State Regulators Eye AI Marketing Claims as Federal Priorities Shift
With the increase in AI-related litigation and regulatory action, it is critical for companies to monitor the AI technology landscape and think proactively about how to minimize risk. To help companies navigate these increasingly choppy waters, we’re pleased to present part two of our series, in which we turn our focus to regulators, where we’re seeing increased scrutiny at the state level amidst uncertainty at the federal level.
FTC Led the Charge but Unlikely to Continue AI “Enforcement Sweep”
As mentioned in part one of our series, last year regulators at the Federal Trade Commission (FTC) launched “Operation AI Comply,” which it described as a “new law enforcement sweep” related to using new AI technologies in misleading or deceptive ways.
In September 2024, the FTC announced five cases against AI technology providers for allegedly deceptive claims or unfair trade practices. While some of these cases involve traditional get-rich-quick schemes with an AI slant, others highlight the risks inherent in the rapid adoption of new AI technologies. Specifically, the complaints filed by the FTC involve:
An “AI lawyer” who was supposedly able to draft legal documents in the U.S. and automatically analyze a customer’s website for potential violations.
Marketing of a “risk free” business powered by AI that refused to honor money-back guarantees when the business began to fail.
Claims of a get-rich-quick scheme that attracted investors by claiming they could easily invest in online businesses “powered by artificial intelligence.”
Positioning a business opportunity supposedly powered by AI as a “surefire” investment and threatening people who attempted to share honest reviews.
An “AI writing assistant” that enabled users to quickly generate thousands of fake online reviews of their businesses.
Since these announcements, dramatic changes have occurred at the FTC (and across the federal government) as a result of the new administration. Last month, the Trump administration appointed FTC Commissioner Andrew N. Ferguson as the new FTC chair, and Mark Meador’s nomination to fill the FTC Commissioner seat left vacant by former chair Lina M. Khan appears on track for confirmation. These leadership and composition changes will likely impact whether and how the FTC pursues cases against AI technology providers.
For example, Commissioner Ferguson strongly dissented from the FTC’s complaint and consent agreement with the company that created the “AI writing assistant,” arguing that the FTC’s pursuit of the company exceeded its authority.
And in a separate opinion supporting the FTC’s action against the “AI lawyer” mentioned above, Commissioner Ferguson emphasized that the FTC does not have authority to regulate AI on a standalone basis, but only where AI technologies interact with its authority to prohibit unfair methods of competition and unfair or deceptive acts and practices.
While it is impossible to predict precisely how the FTC under the Trump administration will approach AI, Commissioner Ferguson’s prior writings provide insight into the FTC’s future regulatory focus for AI, along with the focus in Chapter 30 of Project 2025 (drafted by Adam Candeub, who served in the first Trump administration) on protecting children online.
The impact of the new administration’s different approach to AI regulation is not limited to the FTC and likely will affect all federal regulatory and enforcement activity. This is due in part to one of President Trump’s first executive orders, “Removing Barriers to American Leadership in Artificial Intelligence,” which “revokes certain existing AI policies and directives that act as barriers to American AI innovation.”
That order repealed the Biden administration’s 2023 executive order on “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” which established guidelines for the development and use of AI. An example of this broader impact is the SEC’s proposed rule on the use of AI by broker-dealers and registered investment advisors, which is likely to be withdrawn based on the recent executive order, especially given the acting chair’s public hostility toward the rule and the emphasis on reducing securities regulation outlined in Chapter 27 of Project 2025.
The new administration has also been outspoken in international settings regarding its view that regulating AI will give advantages to authoritarian nations in the race to develop the powerful technology.
State Attorneys General Likely to Take on Role of AI Regulation and Enforcement
Given the dramatic shifts in direction and focus at the federal level, it is likely that short-term regulatory action will increasingly shift to the states.
In fact, state attorneys general of both parties have taken recent action to regulate AI and issue guidance. As discussed in a previous client alert, Massachusetts Attorney General Andrea Campbell has emphasized that AI development and use must conform with the Massachusetts Consumer Protection Act (Chapter 93A), which prohibits practices similar to those targeted by the FTC.
In particular, she has highlighted practices such as falsely advertising the quality or usability of AI systems or misrepresenting the safety or conditions of an AI system, including representations that the AI system is free from bias.
Attorney General Campbell also recently joined a coalition of 38 other attorneys general and the Department of Justice in arguing that Google engaged in unfair methods of competition by making its AI functionality mandatory for Android devices, and by requiring publishers to share data with Google for the purposes of training its AI.
Most recently, California Attorney General Rob Bonta issued two legal advisories emphasizing that developers and users of AI technologies must comply with existing California law, including new laws that went into effect on January 1, 2025. The scope of his focus on AI seems to extend beyond competition and consumer protection laws to include laws related to civil rights, publicity, data protection, and election misinformation.
Bonta’s second advisory emphasizes that the use of AI in health care poses increased risks of harm that necessitate enhanced testing, validation, and audit requirements, potentially signaling to the health care industry that its use of AI will be an area of focus for future regulatory action.
Finally, in a notable settlement that was the first of its kind, Texas Attorney General Ken Paxton resolved allegations that an AI health care technology company deployed its products at several Texas hospitals after making a series of false and misleading statements about the accuracy and safety of its AI products, including error and hallucination rates.
As AI technology continues to impact consumers, we expect other attorneys general to follow suit in bringing enforcement actions based on existing consumer protection laws and future AI legislation.
Moving Forward with Caution
Recent success by plaintiffs, combined with an active focus on AI by state regulators, should encourage businesses to be thoughtfully cautious when investing in new technology. Fortunately, as we covered in our chatbot alert, there are a wide range of measures businesses can take to reduce risk, both during the due diligence process and upon implementing new technologies, including AI technologies, notwithstanding the change in federal priorities. Other countries – particularly in Europe – may also continue their push to regulate AI.
At a minimum, businesses should review their consumer-facing disclosures — usually posted on the company website — to ensure that any discussion of technology is clear, transparent, and aligned with how the business uses these technologies. Companies should expect the same transparency from their technology providers. Businesses should also be wary of so-called “AI washing,” which is the overstatement of AI capabilities and understatement of AI risks, and scrutinize representations to business partners, consumers, and investors.
Future alerts in this series will cover:
Risk mitigation steps companies can take when vetting and adopting new AI-based technologies, including chatbots, virtual assistants, speech analytics, and predictive analytics.
Strategies for companies that find themselves in court or in front of a regulator with respect to their use of AI-based technologies.
The BR International Trade Report: February 2025
Recent Developments
President Trump drives forward with “America First” trade policy. Shortly after taking office on January 20, President Trump issued a memorandum to various department heads outlining his “America First” trade policy. Notably, the memorandum paves the way for robust tariffs and calls for executive branch review of various elements of U.S. trade policy. Read our alert for additional analysis.
United States delays tariffs on imports from Canada and Mexico but imposes 10 percent tariffs on imports from China. On February 1, President Trump, acting under the authority of the International Emergency Economic Powers Act (“IEEPA”), imposed a 25 percent tariff on imports from Canada and Mexico (excluding energy resources from Canada, which were subject to a tariff of 10 percent) and a 10 percent tariff on imports from China. After first threatening to respond in kind—with retaliatory tariffs or other measures—both Canada and Mexico negotiated a 30-day pause in exchange for increased enforcement measures at America’s borders. There was no similar agreement between the United States and China, which became subject to additional tariffs on February 4. Notably, the president initially eliminated the de minimis exemption for certain Chinese-origin imports of items valued under $800, but then later reinstated the exemption.
President Trump announces 25 percent tariff on all steel and aluminum imports entering the United States. On February 10, President Trump signed a proclamation imposing 25 percent tariffs on imports of steel and aluminum from all countries and cancelling previous tariff exemptions. Peter Navarro, a trade advisor to the president, remarked that “[t]he steel and aluminum tariffs 2.0 will put an end to foreign dumping, boost domestic production, and secure our steel and aluminum industries as the backbone and pillar industries of America’s economic and national security.” The new tariffs will take effect on March 12.
President Trump announces reciprocal tariff regime. On February 13, the president paved the way for what he called “the big one,” reciprocal tariffs directed against countries that impose trade barriers on the United States. Under the new framework, the United States will impose tariffs on imports from countries that levy tariffs on imports of U.S. goods, maintain a value-added tax (“VAT”) system, issue certain subsidies, or implement “nonmonetary trade barriers” against the United States. The president stated that the U.S. Department of Commerce will conduct an assessment, expected to be completed by April 1, to determine the appropriate tariff level for each country.
President Trump sets tariff sights on European Union. President Trump has said he “absolutely” plans to impose tariffs on goods from the European Union to address what he considers “terrible” treatment on trade. In an effort to stave off such measures, the European Union reportedly has offered to lower tariffs on imports of U.S. automobiles. Experts suggest that, in the event of U.S. tariffs, the European Union may retaliate with countermeasures against U.S. technology services.
Trump and Putin discuss commencing negotiations to end the war in Ukraine. President Trump stated on February 12 that he had a “lengthy and productive” phone call with Russian President Vladimir Putin in which the two leaders discussed “start[ing] negotiations immediately” and “visiting each other’s nations.” The president followed up with a call to Ukrainian President Volodymyr Zelensky, who reported that the call was “meaningful” and focused on “opportunities to achieve peace.” The dialogue comes amidst Russia and Belarus releasing American detainees in recent days.
President Trump and Indian Prime Minister Narendra Modi meet to discuss deepening cooperation. On January 27, President Trump spoke with Indian Prime Minister Narendra Modi to discuss regional security issues, including in the Indo-Pacific, the Middle East, and Europe. Notably, following the phone call, India cut import duties on certain U.S.-origin motorcycles, potentially in an effort to distance itself from President Trump’s claims on the campaign trail that India was a “very big abuser” of the U.S.-India trade relationship. Prime Minister Modi followed up the discussion with a meeting with President Trump at the White House on February 13.
Secretary of State Marco Rubio meets with “Quad” ministers on President Trump’s first full day in office. On January 21, foreign ministers of the “Quad”—a diplomatic partnership between the United States, India, Japan and Australia—convened in Washington, D.C. In a joint statement, the group expressed its opposition to “unilateral actions that seek to change the status quo [in the Indo-Pacific] by force or coercion.”
U.S. Secretary of State Marco Rubio meets with Panamanian President José Raúl Mulino. In early February, Secretary of State Marco Rubio traveled to Panama to meet with Panama’s President José Raúl Mulino and Foreign Minister Javier Martínez-Acha. During the meeting, Secretary Rubio criticized Chinese “influence and control” over the Panama Canal area. Notably, following the meeting with Secretary Rubio, Panama announced that it would let its involvement in China’s Belt and Road initiative expire.
DeepSeek launches an artificial intelligence app, prompting U.S. national security concerns. In January, DeepSeek—a Chinese artificial intelligence (“AI”) startup—released DeepSeek R1, an AI app reportedly less expensive to develop than rival apps. Reports indicate that the United States is investigating whether DeepSeek, in developing its platform, accessed AI chips subject to U.S. export controls in contravention of U.S. law. Commerce Secretary nominee Howard Lutnick echoed these concerns in his recent confirmation hearing.
President Trump issues memorandum launching “maximum pressure” campaign against Iran. On February 4, the president issued a National Security Presidential Memorandum (“NSPM”) restoring his prior administration’s “maximum pressure” policy towards Iran, with a focus on denying Iran a nuclear weapon and intercontinental ballistic missiles. The NSPM directs the U.S. Department of the Treasury and the U.S. Department of State to take various measures exerting such pressure, including imposing sanctions or pursuing enforcement against parties that have violated sanctions against Iran; reviewing all aspects of U.S. sanctions regulations and guidance that provide economic relief to Iran; issuing updated guidance to the shipping and insurance sectors and to port operators; modifying or rescinding sanctions waivers, including those related to Iran’s Chabahar port project (which India has developed at considerable expense); and “driv[ing] Iran’s export of oil to zero.” See the White House fact sheet.
President Trump signs executive order calling for establishment of a U.S. sovereign wealth fund. On February 3, the president issued an executive order directing the Secretary of the Treasury, the Secretary of Commerce, and the Assistant to the President for Economic Policy to develop a plan for the creation of a sovereign wealth fund. A corresponding fact sheet describes the White House’s goals for the fund, including “to invest in great national endeavors for the benefit of all of the American people.” Treasury Secretary Scott Bessent stated that he expects the fund to be operational within the next year.
Dispute between the United States and Colombia over deportation flights prompts brief tariff threat. On January 26, Colombian President Gustavo Petro barred “U.S. planes carrying Colombian migrants from entering [Colombia’s] territory” due to concerns over migrants’ treatment. President Trump responded by ordering 25 percent tariffs on Colombian goods, to be raised to 50 percent in one week, visa restrictions on Colombian government officials and their families, and cancellation of visa applications. The standoff between the two countries was resolved later that same day, signaling President Trump’s intention to use tariffs as a key foreign policy tool.
Impeached South Korean President Yoon Suk Yeol officially charged with insurrection. On January 26, South Korean prosecutors formally charged impeached President Yoon Suk Yeol with insurrection. Yoon becomes the first president in South Korean history to be criminally charged while still in office. In addition to criminal charges, Yoon faces potential removal from office via impeachment. Should the Constitutional Court uphold the impeachment, as many experts anticipate, South Korea will have two months to hold a new election.
Global M&A Trends: Spotlight on Japan
According to a recent KPMG report, the global M&A landscape in 2024 signals a rebound despite challenges like geopolitical tensions, high interest rates, and persistent inflation for much of the year. The dealmaking environment gained momentum in part due to inflation and interest rate pressures starting to ease towards the end of the year, the return of major lenders to acquisition finance markets, and technology advancements, particularly artificial intelligence (AI).
Although 2024 marked a turnaround for global M&A markets, performance was mixed. The KPMG report states that while deal volumes declined by approximately 17%, the total deal value rose, driven by 89 megadeals totaling an impressive $1.034 trillion. However, smaller deals (valued under $500 million) experienced a dip in both value and volume.
Private equity (PE) firms faced hurdles in closing new funds, reflecting challenges in the broader dealmaking environment. However, last September, a pivotal moment arrived when the US Federal Reserve initiated a rate cut. This infused a cautious optimism into the market.
Stable interest rates, cooling inflation, and abundant dry powder sparked a renewed interest in PE markets. Valuation gaps started to narrow, and lenders, both traditional and private credit funds, started offering more favorable financing terms.
Spotlight on Japan
While the Americas attracted around half of the total deal value in 2024, the biggest gains were seen in Japan. Last year was a busy year for Japan-related mergers, thanks in part to private equity funds snapping up businesses being shed by companies that have become increasingly focused on capital efficiency.
According to a JP Morgan report, after three decades of deflation and stagnant growth, recent government and market reforms designed to improve corporate governance and capital management have encouraged corporates to embrace a more transparent, pro-growth agenda. This has led to a wave of dealmaking in Japan.
The volume of mergers and acquisitions linked to Japan was up around 20% in the first half of the year compared to 2023 and was followed by a strong performance in the second half of 2024. Japan-related deals accounted for over 20% of Asia’s entire transaction volumes for 2023, the highest in four years, MARR data showed. Much of this has been driven by increases in shareholder activism and PE activity.
Japan’s recent reforms and renewed focus on growth create opportunities for US companies to expand in a potentially undervalued but stable market, particularly when the yen is hovering at multi-decade lows.
Japan’s M&A activity towards the US is being influenced by economic conditions, currency, and the regulatory environment. While the weak yen makes overseas investments more expensive for Japanese acquirers, a strong US economy compared to Japan’s stagnant growth encourages Japanese companies to pursue acquisitions in the US as a growth strategy.
2025 Outlook: Optimism on the Horizon
Recent coverage in Bloomberg indicates that Japan’s dealmakers are expecting a busier 2025 after more than $230 billion in mergers and acquisitions last year. In 2024, the value of M&A deals that involved a Japanese company rose 44% to more than $230 billion, according to data compiled by Bloomberg. That’s the fastest growth since 2018 and compares with a 38% rise in M&A activity across the Asia-Pacific region.
Much of this increase was due to a jump in foreign PE firms looking for undervalued companies in Japan. According to Pitchbook, PE deals in Japan with foreign PE participation reached an all-time high in 2024, a pace that seems to be continuing. Bain Capital recently announced the acquisition of 300-year-old Tanabe Pharma for $3.4b, which was the largest PE deal ever announced in the Japanese healthcare sector.
While the forecast is positive, dealmaking activity remains susceptible to unexpected disruptions. That said, if current trends remain steady, 2025 could solidify itself as a year of robust growth in M&A markets.
Amending Away Federal Jurisdiction: Supreme Court Holds That Federal Jurisdiction Can Be Divested by Amendment
Federal courts can adjudicate state-law claims arising out of the same facts as federal-law claims under 28 U.S.C. § 1367, but what happens if, after removal, the plaintiff amends her complaint to remove the federal questions supporting jurisdiction? Until recently, the circuit courts that had addressed the issue unanimously concluded that, as a general rule, a post-removal amendment does not automatically divest a federal court of jurisdiction.[1] That changed in July 2023, when the Eighth Circuit created a split by reaching the opposite conclusion.
In a recent decision, the Supreme Court unanimously adopted the Eighth Circuit’s view, holding that federal courts lose jurisdiction over state law claims if a plaintiff amends away her federal law claims. Justice Elena Kagan made clear that “[w]hen an amendment excises the federal-law claims that enabled removal, the federal court loses its supplemental jurisdiction over the related state-law claims.”
Royal Canin bounced around before ending up before the Supreme Court. It began as a state court antitrust class action brought under the Missouri Antitrust Law, the Missouri Merchandising Practices Act, and common law principles of unjust enrichment under Missouri law. The named plaintiff alleged that a consortium of pet food manufacturers, retailers, and veterinary clinics created a system by which prescriptions were needed to purchase certain varieties of dog and cat food. This practice allegedly led consumers to believe that the prescription pet food was healthier and better for their pets than “ordinary” pet food — and they thereby overpaid for the prescription pet food — when, in reality, the prescription pet food was no different than ordinary pet food.
The defendants removed the case to the Western District of Missouri under 28 U.S.C. § 1331, which provides for federal question jurisdiction, and the Class Action Fairness Act (CAFA). Although the plaintiff did not explicitly assert any federal claim, the removing defendant argued that the court had federal question jurisdiction because (1) the state law claims explicitly and necessarily turn on an interpretation of the Federal Food, Drug, and Cosmetic Act (FDCA); and (2) the plaintiffs sought an injunction requiring the defendants to adhere to federal law.
The district court initially remanded the case to state court because the state law claims did not “necessarily implicate” federal law to support federal question jurisdiction, and because the parties were not minimally diverse to support CAFA jurisdiction. The remand was appealed to the Eighth Circuit, which decided that the case belonged in federal court on federal question grounds. Once back at the district court, the plaintiff amended her complaint to remove references to federal law and the state antitrust and unjust-enrichment claims. The district court later granted the defendants’ motion to dismiss for failure to state a claim, and the case ended up back before the Eighth Circuit. That court determined that “there [was] nothing federal about” the amended complaint, vacating and remanding the case to the district court with directions to remand it to Missouri state court.
The Supreme Court affirmed and announced a bright-line rule that dismissing federal issues ends federal jurisdiction. The Court recognized that the answer to the questions before it was “certain,” noting that “[w]hen a plaintiff, after removal, cuts out all her federal-law claims, federal-question jurisdiction dissolves.” Consequently, “with any federal anchor gone, supplemental jurisdiction over the residual state claims disappears as well.” A district court considering a complaint devoid of original and supplemental jurisdiction must remand the case to state court. The Court rooted its decision in the text of Section 1367 and its non-removal precedents that found that amending away federal issues removes federal jurisdiction in cases originally filed in federal court.
Royal Canin provides a clean answer to a common issue, though that answer may require some nuance in future cases. Questions remain at the periphery of supplemental jurisdiction. For example, can a district court retain jurisdiction over state law claims after dismissing or granting summary judgment on federal law claims? And what happens when a plaintiff’s amendment is less absolute than the amendment in Royal Canin? Crafty plaintiffs may try to avoid federal court while also keeping as many paths to recovery open as they can. The Royal Canin plaintiffs got a clean rule because they made a clean cut of all their federal issues. Will a plaintiff cutting less get the same result? These, and many other, issues remain to be fleshed out.
There is a broader lesson here as well. The circuits were nearly unanimous in rejecting (or at least not adopting) the bright-line rule that the Supreme Court unanimously adopted in Royal Canin. While the Court’s decision is not altogether unexpected or earth shattering, it is a reminder that important matters of procedure are not always as settled as they seem. Just because the circuits have done things a certain way and more or less agreed on it does not mean that the Supreme Court will go along.
Notes
[1] E.g., Ching v. Mitre Corp., 921 F. 2d 11, 13 (1st Cir. 1990); In Touch Concepts, Inc. v. Cellco P’ship, 788 F.3d 98, 101–02 (2d Cir. 2015); Collura v. Philadelphia, 590 F. App’x 180, 184 (3d Cir. 2014) (per curiam); Harless v. CSX Hotels, Inc., 389 F. 3d 444, 448 (4th Cir. 2004); Louisiana v. Am. Nat. Prop. Cas. Co., 746 F.3d 633, 636–38 (5th Cir. 2014); Harper v. AutoAlliance Int’l, Inc., 392 F. 3d 195, 210–211 (6th Cir. 2004); In re Burlington N. Santa Fe Ry. Co., 606 F.3d 379, 380 (7th Cir. 2010); Broadway Grill, Inc. v. Visa, Inc., 856 F.3d 1274, 1277 (9th Cir. 2017); Behlen v. Merrill Lynch, 311 F. 3d 1087, 1095 (11th Cir. 2002).
The Buckeye State To End Employer Noncompetes?: Ohio Introduces Bill That Would Ban Employers From Entering Into Noncompetes
Consistent with our previous reporting that states would continue to address noncompete issues even after the apparent end of the FTC Noncompete Rule, Ohio has joined the growing list of jurisdictions seeking to restrict the use of noncompetes.
On February 5, 2025, Ohio state Senators Louis W. Blessing (R) and William P. DeMora (D) introduced Senate Bill (SB) 11 (the “Bill”), that, if enacted, would prohibit employers from entering into a noncompete agreement with a “worker” or “prospective worker”.
The Bill defines “worker” as “an individual who provides services for an employer[,]” including, among others, employees, independent contractors, externs, interns, and volunteers. The Bill does not define “prospective worker.”
If enacted as introduced, the Bill would prohibit employers from enforcing agreements that prohibit or penalize workers from seeking or accepting work with a person, or operating a business, after the conclusion of the relationship between the employer and worker, including any of the following:
Prohibiting the worker from working for another employer for a specified period of time, in a specified geographic area, or from working for another employer in a capacity similar to his or her work for the employer;
Requiring that the worker pay for lost profits, lost goodwill, or liquidated damages because the worker terminates his or her relationship with the employer;
Imposing a fee or cost on a worker for terminating the work relationship; and
Requiring a worker who terminates his or her employment to reimburse the employer for expenses incurred for training, orientation, evaluation, or other services to improve the workers’ performance.
The Bill does not address confidentiality or non-solicit agreements, so presumably those agreements would remain permissible if the Bill is enacted.
One open issue is whether the Bill will have retroactive effect to noncompete agreements entered before the effective date. Although one could interpret the intent of the Bill as applying to only those noncompete agreements entered after the effective date, the present language of the Bill could apply to existing noncompetes between employers and workers. Section 4119.02(A) of the Bill states that “[b]eginning on the effective date of this section, no employer shall enter into, attempt to enter into, present to a worker or prospective worker as a term of hire, or attempt to enforce an agreement, or part of an agreement that prohibits the worker” from competing with the employer. (emphasis added). Thus, the plain language of the Bill suggests that, if enacted as written, employers would be prohibited from seeking to enforce existing noncompetes with workers, including noncompetes entered into before the effective date.
The Bill also addresses choice-of-law and forum selection provisions and would apply to “any agreement” between an employer and worker that is entered, modified, or extended on or after the effective date of the Bill, not just noncompetes. If a worker primarily resides and does business in Ohio, employers are prohibited from requiring the worker to adjudicate a claim arising in Ohio in a forum other than Ohio. Furthermore, the agreement cannot seek to enforce a choice-of-law provision that attempts to circumvent the protections under Ohio law. The Bill provides an exception if the worker is individually represented by independent legal counsel in negotiating the terms of the agreement and the worker chooses a choice-of-law and/or forum outside of Ohio.
The Bill would allow a worker or prospective worker to bring a civil action against an employer for a violation of the Bill’s restrictions. If the worker prevails in such a civil action, the worker will be entitled to an award of attorney’s fees, and may also be awarded actual damages, punitive damages, or injunctive relief.
As we previously reported, several other state legislatures, including New York, Maine, and Rhode Island, have been unsuccessful in their attempts to pass legislation barring noncompetes between employers and employees. If enacted, Ohio, which has long recognized the enforceability of noncompetes and has generally been regarded as an employer-friendly state, would completely reverse course by enacting a complete ban to noncompetes. It would become only the fifth state (joining California, Minnesota, Oklahoma, and North Dakota) to ban noncompetes between employers and workers.
The fact that Ohio’s Bill is co-sponsored by one Republican and one Democrat state senator may be an attempt by those lawmakers to signal bipartisan support for the Bill. It remains questionable as to whether the Bill will gain support in the legislature or whether Ohio Governor Mike DeWine would support a complete ban on noncompetes in the State of Ohio.
Final Rule Implementing ICTS Supply Chain Executive Order 13873 In Effect
On May 15, 2019, President Trump issued Executive Order 13873 – Securing the Information and Communications Technology and Services Supply Chain (“EO” or “EO 13873”). After taking comments on a proposed implementing rule, the Department of Commerce (“DOC” or “Secretary”), on the very eve of the Biden Administration taking office, issued an Interim Final Rule implementing the EO and establishing procedures for its review of transactions involving information and communications technology and services (ICTS) designed, developed, manufactured or supplied by persons owned by, controlled by or subject to the jurisdiction or direction of a “foreign adversary” that may pose undue or unacceptable risk to the US or US persons. The DOC also sought further comments on the Interim Final Rule.
Since then the DOC announced that it had initiated certain investigations under the EO and the Interim Final Rule, and there were press reports of other investigations. Despite numerous investigations however, the DOC has only issued one Final Determination pursuant to EO 13873 since adoption of the Interim Final Rule.
On December 6, 2024, nearly three years later, the DOC published its “Final Rule” guiding review of ICTS Transactions, amending and, in some cases, removing terms or concepts which experience has shown to be unnecessary, inefficient or ineffective. The Final Rule was effective February 4, 2025.
The DOC committed to continue to review its procedures and possibly consider future rulemakings to further clarify aspects of the regulations. The new Trump Administration may also bring further adjustments. To date, the new Trump Administration has not indicated that it has “paused” enforcement under the Final Rule, as it has to other areas of regulatory enforcement. (And of course, the EO on which the Final Rule is based was issued by President Trump in his first term.)
Highlights of key adjustments reflected in the Final Rule include the following:
Scope of covered ICTS transactions – First, the DOC noted that its reviews and investigations of “ICTS Transactions” have thus far involved the review of all ICTS Transactions involving the subject entity of the review, rather than individual transactions between the entity and other parties, because the provision of anyICTS by that entity was the basis of the undue or unacceptable risks. Second, the Final Rule further refines the ICTS Transactions subject to further review by listing broad technology categories to indicate that the DOC is concerned about ICTS Transactions involving:
Information and communications hardware and software
ICTS integral to data hosting, computing or storage that uses, processes or retains sensitive personal data; connected software applications
ICTS integral to critical infrastructure
ICTS integral to critical and emerging technologies
Definitional changes –In response to certain comments, the Final Rule added or clarified certain definitions. Examples:
New definition of “Dealing In” as used in the definition of “ICTS Transaction” – “The activity of buying, selling, reselling, receiving, licensing or acquiring ICTS, or otherwise doing or engaging in business involving the conveyance of ICTS.’’
New Definition of “Importation” as used in the definition of “ICTS Transaction” – ‘‘The process or activity of bringing foreign ICTS to or into the US, regardless of the means of conveyance, including via electronic transmission.’’
Revised definition of “Party or Parties to a Transaction” – ‘‘A person or persons engaged in an ICTS Transaction or class of ICTS Transactions, including but not limited to the following: designer, developer, provider, buyer, purchaser, seller, transferor, licensor, broker, acquiror, intermediary (including consignee), and end user.”
Revised definition of “Person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary” to exclude US citizens and permanent residents – A US citizen or permanent resident would not be considered a ‘‘person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary’’ merely due to dual citizenship, or residency in a country controlled by a foreign adversary.”
Revised definition of “Person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary” – “An entity may be subject to the jurisdiction of a foreign adversary if it has a principal place of business in, is headquartered in, is incorporated in or is otherwise organized under the laws of a foreign adversary or a country controlled by a foreign adversary.”
Removal of one million unit or person threshold – This Final Rule removes the previous qualification that certain ICTS Transactions that involve the use, processing or retention of sensitive personal data must include the data of more than one million US persons to be subject to review. Additionally, it removes the one-million-unit sales minimum for internet-enabled sensors, webcams or other end-point surveillance or monitoring devices; routers, modems or any other home networking device; or drones or other unmanned aerial systems. Finally, the Final Rule also removes the qualification that software designed primarily for connecting with, and communicating via the internet be in use by over one million people to be considered ICTS for the purposes of the Rule
Committee on Foreign Investment in the United States (CFIUS) exemption – The Final Rule clarifies that the DOC will not review an ICTS Transaction that is also a covered transaction or covered real estate transaction, provided that it is either under review, investigation or assessment by CFIUS or CFIUS has concluded all action under section 721 of the Defense Production Act of 1950, as amended.
10-year record keeping requirement – The Final Rule also clarifies that any records that a notified person must retain in connection with an ICTS Transaction must be retained for 10 years following issuance of a Final Determination, unless the Final Determination specifies otherwise. Previously there was no limit on the retention period.
Details on information provided in an Initial Determination –The Final Ruleprovides thatthe Initial Determination will provide parties with information regarding the factual basis supporting the DOC’s decision to either prohibit an ICTS Transaction or permit the ICTS Transaction with mitigation measures. As to publication of an Initial Determination, in consideration of the comments about publication of Initial Determinations, under the Final Rule the DOC retains discretion to publish a notice of an Initial Determination— rather than the full text of an Initial Determination—in the Federal Register.
Response and mitigation timing – TheFinal Rule does not establish a maximum timespan for imposed mitigations because the DOC continues to believe that such an across-the-board maximum would hinder the department in fully evaluating any implemented mitigations, resulting in national security vulnerabilities. The Final Rule allows an initial 30 days to respond to an Initial Determination and allows parties to seek, and the Secretary to allow for good cause shown, an extension of another 30 days. In total, parties may receive up to 60 days to respond to an Initial Determination (30 days initially with a potential 30-day extension).
Timing imposed on interagency consultation for Final Determinations – With respect to the requirement that the Secretary seek concurrence of all appropriate agency heads before issuing a Final Determination, the Secretary may presume concurrence if no response is received within 14 days from one of the appropriate agency heads or the designee of appropriate agency heads. The Final Rule also clarifies that if an agency objects to the Final Determination, the objection must be received by the Secretary within the 14 days and the objection must come from the agency’s Deputy Secretary or equivalent level.
Final Determination timeline – The Final Rule changes certain timing associated with the Final Determination process but continues to rely on the 180-day time limit despite calls to shorten the review period. To improve clarity, it revises the 180-day time limit so that it begins when a party or parties to a transaction are served a copy of an Initial Determination and grants the Secretary sole discretion to extend this timeline. The DOC refused to establish an appeals process, but reconsideration may be warranted in some cases. The Secretary is not obliged to adopt the least restrictive means to address a determined “unacceptable risk.” The Secretary is now obligated to issue a Final Determination in every case in which the Secretary has previously issued an Initial Determination. Under the Interim Final Rule, a Final Determination was only required if the Initial Determination proposed to prohibit an ICTS Transaction. Finally, Publication in the Federal Register is now mandatory in any case where there is a Final Determination, not just where it is a Final Determination prohibiting a transaction.
Penalties – The Final Rule now provides a list of activities that may lead to civil or crimination penalties. Persons can be held responsible for assisting in the violation of a Final Determination to mitigate an ICTS Transaction, through a mitigation agreement between the US Government and identified parties to an ICTS Transaction, if they have knowledge that such a mitigation agreement exists. Activities that are prohibited for those with knowledge of the existence of a mitigation agreement include aiding and abetting violations, commanding a violation, procuring a product that is prohibited and other prohibited activities. Finally, providing false information to the DOC in connection with an ICTS Transaction under review is also prohibited.
Still no licensing regime – The DOC did not establish a licensing regime for transactions (e.g., a type of pre-clearance option contemplated by the initial rule), but it is still considering the concepts related to providing licenses.
Still no blanket exempt categories – The Final Rule applies to types of ICTS transactions most affecting US national security and does not exempt categories of industries, sectors or entities.
What is next? –The new Secretary of Commerce has yet to take his position. Nothing that he said in his nomination hearing before the Senate Commerce Committee indicated that the changes in the Final Rule would be reconsidered or rescinded, or that existing investigations would be terminated. The Secretary’s further employment of the authority embodied in the Final Rule remains to be seen, as his and the Bureau of Industry Security agenda unfolds. However, it seems unlikely that this tool in securing the ICTS supply chain will be abandoned. As such, more enforcement in this area is expected.
Important Terms for Price Escalation Clauses to Mitigate the Inflationary Effect of Tariffs on Construction Materials
The prospect of 25 percent tariffs being imposed on all steel and aluminum imports by the newly elected Trump administration, together with the 10 percent increase on tariffs already levied on Chinese imports, has created uncertainty in the construction industry. The uncertainty is permeating existing construction projects because of likely inflation in product and material costs due to shortages and supply chain interruptions. It is also affecting contract negotiations between owners and contractors for new projects. If fully enacted, the tariffs could inflict higher costs for many products and materials, including concrete, lumber, steel, aluminum, drywall, appliances and electrical component parts. Estimates for the increased monetary costs imposed by these new tariffs range in the billions of dollars.
The new tariffs are particularly problematic for GMP contracts where owners and their lenders desire some degree of certainty about how much a project will ultimately cost, especially public or quasi-public projects that rely on bond financing. Left unaddressed, rising tariffs threaten to discourage parties from engaging on new projects, or worse, scuttle projects that are ongoing. Indeed, a recent construction contract negotiation that Bracewell was involved in was significantly prolonged and complicated by protracted haggling over language in force majeure, contingency, allowance, change order and other contractual provisions that could be impacted by the new tariffs.[1] Ultimately, the parties were able to move forward because of an agreed price escalation mechanism that was written into the construction contracts.
The current circumstances beg the question: how can parties involved in construction projects adequately protect against cost overruns caused by the inflationary effect of the new tariffs? As discussed in the 2018 update from Bracewell referenced above, the most common mechanism used to address this issue is a detailed price escalation clause.[2] Unlike 2018, the current Trump administration’s tariffs could be exponentially more expensive by affecting products and materials beyond just steel and aluminum, including Chinese appliances, component parts, and lumber from Canada and Mexico. Prior to the Trump tariffs in 2018, it was uncommon to find price escalation clauses in typical construction contracts. Surprisingly, even after the imposition of steel and aluminum tariffs in 2018, these types of escalation clauses are still uncommon and are not included in standard forms from construction contract authorities like the AIA, which instead rely on the change order process to address inflation.
A price escalation clause, where parties agree at the outset of a project to specific terms and mechanisms to address inflation (in this case imposed by tariffs), is the best solution. Parties are more likely to be able to agree on the parameters of how increased costs will be managed before those increased costs occur, unlike the change order process where one party will generally have leverage over the other and disputes are more common. However, price escalation clauses can be complex and must be fully thought out and sufficiently detailed to address as many contingencies as possible – the fewer variables the better.
Perhaps the most important term in a price escalation clause is the trigger, i.e., when is the clause activated? It does not make sense for a price adjustment mechanism to be triggered for trivial or nominal increases in product and material costs, and most parties, whether it is an owner in a cost-plus agreement or a contractor in a GMP contract, understand that it is customary for certain economic fluctuations to be absorbed by one side. Therefore, a triggering mechanism that is activated beyond smaller price increases is important. The most effective triggering mechanisms relate to a specific percentage increase in the cost of a product or material measured from the time the contract is executed and tied to a reliable and accepted index, like the Producer Price Index published by the Bureau of Labor Statistics (PPI). For example, a cost-sharing arrangement could be triggered when the cost of steel increases by 10 percent over and above the cost at the beginning of the contract as reflected in the PPI.
Another triggering mechanism may involve comparing the contractor’s purchase orders at the beginning of a project to purchase orders issued later in the project. This form of trigger is generally harder to enforce and may be subject to varied interpretation and manipulation, but in some cases it may more accurately capture local economic trends.
It is important in any price escalation clause to clarify that only the increased costs beyond the trigger price are subject to sharing, and not all of the underlying cost increases. Of course, both parties should have rights to review and/or audit all documents used to justify the implementation of a cost-sharing mechanism once it has allegedly been triggered. It is also important to specifically set forth the cost-sharing mechanism between the parties for all increases beyond the trigger price. A customary way to document that mechanism is through percentages, i.e., owner pays 30 percent and contractor pays 70 percent of all increased costs for the product or material at issue. Other ways to handle the cost-sharing arrangement are through an express right of the contractor to draw off a contingency fund or through an allowance that is funded by the owner prior to the beginning of the project.
Finally, price escalation clauses should contain a ceiling that when reached allows the parties to either suspend or terminate the project. The protection of a ceiling provision is important because even with a cost-sharing mechanism in place, there is usually a point at which cost increases become so substantial that it is not economically feasible for one or both parties to continue the project. The ceiling should be negotiated up front by the parties and should use the same mechanism as the trigger component of the clause, i.e., a percentage above a certain price index. The price escalation clause should contain language providing options to the parties once the ceiling has been reached. The options may include suspension of the project, a termination for convenience, a declaration of a force majeure or other forms of agreed procedures. A project termination under these circumstances would normally allow the parties to recover their reasonable costs and overhead and would not give rise to a default or a claim for breach.
Price escalation clauses are a valuable tool for both owners and contractors to consider in today’s economic climate to provide at least some level of control against rising product and material costs, but they can be tedious to draft and negotiate, so including outside counsel in the process can be helpful to expedite negotiations.
[1] Bracewell previously provided guidance on whether force majeure clauses can be implicated by steel and aluminum tariffs back in 2018, when the previous Trump administration imposed substantial steel tariffs on China. See “Steel and Aluminum Tariffs: Time to Dust Off the Price Adjustment Clause?,” Bracewell Update, August 28, 2018, and “Steel and Aluminum Tariffs? Can You Turn To Your Force Majeure Clause?,” Bracewell Blog Post, March 22, 2018.
[2] See “Steel and Aluminum Tariffs – Time to Dust off the Price Adjustment Clause?,” Bracewell Update, August, 28, 2018.
Expanded Section 232 Tariffs on U.S. Imports of Steel and Aluminum Articles
On February 10, 2025, President Trump signed proclamations expanding the existing 25% tariffs on steel articles and increasing the tariffs on aluminum imports from 10% to 25% under Section 232 of the Trade Expansion Act of 1962, as amended (Section 232). The proclamation revokes all current alternative arrangements under the Section 232 regime and reimposes tariffs on imports of steel and aluminum articles from all countries, including Canada, Mexico and the European Union (EU), effective March 12, 2025. In addition, the proclamations immediately terminate the product-specific exclusion process set forth in the prior actions.
The February 10 proclamation generally takes effect March 12, 2025, with some immediate interim impacts:
Aluminum Duties Increase: The proclamation directs an increase in aluminum import tariffs to 25% for all U.S. imports as of 12:01 ET on March 12, 2025.
Alternative Arrangements Revoked: The proclamation revokes the alternative arrangements, including absolute quotas, tariff rate quotas and country exemptions, made with respect to countries and regions including Argentina, Australia, Brazil, Canada, Mexico, the EU, the United Kingdom, Japan and Korea for all U.S. imports as of 12:01 ET on March 12, 2025. As of that date, imports of steel articles from all countries will be subject to the Section 232 tariffs that were imposed during President Trump’s first term.
No Exclusions: The Section 232 product-specific exclusion process is terminated, effective immediately (11:59 PM ET on February 10, 2025), with the portal currently deactivated. Commerce is directed not to consider or grant any exclusion requests as of February 11, 2025. However, granted product exclusions will remain effective until their expiration date or until excluded product volume is imported, whichever occurs first. Commerce is directed to terminate all existing general approved exclusions (GAEs) as of March 12, 2025.
Subject Products: As of March 12, 2025, certain derivative steel and aluminum products (not yet defined) will become subject to Section 232 tariffs in addition to upstream steel and aluminum products covered in the original proclamations implementing the Section 232 tariffs. The lists of the derivative products will be published in the Federal Register and are not yet available, so the scope as it relates to prior actions on steel and aluminum derivatives is unclear. Derivative products produced with steel melted and poured in the United States or aluminum extruded in the United States will not be subject to the expanded Section 232 tariffs, and for all other derivative products, the new tariffs will be assessed on the value of the underlying steel.
Inclusion Process: Within 90 days after the date of the proclamation (i.e., no later than mid-May 2025), Commerce is directed to establish a process for including additional derivative steel products within the scope of the Section 232 tariffs. When Commerce receives a request from a domestic producer/industry association, Commerce is directed to determine whether to include the derivative products within the scope of the Section 232 tariffs within 60 days of receiving the request.
CBP’s Enhanced Oversight: The proclamation directs U.S. Customs and Border Protection (CBP) to enhance oversight to prevent tariff evasion through the misclassification of steel products. Should CBP discover misclassification resulting in non-payment, CBP is directed to assess monetary penalties in the maximum amount permitted by law and to not consider any evidence of mitigating factors.
No Drawback: No drawback will be available with respect to the expanded Section 232 tariffs.
FTZ: For steel and aluminum articles or derivative articles that are admitted into a U.S. foreign trade zone (FTZ) on or after 12:01 AM ET on March 12, 2025, those products must be admitted in either domestic status or privileged foreign status, and articles that were admitted into a U.S. FTZ under privileged foreign status prior to, on, or after 12:01 AM ET on March 12, 2025, will be subject to the Section 232 tariffs imposed under this February 10 proclamation upon entry for consumption.
The White House Fact Sheet accompanying the proclamation highlighted that the expanded Section 232 action is to protect and restore fairness for the U.S. critical steel and aluminum industries harmed by unfair trade practices and global excess capacity. According to the Fact Sheet, the expanded Section 232 action is designed to eliminate loopholes that facilitated circumvention and diminished the effectiveness of the original Section 232 actions under previous proclamations.
Seventh Circuit Decision Highlights Distinction Between Traditional Non-Compete and Forfeiture-for-Competition
A recent decision by the U.S. Court of Appeals for the Seventh Circuit allowed an employer to enforce a “forfeiture-for-competition” against a former plant manager. The Court explained that, under Delaware law, forfeiture-for competition is not subject to the same reasonableness standard as a traditional non-compete clause. The case is LKQ Corporation v. Robert Rutledge, No. 23-2330 (7th Cir. Jan. 22, 2025).
Background
A former plant manager received restricted stock unit (RSU) awards as part of his compensation over several years. Each RSU award was governed by Delaware law and stated that the employee would forfeit his RSUs if he went to work for a competitor within 9 months after leaving the company. The company sought to enforce the forfeiture after the employee resigned and joined a competitor.
In June 2023, a federal District Court in Illinois held that the forfeiture provision was unenforceable because it failed a standard reasonableness test based on geographic and temporal scope, protecting a legitimate business interest, and a balancing of the equities. On appeal, the Seventh Circuit noted that the Delaware Supreme Court had distinguished between forfeiture-for-competition and a traditional non-compete, holding that a forfeiture-for-competition provision was not subject to the reasonableness test; but the forfeiture provision in that case was contained in a limited partnership agreement that had been negotiated by sophisticated parties. The Delaware Supreme Court had not addressed whether reasonableness would be required for a forfeiture clause in an agreement between employer and employee that had been subject to little or no negotiation.
The Seventh Circuit certified the open question to the Delaware Supreme Court and the Delaware Supreme Court responded that its prior decision was not limited to the limited partnership context. The Delaware Supreme Court explained that, unlike a traditional non-compete clause, a forfeiture-for competition provision “does not restrict competition or a former employee’s ability to work.” The Delaware Supreme Court cautioned, however, that there could be circumstances where the forfeiture is “so extreme in duration and financial hardship that it precludes employee choice by an unsophisticated party and should be reviewed for reasonableness.”
Applying the Delaware Supreme Court’s explanation, the Seventh Circuit held that the circumstances of the case were not so “extreme in duration and financial hardship” as to require a reasonableness review. Although the plant manager’s annual salary was only $109,000, he was not unsophisticated and had voluntarily accepted RSU awards that were available only to “key persons”—a designation reserved for less than 2% of the company’s workforce. The Seventh Circuit also determined that, though substantial, forfeiting RSUs valued between $130,000 and $340,000 did not reach the level of “extraordinary hardship” that might require a reasonableness review. Accordingly, the Seventh Circuit reversed the District Court and remanded for further proceedings.
Implications
Although non-compete provisions are almost always subject to some version of a reasonableness test (and prohibited altogether in some states), many states apply a looser standard to forfeiture-for competition provisions. The principle is that, while it might be unreasonable to restrict competition or to prevent someone from taking another job, it is fair to condition incentive compensation on honoring a non-compete. Employers should remain mindful, however, that there is some limit on the cost that can be imposed for breaching a non-compete. The details will vary by jurisdiction and the court’s assessment of the equities.
DOJ and FTC Issue Antitrust Guidelines for Business Activities Affecting Workers
Four days before President Trump took office, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) (together, “the Agencies”) under the Biden administration released their “Antitrust Guidelines for Business Activities Affecting Workers” (“The Guidelines”). These Guidelines replace and expand upon antitrust guidance for HR professionals that the Obama administration issued in 2016. The new Guidelines aim to clarify how the DOJ and FTC “identify and assess business practices affecting workers that may violate the antitrust laws.”
In particular, the new Guidelines address the following types of agreements and business practices as violations of antitrust law that may trigger civil penalties or criminal liability:
1. Wage-Fixing and No-Poach Agreements
Wage-Fixing Agreements: These are agreements between businesses (or between individuals of different businesses) to fix wages or other terms of compensation, such as benefits and bonuses. The Agencies say these agreements may be illegal even if they only set a range, ceiling, or benchmark for calculating wages without setting a specific wage.
No-Poach/No-Solicit Agreements: These are agreements between businesses (or between individuals of different businesses) to not recruit, solicit, or hire workers. This can include an agreement to request permission from the other company before trying to hire an employee. The Agencies say an agreement may be illegal even if it does not completely prohibit hiring the other company’s workers. For example, an agreement not to “cold call” workers is considered a no-poach agreement by the Agencies regardless of whether the businesses are allowed to hire the workers who applied for a position without first being solicited.
Notably, the Agencies continue to identify no-poach and non-solicit agreements as potentially per se criminal violations of the antitrust law even after DOJ suffered a series of stinging losses in criminal no-poach trials.[1]
2. No-Poach Agreements Between Franchisor and Franchisee
No-poach agreements in the franchise context occur when franchisors and franchisees agree to not compete for workers. The updated Guidelines expand on the no-poach agreements in the franchise context with the Agencies stating they may be illegal regardless of whether they actually harm workers. The Agencies note that a franchisor can also violate antitrust laws if it organizes or enforces a no-poach agreement among franchisees that compete for workers. Written and/or unwritten agreements between franchisees not to poach, hire, or solicit each other’s workers may also violate state laws, according to the Agencies.
3. Sharing Competitively Sensitive Information
According to the Agencies, sharing competitively sensitive information with your competitors, including terms and conditions of employment or compensation, may also violate the antitrust laws if the information exchange has (or is likely to have) anticompetitive effect. Discussing two hot areas of antitrust focus—information exchanges and algorithmic collusion—the Agencies also state that information exchanges can serve as evidence of a wage-fixing conspiracy, including information exchanges facilitated through an algorithm or some other third party, or can be unlawful. The Agencies go so far as to say that algorithms that generate wage recommendations may be unlawful even if businesses do not strictly adhere to those recommendations.
4. Non-Compete Clauses
The Guidelines say that non-compete clauses that restrict workers from switching jobs or starting a competing business can violate the antitrust laws. As we previously discussed, the FTC issued a rule banning most non-compete agreements, but a federal judge in Texas struck down that rule in July 2024. The Guidelines acknowledge that case, which is now on appeal, but reassert the FTC’s authority to address non-competes on a “case-by-case” basis.
5. Other Employment Conditions
The Agencies say they will also scrutinize any agreements that “impede worker mobility or otherwise undermine competition.” The Guidelines use the following as illustrative examples:
Employee non-disclosure agreements
Training repayment agreements
Non-solicitation agreements with employees
Exit fee and liquidated damages agreements
False earnings claims by employers
Finally, the Guidelines emphasize that antitrust laws that protect employees also apply to independent contractors.
Will the Guidelines Have Staying Power in the new Administration?
Time will tell how the new Guidelines fare under the Trump Administration. On one hand, two Republican FTC Commissioners dissented from issuing the Guidelines—criticizing the timing “mere days before” the transition of power. On the other hand, the Obama administration’s 2016 guidelines survived the first Trump Administration. Previous Trump-appointed leaders of the DOJ Antitrust Division doubled down on the Guidance’s warning and brought the first criminal no-poach cases. The new Guidelines have already lasted a busy three weeks since the inauguration.
Given the continued antitrust focus on labor it remains wise for companies to:
Review hiring and compensation practices that implicate the types of activities the Guidelines cover—especially practices involving no-poach agreements, non-competes, information sharing, or hiring restrictions.
Review form or template agreements for employees and independent contractors to ensure compliance with antitrust laws.
Watch this space to stay up-to-date on the Trump administration’s approach to antitrust guidance and enforcement.
FOOTNOTES
[1] Ruling and Order on Defendants’ Motions for Judgment of Acquittal, United States v. Patel, No. 3:21- cr-220 (D. Conn. Apr. 28, 2023), ECF No. 599.
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President Trump Pauses FCPA Enforcement
On February 10, 2025, President Donald Trump issued an Executive Order titled “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security” (the “E.O.”). The E.O was issued five days after Attorney General Pamela Bondi issued a memorandum (the “Memorandum”) redirecting enforcement of the Foreign Corrupt Practices Act (FCPA) away from U.S. businesses. The E.O. imposes additional obligations and restrictions on the Attorney General with regard to FCPA enforcement.
The FCPA prohibits paying or offering to pay money or anything of value to a foreign official for the purpose of obtaining or retaining business. The FCPA applies to U.S. persons, domestic concerns, and issuers of securities listed on a U.S. exchange or that are required to file S.E.C. reports, as well as to foreign persons and entities that engage in foreign corrupt activity that occurs, at least in part, in or through the United States (such as by using U.S. currency). The FCPA also prohibits issuers from falsifying books and records, and from circumventing or knowingly failing to implement internal controls.
The E.O. declares that the FCPA has been “stretched beyond proper bounds and abused in a manner that harms the interests of the United States” and that current FCPA enforcement “impedes the United States’ foreign policy objectives[.]” The E.O. continues that “[t]he President’s foreign policy authority is inextricably linked with the global economic competitiveness of American companies,” and that “American national security depends in substantial part on the United States and its companies gaining strategic business advantages whether in critical minerals, deep-water ports, or other key infrastructure or assets.”
The E.O. goes on to say that “overexpansive and unpredictable FCPA enforcement against American citizens and businesses — by our own Government — for routine business practices in other nations not only wastes limited prosecutorial resources that could be dedicated to preserving American freedoms, but actively harms American economic competitiveness and, therefore, national security. It is therefore the policy of my Administration to preserve the Presidential authority to conduct foreign affairs and advance American economic and national security by eliminating excessive barriers to American commerce abroad.”
The E.O. institutes a 180-day review period, during which the Attorney General will:
Review all pending FCPA investigations and enforcement actions and take measures “to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy prerogatives”;
Cease initiation of any new FCPA investigations or enforcement actions, unless the Attorney General determines that an individual exception should be made;
Review guidelines and policies governing FCPA investigations and enforcement actions;
Issue updated guidelines or policies that will govern the conduct of FCPA investigations and enforcement actions, which may only be initiated or continued with the specific authorization of the Attorney General.
The Attorney General may extend the 180-day review period by an additional 180 days. In addition, after the revised guidelines or policies have been issued, the Attorney General will determine whether additional actions are warranted, including “remedial measures with respect to inappropriate past FCPA investigations and enforcement actions.” The Attorney General will take such additional actions, and if Presidential action is required, the Attorney General will recommend such actions to the President.
The February 5, 2025 Memorandum redirects FCPA enforcement away from businesses, and toward Cartels and Transnational Criminal Organizations (“TCOs”). The February 10, 2025 E.O. makes no mention of Cartels or TCOs, but goes considerably further than the Memorandum with regard to shielding businesses, by imposing a moratorium on FCPA enforcement, and by requiring a review of past enforcement and consideration of possible remediation.
The E.O. does not apply to the S.E.C., which is not part of the Department of Justice and which has civil enforcement authority over issuers. It remains to be seen when and how the administration intends to restrict that authority in furtherance of its stated policy goals.
The E.O. can be revoked by a future president. While enforcement of the FCPA is now in suspense mode, and while that could remain the case for the duration of President Trump’s term, absent legislation that repeals or modifies it, the FCPA will remain in effect, and will be available to the next administration should it choose to enforce it, even on a retroactive basis, provided the statute of limitations (either five years or six, depending on the offense) for a particular violation has not expired.
The FCPA can raise complex and challenging issues for U.S. companies that do business in foreign countries, and for foreign companies that do business in or through the United States. Katten is well-equipped to help clients navigate those challenges.
Businesses Beware: Latin America Transactions Likely to be Significantly Riskier Under the Trump Administration
Shortly after President Trump’s second inauguration, his executive branch took steps to further one of his signature promises: securing the southern border. While these actions primarily impact immigration laws, several executive orders, such as designating drug cartels and their affiliates as “terrorist organizations,” have increased the legal and compliance risk environment for both US and foreign companies.
While regulations pertaining to known terrorist organizations like ISIS and Al-Qaeda have been part of the global sanctions and anti-money laundering framework for quite some time, the addition of Mexican, Central and South American drug cartels to this list introduces new and complex risks for companies conducting cross-border business in these jurisdictions. To prevent violating these new requirements, companies should evaluate their Latin American operations and work to establish strong controls and compliance measures to ensure that they do not do business with or unwittingly provide material support to these organizations.
Below we provide an overview of the new directives and explain how businesses should prepare for the new regulations.
Executive Actions Look South
On his first day in office, President Trump issued a series of executive orders focused on this issue, including E.O. 14157, “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists”; E.O. 14161, “Protecting the United States From Foreign Terrorists and Other National Security and Public Safety Threats” and E.O. 14159, “Protecting the American People Against Invasion” (together, the January 20 E.O.s). And on February 5, her first day in charge of the Justice Department, Attorney General Pam Bondi issued several memoranda providing guidance on how the Department will shift its priorities and make additional resources available to reflect the administration’s focus on the southern border: the Bondi Memorandum regarding Charging, Plea Negotiations, and Sentencing and the Bondi Memorandum regarding Total Elimination of Cartels and Transnational Criminal Organizations (together, the Bondi Memoranda).
The Bondi Memoranda prioritize enforcement actions directed at, in part, the “total elimination of Cartels and Transnational Criminal Organizations (TCOs)” and the historic threats from widespread illegal immigration, dangerous cartels, transnational organized crime, gangs, human trafficking and smuggling, fentanyl and opioids, terrorism and other sources. To eradicate these threats, DOJ will enhance its focus on investigations related to immigration enforcement, human trafficking and smuggling, transnational organized crime and cartels and gangs.
Specific to white collar enforcement, the Department will now be prioritizing investigations into companies that provide material support or resources to designated foreign terrorist organizations (FTOs) or bribe foreign government officials to facilitate the criminal operations of cartels and TCOs under the Foreign Corrupt Practices Act (FCPA).
As the administration adds to the list of cartel-related entities that fall under these new designations, risk for companies doing business abroad will increase. For example, E.O. 14157 ordered the Secretary of the State to recommend additional cartels and organizations for designation as FTOs or Specially Designated Global Terrorists (SDGTs) with a focus, but not limitation, on cartels operating in certain portions of Mexico. While we await these designations, which the Secretary of State was supposed to have recommended on February 3, Congressman Chip Roy (TX-21) reintroduced the Drug Cartel Terrorist Designation Act, which would direct the designation of the Gulf Cartel, the Cartel Del Noreste, the Cartel de Sinaloa, and the Cartel Jalisco Nueva Generacion as FTOs and codify E.O. 14157 into law.
Increased Risk for Companies Operating in Mexico, Central and South America
While it is likely that at least some of the soon-to-be-designated entities already have sanctioned individuals under the US Department of Treasury’s Office of Foreign Asset Control’s regulations, we anticipate that the list will grow significantly. Making the matter more complicated, however, is that cartels, their affiliated entities and the persons that control these organizations have embedded themselves across many business areas in Latin America. So, the designation as an FTO is significant for several reasons:
Specific criminal law: It is a criminal offense under 18 U.S.C. § 2339B for companies and individuals to knowingly provide material support to FTOs, a sanction that does not currently exist under an SDN designation. The government broadly defines “material support” to include providing an FTO with any property (tangible or intangible) or services, including currency, financial services, lodging, personnel, and transportation. Thus, any transaction with an FTO could be viewed as providing “material support” to a terrorist organization that could result in significant fines and penalties for the organization. This includes “fees” that cartels routinely charge companies to operate in certain areas.
In one notable example of a prosecution under § 2339B, French building materials manufacturer Lafarge pled guilty in 2022 to a one-count criminal information charging conspiracy to provide material support and resources in Northern Syria from 2013 to 2014 to the Islamic State of Iraq and al-Sham (ISIS) and the al-Nusrah Front (ANF), both US-designated FTOs. According to court documents, Lafarge and its Syrian subsidiary schemed to pay ISIS and ANF in exchange for permission to operate a cement plant in Syria, which enabled the subsidiary to obtain approximately $70.3 million in revenue.
Extraterritorial reach: Restrictions on dealing with FTOs expands the reach of US regulators to non-US entities. While SDNs restrictions have certain reach to allow the United States to sanction extra-territorial actors, they are largely aimed at US entities and transactions involving US entities — 18 U.S.C. § 2339B has no such limitation. In other words, just as with Lafarge, a non-US company doing business with an FTO in Latin America can be prosecuted through the extraterritorial reach of 18 U.S.C. § 2339B. Indeed, there is precedent for such charges: Chiquita Banana pled guilty in 2007 to making payments to an FTO (the AUC in Colombia) and agreed to pay a fine of $25 million. E.O. 14157 increases the risk of similar prosecutions in the future.
Civil liability: Under the civil liability provisions of the Anti-Terrorism Act, 18 U.S.C. § 2333, a company can be directly liable for engaging in an act of international terrorism by providing material support to an FTO, or indirectly under the aiding and abetting provision for knowingly providing substantial assistance to the perpetrators of an attack committed, planned, or authorized by an FTO. The Act allows plaintiffs to recover treble damages, plus the cost of the suit, including attorney’s fees, which can add up exponentially.
Civil forfeiture: While current sanctions regimes allow US authorities to freeze assets of sanctioned entities, authorities may not take title to those assets without proving in court that the assets are related to a criminal offense. An FTO designation and related statutes will likely make it easier for the government to carry this burden, and even lighten it by arguably reducing the need to show a nexus to the United States.
How Companies Should Prepare
The combination of these new areas of risk and DOJ’s new focus on FTOs, TCOs, and SDGTs has important implications for companies conducting business internationally, particularly in Mexico and other parts of Latin America where cartels that are (or will be) designated as FTOs and TCOs are active. But that is not to say the companies cannot do business in the region. Rather, the risk can be mitigated and managed through robust policies, internal controls and compliance procedures. For example, companies should:
Conduct third-party due diligence: In a heightened regulatory framework, a company needs to know the counterparties it does business with to determine whether they are a sanctioned or designated party. In addition, doing business with third parties like vendors, agents or “finders,” consultants, and distributors or sales representatives can increase your compliance associated risks. Conducting enhanced due diligence is the best way to detect potential problem areas and prevent liability. Effective due diligence should be tailored to the company’s business and risks associated with that business and may include:
Media/internet searches.
OFAC sanctions list searches.
Commerce Department entity list searches.
Beneficial ownership reviews.
Politically exposed person reviews.
Company/business registries searches.
Site visits.
Litigation records reviews.
Corporate and leadership references.
Be aware of red flags: A company should know what to look for while conducting due diligence. Red flags may include:
Failure of potential partners to maintain appropriate government registrations.
Negative media and/or reference reports, particular those that suggest non-compliant or unlawful conduct.
Requests for excessive fees or commissions, cash payment, or excessive discretionary funds.
The third-party refuses to provide reasonable information to assess ownership information, or says “don’t worry about it,” or “you don’t want to know.”
Agreements that include vaguely or improperly described services.
Use internal controls: Robust compliance programs utilize a system of internal controls that help provide “reasonable assurances” that transactions are properly authorized and do not violate anti-money laundering rules or sanctions regulations. Implementing effective internal accounting and compliance controls not only ensures the reliability of financial reporting but it reduces the susceptibility that a company unwittingly provides material support to a designated terrorist organization or any of its affiliates. Along with internal accounting controls, it is important to establish a culture of integrity and ethics and put mechanisms in place to monitor compliance and report non-compliance.
Update your compliance program: The hallmarks of a good compliance program include, among other things:
A high-level commitment to corporate compliance policy by directors and senior management.
Clearly articulated and visible written policies.
Documentation of the purpose of all payments.
Periodic risk-based assessments that addresses the individual circumstances of the company.
Proper oversight and independence with appropriate funding resources.
Training and guidance that is effectively communicated to all directors, officers and employees.
Internal reporting system for confidential, internal reporting of compliance violations.
Effective process for responding to, investigating and documenting allegations of violations.
Enforcement that incentivizes compliance and disciplines violations.
Effective training and oversight of third-party relationships.
Monitoring and testing of the effectiveness of the compliance program.