US Synthetic Corp. (USS) filed a complaint with the Commission, alleging that several entities (intervenors) violated § 337 of the Tariff Act by importing and selling certain products that infringed five of USS’s patents. The patent at issue concerned a composition of a polycrystalline diamond compact (PDC) and disclosed an improved method for manufacturing PDCs.
An administrative law judge (ALJ) determined that several claims of the patent were valid and infringed under 35 U.S.C. §§ 102, 103, and 112. However, the ALJ found the claims patent-ineligible under § 101, deeming them directed to an abstract idea. The Commission affirmed this finding while rejecting the intervenors’ argument that the claims lacked enablement under § 112. Consequently, the only bar to a § 337 violation was the § 101 ruling. USS appealed, challenging the Commission’s patent ineligibility determination, while the intervenors argued that the claims were not enabled.
The Federal Circuit determined that the patent claims were directed to a specific technological improvement rather than an abstract idea. The Court had consistently explained that claims that provide a concrete technological solution to a recognized problem in the field are patent-eligible under § 101. Here, the claimed invention was not merely an implementation of an abstract idea on a generic computer; rather, it provided a particularized solution rooted in the physical composition of matter defined by constituent elements, dimensional information, and inherent material properties.
Applying the Supreme Court’s two-step Alice framework, the Federal Circuit reasoned that, under Alice step one, courts must determine whether the claims are directed to an abstract idea or a patent-eligible improvement. In this case, the Court found that the patent claims were not directed to an abstract idea because they recited a specific solution that was directed to a non-abstract composition of matter: PDC. Unlike claims found ineligible in prior cases, USS’s patent did not merely recite a mathematical algorithm or fundamental economic practice but instead provided a tangible technological advancement for an improved method for manufacturing PDCs.
The Federal Circuit noted that even if the claims were directed to an abstract idea under Alice step one, the claimed invention contained an inventive concept sufficient to transform the nature of the claim into patent-eligible subject matter under Alice step two. The Court explained that an inventive concept exists when the claims recite a specific, unconventional solution that goes beyond well-understood, routine, and conventional activities previously known in the field. Here, the Court determined that the claimed invention included an innovative combination of components (diamond, cobalt catalyst, and substrate) in conjunction with particular dimensional information (grain size) and material properties (magnetic saturation) to achieve an improved composition: PDC. Thus, the Court determined that USS’s patent claimed a specific and inventive technological improvement rather than an abstract idea.
Trade Dress Requires Separate Articulation and Distinctiveness Requirements
The US Court of Appeals for the Second Circuit vacated and remanded a district court’s dismissal of a complaint for trade dress infringement and unfair competition, finding that the district court erred in requiring the plaintiffs to articulate distinctiveness of trade dress infringement at the pleading stage. Cardinal Motors, Inc. v. H&H Sports Protection USA Inc., Case No. 23-7586 (2d Cir. Feb. 6, 2025) (Chin, Sullivan, Kelly, JJ.)
Cardinal is a designer and licensor of motorcycle helmets. At issue was the “Bullitt” helmet, which Cardinal exclusively licenses to Bell Sports and is “one of the most popular helmets made by Bell.” H&H manufactures and sells the “Torc T-1” helmet. Both the Bullitt and Torc T-1 helmets have “flat and bubble versions,” feature “metallic borders around the bottom and front opening of the helmet,” and “share similar technical specifications.”
Cardinal sued H&H in September 2020, alleging unfair competition and trade dress infringement. Cardinal amended its complaint twice but both amended complaints were dismissed for failure “to adequately plead the claimed trade dress with precision or with allegations of its distinctiveness.” In Cardinal’s third amended complaint, it included two alternative trade dresses – a “General Trade Dress” and “Detailed Trade Dress” – which listed features of the Bullitt at different levels of detail.
Despite the amendment, the district court dismissed the third amended complaint with prejudice. Based on the general trade dress, the district court reasoned that Cardinal failed to allege distinctiveness and therefore failed to allege a plausible trade dress claim. The district court extended its reasoning to “summarily conclud[e]” that the detailed trade dress also failed to articulate distinctiveness. Cardinal appealed.
Prior to making any determinations, the Second Circuit clarified that distinctiveness and the articulation requirement are separate inquiries, and that the articulation requirement is evaluated first. A plaintiff meets the articulation “requirement by describing with precision the components – i.e., specific attributes, details, and features – that make up its claimed trade dress.” The Court explained that the articulation requirement assists courts and juries to evaluate infringement claims, ensures the design is not too general to protect, and allows a court to identify what combination of elements would be infringing.
Focusing on distinctiveness, the Second Circuit explained that a trade dress plaintiff must specifically allege that its product design has acquired distinctiveness. Acquired distinctiveness is when the mark has a secondary meaning, where the public primarily associates the mark with the “source of the product rather than the product itself.” Separate from the elements of trademark, the plaintiff must meet the articulation requirement, which entails listing the components that make up the trade dress.
Having clarified the pleading requirements, the Second Circuit found de novo that the district court erred in mixing the articulation requirement with the distinctiveness requirement at the pleading stage. The Second Circuit determined that the district court erred in dismissing Cardinal’s complaint for failure to meet the articulation requirement. The Court found that Cardinal met the articulation requirement because the general trade dress was “sufficiently precise as to the specific combination of components that comprise the Bullitt’s trade dress.” The Second Circuit also found that the district court erred in assuming the detailed trade dress was inadequate on the grounds that it found the general trade dress inadequate. The Court noted that because the detailed trade dress included more components, the district court erred in failing to consider its sufficiency independently. Lastly, the Court found that the more precise detailed trade dress met the articulation requirement even if the general trade dress did not. Having concluded that Cardinal met the articulation requirement, the Second Circuit instructed the district court on remand to identify whether Cardinal sufficiently pleaded the elements of a trade dress infringement claim.
Practice Note: Complaints for trade dress infringement should include a specific list of components of its trade dress, “such as materials, contours, sizes, designs, patterns, and colors,” in addition to pleading the three elements of trade dress infringement.
Five Compliance Best Practices for … Minimizing Customs Tariffs (Part I)
Minimizing tariffs is a common objective for businesses engaged in international trade, as tariffs can significantly impact the cost of importing or exporting goods. Here are several strategies businesses can consider to minimize tariffs.
Duty Drawback. A duty drawback is a refund or remission of a customs duty, fee, or internal revenue tax previously imposed. The refunds occur when the product is exported from the United States or destroyed. Duty drawback programs allow businesses to claim refunds or credits for duties paid on imported inputs that are exported or incorporated into exported products. This is a complex process, as it involves imports and exports, but for certain types of transactions it can offer real duty savings.
Foreign Trade Zone (FTZ). A foreign trade zone is a secured location in or near CBP ports, where no tariffs apply while the product sits in the FTZ. The product can be stored, exhibited, assembled, manufactured, or processed in this zone without any duties being applied. This allows for duty deferral if the goods are eventually withdrawn into the U.S. Customs territory, or potentially no duties at all if the goods are shipped to another country.
Consider Holding Products in a Bonded Warehouse. Bonded warehouses provide similar benefits by allowing businesses to store imported goods under bond, deferring duty payments until the goods are removed for consumption. Bonded warehouses are buildings or secured locations in which products with duties can be stored or altered without paying the duties for a maximum of five years. If the products are exported, no duty is owed on the products.
Temporary Importation Under Bond (TIB). When using a TIB, an importer may post a bond for twice the amount of the duties and then must export or destroy the imported items within a specified time or pay damages. TIBs represent another way to handle temporary imports to secure duty savings.
American Goods Returned.For goods that were initially exported abroad and then returned to the United States, such as for servicing, warranty services, or value-added activities, it may be possible to declare an entered value equal to the value added abroad. If this is a common importing pattern for your company, you should check and see if you are appropriately taking advantage of opportunities to minimize tariffs using the American Goods Returned program.
For further information, check out our four-part “Managing Import Risks Under the New Trump Administration” series on risk-planning for the anticipated tariff increases:
Identifying Risks and Opportunities
The Implications of President Trump’s “America First” Trade Memorandum
A 12-Step Plan for Coping with Tariff and Supply Chain Uncertainties
Contractual Provisions to Cope with the Increasing Tariffs and Trade Wars
The EU’s Foremost Economic Retaliation Device – The Anti-Coercion Instrument
Under the leadership of President Trump, the US has adopted a new trade policy that may lead to the adoption of trade measures on imports from the EU. Given the importance of the US/EU trade relationship and the EU’s stated commitment to a free trade environment, the EU has said that it will adopt measures in response to such a US policy. During the election campaign, President Trump spoke of tariffs to re-balance the US economy and replace some tax revenue (i.e. new tariffs as a permanent feature of the trading landscape). The EU’s response may be calibrated according to the purpose of tariffs applied by the US Administration.
In this blog post, we provide an insight into the functioning of perhaps the most assertive (yet so far unused) trade instrument at the EU’s disposal to retaliate, the EU Anti-Coercion Instrument (ACI, available here).
EU Retaliation
Should the EU consider that its interests are impaired by the US measures, it may decide to take retaliatory action against it.
Such retaliatory action is already being announced. On February 11, 2025, following the US announcement of a 25% import tariff on steel and aluminum, EC President Ursula von der Leyen affirmed that the EU would respond to “unjustified tariffs” with “firm and proportionate countermeasures”, and that the EU will act to safeguard its economic interests” (see here).
The EU has different instruments at its disposal for this purpose, including setting retaliatory tariffs on US products, using conventional trade defense instruments or acting under the EU International Procurement Instrument.
The EU ACI is one of the more resolute tools at the EU’s disposal. It is aimed at addressing economic coercion by third countries against the EU or one/several of its member states. So far, the ACI, which was adopted in 2023, has never been used by the EU. Nevertheless, the EU could choose to resort to it, should EU-US relations severely deteriorate.
When Could the EU Resort to the ACI
The ACI can only be resorted to in case of “economic coercion.” This is understood as a situation where a third country applies or threatens to apply a measure affecting trade or investment to make the EU or a member state thereof act (or stop acting) in a particular manner.
Certain circumstances may guide the EU towards an economic coercion finding. This includes the magnitude of trade or investment disruption, the pressure arising from it, the extent of the sovereignty encroachment or whether particular acts are expected from the EU or one/several of its Member States.
EU Examination of Third Country Actions and Omissions
The EC may examine any third country action or omission to evaluate if it constitutes economic coercion. It may do so at its own initiative or if requested to do so (subject to conditions).
Where the EC considers that the third country action or omission constitutes economic coercion, it must submit a proposal to the Council of the European Union (“the Council”, i.e. the EU member states) for an act formally determining that the third country action, or omission constitutes economic coercion. Should it declare economic coercion (by a qualified majority of its members), the Council may also request reparations for the injury to the EU.
Consultants
Next, the EC would request the country in question to immediately cease such economic coercion (as well as to repair any injury, if requested to do so by the Council).
The EC would also seek consultations with the country in question. Options that could be explored in such consultations would include direct negotiations, or the submission of the matter to international adjudication, mediation or conciliation.
Simultaneously, the EC would seek to obtain the cessation of the economic coercion by raising it in international fora, where applicable. It could also collaborate with any country affected by the same or similar economic coercion, for example to coordinate their respective responses.
EU Response Measures
Foreign economic coercion could result in the EC adopting response measures, which may amount to measures of general application (potentially affecting an entire third country, or only specific sectors, regions or companies thereof), or measures targeting specific natural or legal persons.
Substantially, response measures may include:
Customs duties
Other import charges
Import or export restrictions
Measures on transiting goods
EU internal measures applying to goods
The non-performance of international obligations concerning the right to partake in tender procedures
Measures affecting trade in services (including through EU subsidiaries)
Measures affecting access to foreign direct investment to the EU (including through EU subsidiaries)
Restrictions on the protection of intellectual property rights or their commercial exploitation
Restrictions in access to EU capital markets and other financial service activities
Restrictions on the possibility of marketing goods subject to EU rules on chemicals
Restrictions on the possibility of marketing goods subject to the EU sanitary and phytosanitary rules
Response measures should, in any event, be proportionate and not exceed the level of injury to the EU.
The adoption of response measures would, in any event, be subject to three conditions:
That any request to the third country in question to cease or repair the economic coercion, as well as any consultations and possible further action (such as international adjudication or mediation) has not resulted in the cessation of the economic coercion is a reasonable period of time;
That the adoption of EU response measures is necessary to protect the interests and rights of the EU, and its member states in the particular case;
That the adoption of the EU response measures is in the EU interest (including with respect to the ability of the EU and its member states to make legitimate sovereign choices free of economic coercion).
EU response measures are also possible where the economic coercion in question has ceased, but the third country has not repaired in full the injury to the EU, despite having been requested to do so.
After the Imposition of Measures
Upon adoption of response measures, the EC would offer to negotiate a solution with the third country. The entry into force of the measures could be delayed by up to three months following their adoption, extendable where the third country in question would take steps to cease the economic coercion and, where appropriate, repair the injury to the EU.
Once response measures would be applied, the EC would monitor the evolution of the economic coercion – and potentially amend them. Where economic coercion would be suspended, the EC would also suspend the application of the response measures.
The EC would be required to terminate EU response measures when any of the following five situations would arise:
Where the economic coercion would end, and any requested injury reparation would be carried out;
Where economic coercion would end without injury reparation (event where requested) – subject to conditions;
Where a mutually agreed solution would be reached with the third country in question;
Where a binding decision in relevant international third-party adjudication would require the termination of the restrictive measures;
Where termination would be appropriate in light of the EU interest.
Response measure termination would be carried out through EC implementing acts. To adopt such implementing acts, the EC would have to follow an examination procedure. As part of that examination procedure, a committee representing EU member states would have to deliver an opinion (adopted through a qualified majority) asking for the measures to be terminated. The EC would be required to follow the committee’s opinion and terminate the measures. Under some circumstances and provided the committee would not deliver an opinion, the commission could also terminate the EU response measures at its own initiative.
How We Can Help
The ACI is at the apex of the EU’s policy arsenal in international economic matters – it is for that reason that is has been referred to as a “bazooka”. While it has never been used so far, a very aggressive trade policy measure against the EU could prompt the EC to at least brandish the ACI as one of the more assertive instruments at its disposal against third countries, including the US or China. Should it ever be triggered, ACI response measures could severely affect trade or financial relations. US goods and services may be directly targeted. At the most extreme end of the spectrum, US trade restriction measures and the EU’s response could combine to alter current patterns of trade across the Atlantic for some time into the future.
Personal Jurisdiction Considerations for International Biosimilars Companies
The Federal Circuit recently issued decisions in a pair of appeals that provide guidance about when international filers of abbreviated Biologics License Applications (aBLAs) are subject to jurisdiction in the United States. Specifically, the Federal Circuit held that international biosimilars companies are subject to jurisdiction in the United States when they have submitted an aBLA with the intent to market the finished product in the forum state.
1. Regeneron’s Patent Infringement Lawsuits
The plaintiff in each case is Regeneron Pharmaceuticals, Inc., which holds Biologics License Application (BLA) No. 125387 for EYELEA®, which is approved by the U.S. Food and Drug Administration (FDA) for the treatment of patients with angiogenic eye diseases—Wet Age-Related Macular Degeneration (AMD), Macular Edema following Retinal Vein Occlusion (RVO), Diabetic Macular Edema (DME) and Diabetic Retinopathy (DR)—via injection into the body of the eye.
Regeneron sued several companies, including Samsung Bioepis Co., Ltd. (SB) and Formycon AG (Formycon), that had filed aBLAs with the FDA seeking approval under the Biologics Price Competition and Innovation Act (BPCIA) to market EYLEA® biosimilars. The cases were consolidated in the U.S. District for the Northern District of West Virginia and the district issued preliminary injunctions against SB and Formycon, barring them from offering for sale or selling the products described in their aBLAs, which have been approved by the FDA. SB appealed the preliminary injunction on several grounds, including that they were not subject to personal jurisdiction, which is the focus of this article.
2. SB’s Connections to the United States
SB is a biosimilar-products company headquartered in Incheon, South Korea. SB argued it has no facilities or employees in the United States; is not registered to do business and has no registered agent in West Virginia; and does not do business with entities in West Virginia. SB also argued that although it would sell its finished product to Biogen MA Inc. (a U.S. company) in a state other than West Virginia, it would not distribute, market or otherwise sell the product in the United States.
3. Formycon’s Connections to the United States
Formycon is a biopharmaceutical company based in Bavaria, Germany. Formycon argued that it has no “direct” ties to West Virginia; is not registered to do business and has no registered agent there; has no assets or employees there; and that it had contracted with manufacturers and packaging partners who would produce the finished product and related materials in other states. Formycon further argued that having developed the product pursuant to an agreement with another German company, it had no plans or rights to itself commercialize the product in the United States. Instead, the product would be sold to another company for marketing and distribution, and Formycon would have no control over the selection of that company or its decisions regarding commercialization.
4. The Federal Circuit’s Jurisdiction Analysis
When evaluating if a defendant is subject to personal jurisdiction in the forum of a particular state, the court looks to (1) whether the state’s long-arm statute permits service of process and (2) whether the assertion of jurisdiction would be inconsistent with due process under the U.S. Constitution. In many states, including West Virginia, the long-arm statutes are “coextensive with the full reach of due process,” so the questions collapse into one constitutional inquiry.
Under the U.S. Constitution, a court in a state may exercise jurisdiction over a defendant that has sufficient “minimum contacts” with the state that it would not “offend traditional notions of fair play and substantial justice.” This standard requires that the defendant’s suit-related conduct create a “substantial connection” with the forum state. The application of the standard in these cases is not necessarily straightforward because patent infringement cases based on an aBLA filing are not easily analogized to other types of actions or even traditional patent infringement cases.
The Federal Circuit, therefore, relied on its precedent in Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., 817 F.3d 755 (Fed. Cir. 2016), which considered the jurisdictional question in the context of a suit arising out of the filing of an Abbreviated New Drug Application (ANDA). In Acorda, the court had held that “minimum contacts” were satisfied by planned future interactions with the state. The submission of an ANDA with the intent to distribute the generic product in a state was held sufficient to support exercising jurisdiction.
Extending Acorda to aBLA cases, the Federal Circuit found similar evidence of conduct sufficient to exercise jurisdiction. Specifically as to SB, the court observed that SB had filed an aBLA; had served Regeneron with a Notice of Commercial Marketing, which communicates an intent to market upon FDA approval; had engaged various partners within the United States; and had entered into a nationwide distribution agreement with a U.S. company, through which SB retained “significant involvement” in commercialization activities.
Notwithstanding the apparent differences in involvement in commercialization activities, the Federal Circuit also found that Formycon intended to market the finished product in West Virginia and other states. As with SB, the court relied on Formycon’s filing of the aBLA, service of Notice of Commercial Marketing, and partnering with U.S. companies to manufacture, package and label its product. Although it had not yet entered into an agreement with a marketing partner, the court found Formycon intended to ultimately distribute the finished product nationwide.
Thus, filing an aBLA, providing Notice of Commercial Marketing, and having more than speculative plans to market the finished product throughout the United States appears sufficient to subject an international biosimilar company to jurisdiction in any state having a long-arm statute coextensive with the U.S. Constitution. The stronger the relationship to commercialization plans, the stronger the argument will be for jurisdiction, although these factors appear to primarily support a finding of jurisdiction as opposed to playing a significant role in the analysis in the first instance.
5. Guidance for International Biosimilars Companies
International biosimilars companies that file aBLAs in the United States with plans to market the finished product should expect a high likelihood of being subject to jurisdiction for related patent infringement cases. Some steps may mitigate the risk, however, and increase the likelihood of avoiding jurisdiction:
Reduce contact with the United States as much as possible. For example, perform all development, sourcing, manufacturing, packaging and labeling outside the United States.
Introduce layers between the aBLA filer and the ultimate marketer. For example, the aBLA filer may contract with other international companies that, in turn, independently contract with a marketing partner in the United States. If the agreement between the aBLA filer and the second international company is not limited to marketing rights in the United States, that may further help.
Carve out particular states. If there are states in which the international biosimilar company does not want to be subject to jurisdiction, expressly exclude those states from commercialization agreements.
These and other factors can significantly affect whether a company is ultimately subject to jurisdiction in the United States, and similar considerations may affect other partners in the international supply chain.
Draft of Decree for Patent Linkage by the Mexican Government.
On February 12, 2025, the Federal Commission for Protection against Health Risks (COFEPRIS) and the Mexican Institute of Industrial Property (IMPI) published a draft of the technical collaboration mechanism between both entities, with the intention to comply with the United States-Mexico-Canada Agreement (USMCA).
It mainly establishes two “formats” that each authority will publish in their web page and specifies the information to be included in the Allopathic Medicines Gazette and information of the communication before COFEPRIS and IMPI.
It also mentions that COFEPRIS’ “format” for the technical cooperation must include the opposition format, along with the information provided by the patent owner or its licensee and/or sublicensee.
This implies that the notice and opposition opportunity will take place before COFEPRIS and not IMPI and we assume that it is going to be described in further formats or in any other law or regulation.
In conclusion, we consider that there are some positive considerations from this draft, as follows:
This was due since 2020; therefore, it is a good sign that they are moving forward.
Although there is not an express language including use patents, the wording is more positive than the current linkage regulation to include use claims, by IMPI or through litigation.
It clarifies the information to be included in both formats by each authority.
The negative aspect is that we consider that still there are no rules for an appropriate notice to the title holder. From the draft, it seems that neither the notice nor a described process. Additionally, it seems that it will take place before COFEPRIS and not IMPI, which in our view is not the best venue for a notice to be heard by the patent holder.
Definitively, at least in this publication, apparently no compliance with the USMCA of a proper notice is expressly considered.
What Every Multinational Company Should Know About … The New Steel and Aluminum Tariffs
What Has President Trump Announced?
On February 10, 2025, President Trump signed proclamations titled Adjusting Imports of Steel Into the United States and Adjusting Imports of Aluminum into the United States. The proclamations cover both steel and aluminum tariffs, which will be raised to a flat 25%. In particular, the steel and aluminum proclamations establish the following tariff principles:
The Section 232 aluminum tariffs, which the Trump administration imposed in his first administration, are raised from 10 percent to 25 percent.
The Section 232 steel tariffs, which already were set at 25 percent but which contained significant carveouts for most major sources of steel products, including steel from Brazil, Canada, and South Korea, will be implemented “without exceptions or exemptions.”
All product-specific exemptions that had been granted under the prior Section 232 tariffs are eliminated.
The steel and aluminum proclamations apply not only to products previously identified in Proclamation 9705 (2018) and Proclamation 9980 (2020) but also to additional derivative steel products and derivative aluminum products to be identified in forthcoming annexes to the proclamations.
The United States will set up a process to allow U.S. industry groups and U.S. producers of steel and aluminum to request that other derivative products be added to the annexes.
The steel and aluminum proclamations include exemptions only for derivative steel products “melted and poured” in the United States and derivative aluminum products “smelted and cast” in the United States, to curb imports of minimally processed metals from other countries that circumvent the prior tariffs. In other words, derivative products that are produced from steel and aluminum that originated in the United States, which then were processed abroad into a derivative product, would be exempt from the new 25 percent tariffs.
The full impact of these tariffs will take time to work through the market. Nonetheless, the announcements sent major shock waves through the manufacturing community. To help companies sort out the potential impact of these new tariffs, this article works through the top-of-mind questions for most major aluminum and steel importers. It then provides some strategies for companies looking to manage tariff-related risks, including by buttressing supply chains and building in contractual flexibility.
Our expectation is that these are the opening salvos in a likely international trade war, not the last shot. Notably, after the issuance of the steel and aluminum proclamations, a White House official confirmed these tariffs would “stack” on any other tariffs. For example, if the currently suspended 25% increase in tariffs for Canada and Mexico are implemented, then imports of Canadian and Mexican aluminum and steel would face new 50% tariffs.
What Are the Key Open Questions and Ambiguities in the Announcement?
What products are covered? The coverage of the presidential proclamation is broad, covering all basic forms of steel and aluminum. In addition to steel and aluminum products subject to previous Section 232 duties, the proclamations will include forthcoming annexes incorporating further derivative steel and aluminum products.
How far downstream does the proclamation extend? The coverage likely extends to numerous downstream products such as pipes, tubes, and aluminum extrusions. The full list of derivative products covered by the proclamations will be listed in yet-to-be-published annexes.
How does this interact with the prior Section 232 duties imposed in President Trump’s first term? The effect of the steel and aluminum proclamations is basically to replace the prior Section 232 duties — including all their exemptions and negotiated alternative quota arrangements — with new, uniform duties under the current proclamations, including to a potentially larger set of products to be covered in the forthcoming annexes. This has the effect of both broadening the scope of the prior duties and also extending them to countries that had negotiated alternative measures to the prior Section 232 tariffs, such as by imposing quotas for exports of steel and aluminum to the United States in exchange for having the tariffs dropped. The proclamations also eliminate all the product-specific exemptions granted under both the prior Trump and Biden administrations. Thus, the proclamations represent a level-setting of the prior Section 232 tariffs, bringing everything to a uniform 25% rate for all countries and for all products.
What about the Section 301 duties? The Section 301 duties applicable to Chinese-origin products remain fully in place. Because those tariffs (recently increased by an additional 10%) cover basically all imports from China, including aluminum and steel products, the new aluminum and steel tariffs ladder on top of the Section 301 duties. Thus, there can be duties as high as 60% for Chinese aluminum and steel, in addition to the normal Chapter 1–97 tariffs, of the Harmonized Tariff Schedule of the United States (HTSUS) that generally apply to imports from all countries.
What about all the antidumping and countervailing duty orders on various steel and aluminum products? In addition to Section 232, Section 301, and standard Chapter 1–97 duties, in situations where there are antidumping or countervailing duty orders on steel or aluminum products, these duties also would be added on. Because antidumping and countervailing duty orders are placed on products from a particular country or countries, the analysis of whether such additional duties are due for steel and aluminum imports would depend on the country at issue, as well as whether the product being imported falls within the written scope of the antidumping and countervailing duty orders. But because of the large number of antidumping and countervailing duty orders, an appreciable number of products will be covered by these tariffs as well. It accordingly is essential for steel and aluminum importers to be carefully scrutinizing the potential applicability of such orders to their steel and aluminum products.
Would the USMCA allow us to avoid these duties by importing first into Canada or Mexico? Merely transshipping products through a third country, such as Canada or Mexico, does not alter the tariffs to be paid on that product if it eventually comes into the U.S. customs territory. Further, the steel and aluminum proclamations impose a new U.S. melt-and-pour requirement for steel and a smelting requirement for aluminum in order to claim an exemption from the Section 232 tariffs.
Can we avoid the tariffs by doing a moderate amount of processing before importing the steel and aluminum? This would depend on whether the processing is sufficient to take the product out of the HTS classifications listed in the forthcoming annexes of derivative steel/aluminum products.
Are the trade courts likely to strike this measure down? The imposition under Section 232 of aluminum and steel tariffs in the first Trump administration was appealed to both the Court of International Trade and the Court of Appeals for the Federal Circuit. The end result was that the prior use of Section 232 to invoke national security grounds to impose tariffs to protect the U.S. aluminum and steel industries was upheld. While a challenge to the new proclamations is likely, these precedents will make it difficult for such a challenge to succeed.
Don’t these special tariffs violate the WTO Agreements? WTO agreements will not provide relief from these tariffs for steel and aluminum importers. Several countries have already brought a WTO challenge or indicated that they will be doing so soon. But the WTO’s dispute resolution process has been effectively brought to a standstill in recent years, as multiple U.S. administrations have blocked appointments of panelists to the WTO’s Appellate Body, which is the final stage of any dispute resolution. Also, WTO dispute resolution takes years to finish.
Will major importing countries negotiate a resolution to these tariffs? It is likely that they will try. Australia already has indicated it will seek to negotiate an alternative to the imposition of the tariffs. Australia is viewed as being better positioned than most countries for such a resolution because it maintains a trade deficit with the United States, whereas other major steel and aluminum exporters to the United States have trade surpluses. That said, it would not make sense to eliminate the prior settlements through the new imposition of aluminum and steel tariffs if the end goal were to put something similar back in place. Because the U.S. aluminum and steel industries were viewed as having their relief undermined by prior negotiated alternative provisions, as well as the grant of hundreds of product-specific exemptions, it is expected that negotiated alternatives to the tariffs will be much more difficult to achieve this time around.
How will we get clarity regarding the scope of these new tariffs? The new Section 232 tariffs are to go into effect on March 12, 2025. Additional information — including the publication of the annexes — will need to be provided so these tariffs can be applied. We expect that the publication of the proclamations in the Federal Register will provide at least some further clarification as to the scope of the measures — including the annexes — as well as subsequent guidance from U.S. Customs & Border Protection.
Are there any other trade- or tariff-related measures we need to be monitoring? Yes. Speaking from the Oval Office, President Trump said the steel and aluminum tariffs were “the first of many” to come. In particular, he said his international trade team would be meeting over the next four weeks to discuss potential new tariffs on cars, chips, pharmaceuticals, and other goods. He already has imposed 10-percent tariffs on Chinese-origin imports (on top of the existing Section 301 duties from the first Trump administration, which apply to around half of all goods imported from China and impose tariffs up to 25 percent). He has threatened tariffs of up to 25 percent on all goods from Canada and Mexico, which are currently suspended for 30 days to give negotiators time to work out an agreement to address unauthorized immigration and illegal trafficking in fentanyl and other drugs. And he has threatened reciprocal tariffs, which would raise U.S. tariff rates on any products from countries that impose higher tariffs on the same goods when exported from the United States. Finally, he also has vowed to raise U.S. tariffs still further on any country that retaliates against the U.S. tariffs.
What Should Our Company Do to Cope With These Potentially Costly New Duties?
Gather information on importing patterns to determine tariff-related vulnerability. Importers should gather information regarding their steel and aluminum products, and their importing patterns related to those products, to pinpoint tariff-related risks and vulnerabilities. Supply chain mapping, the process of documenting all suppliers and the flow of goods and products in a supply network, can be an important tool for importers looking to gain proper insight into their network. A clear picture of one’s supply chain allows importers to identify tariff-saving opportunities and to proactively address pressure-points creating vulnerabilities.
Gather contracts and determine tariff-related flexibility. Global trade dynamics necessitate flexible supply chain contracts for both suppliers and purchasers. The starting point is to identify goods facing high tariff rates and to gather all of your supply- and sell-side contracts and determine how they handle tariff-related risks for these goods. In general, when it comes to tariff-related risks, these contracts generally fall into two buckets: (1) ones that contain no provision relating to tariffs or that contain pricing-related provisions, which may indirectly allocate risks relating to tariffs but not provide any real flexibility to deal with unexpected tariff changes; and (2) ones that include clear tariff-related provisions. To the extent possible, in any situation where your company bears tariff-related risks (generally, where your company has agreed to act as the importer of record), you want to be in the posture of moving contracts toward the second scenario.
Look for ways to update supply-side contracts for supply chain flexibility and sharing of risk. Fixed-price contracts typically assign cost risk to the seller. If tariffs increase costs, suppliers cannot unilaterally demand price adjustments unless the contract allows for cost-sharing mechanisms. An example of price adjustment protection language would be as follows: Supplier reserves the right to adjust prices to reflect the impact of any tariffs, duties, or similar governmental charges imposed after the date of this proposal. These adjustments will be calculated to ensure fair allocation of the increased costs. Supplier will provide advance notice of any such adjustments along with documentation supporting the changes.
Look for ways to update sell-side contracts for allowing surcharges and pricing flexibility. Sellers wanting to protect themselves and to have added flexibility should seek to include price adjustment rights in their contracts. Some contracts tie prices to commodity indexes, mitigating the impact of sudden market changes. If a supplier anticipates tariff risks, an indexed pricing structure may provide some protection.
Incorporate procedures to regularly review new contracts and contracts coming up for renewal to incorporate tariff flexibility and tariff-sharing provisions. Regularly reviewing new contracts and contracts up for renewal allows companies the opportunity to amend their standard terms and conditions and to incorporate provisions that can lead to more flexibility and an equal tariff-sharing burden. An example of contract language to create flexibility in a tariff-changing environment would be: If new tariffs, duties, or similar government-imposed charges are introduced after contract execution, the parties will renegotiate pricing in good faith to reflect the impact of such charges.
Look for ways to create commercial leverage to share tariff-related risks. The imposition of additional tariffs can be just as devastating for sellers as it is for buyers. Look for contractual leverage points relating to contract renewals or potential expansion of purchasing patterns. Consider moving up contract renewals to combine term extensions with tariff-related risk sharing. By proactively addressing these issues in supply chain agreements, businesses can better navigate economic volatility while maintaining contractual clarity and financial stability.