Customs Fraud Investigations Will Be a DOJ Area of Focus
On May 12, 2025, Department of Justice (DOJ) Criminal Chief Matthew Galeotti issued a memorandum addressing the “Fight Against White-Collar Crime.” The memorandum lists several priorities for white-collar criminal prosecutions. While the first priority – healthcare fraud and federal program and procurement fraud – is not surprising, the second priority – trade and customs fraud, including tariff evasion – is a new focus.
Emphasizing its new focus on trade and customs fraud, the Criminal Division is also amending the Corporate Whistleblower Awards Pilot Program to add trade, tariff and customs fraud by corporations to the list of subject matters that whistleblowers can report for a potential bounty. Under this program, previously reported here, whistleblowers can recover a percentage of the government’s ultimate forfeiture amount.
Looking at previous trade and customs cases provides insight into both how the DOJ may be planning to pursue them and what whistleblowers are likely to report. The alleged misconduct in tariff evasion cases generally falls in three areas that affect the duties owed: (1) misrepresenting the classification/type of product, (2) undervaluing the product, and (3) misrepresentation of the country of origin and/or transshipment cases. Even well-intentioned companies may find themselves making missteps in these areas because the nuance in the governing regulations makes them surprisingly complicated. Appropriate classification of a product can be challenging, and the country of origin is often unclear when manufacturing occurs in multiple countries.
Civil False Claims Act Cases
As our regular blog readers know, the False Claims Act (FCA) is a federal law that imposes civil liability for submitting false claims to the federal government. The law imposes treble damages and civil penalties on those who submit false claims. In fiscal year 2024, FCA settlements and judgments totaled over $2.9 billion. Under the FCA, whistleblowers (called “relators”) can file cases under seal on behalf of the government. The government then opens an investigation to determine whether they should intervene in the case. Much like they can share in criminal forfeitures through the Corporate Whistleblower Awards Pilot Program discussed above, the relators who bring FCA violations to the government’s attention share in the civil recovery obtained by the government.
International Vitamins Corporation
In January 2023, International Vitamins Corporation (IVC) entered a civil settlement for $22,865,055, admitting that it misclassified 32 of its products imported from China under the HTS as duty-free, over an almost five-year period. IVC also admitted that even after it retained a consultant in 2018 who informed IVC that it had been misclassifying the covered products, IVC failed to implement the correct classifications for over nine months and never remitted duties that it knew it had previously underpaid to the United States because of its misclassification. This case was originally brought as a whistleblower lawsuit by a former financial analyst at IVC (U.S. ex rel. Welin v. International Vitamin Corporation et al., Case No. 19-Civ-9550 (S.D.N.Y.)).
Samsung C&T America, Inc. (SCTA)
In February 2023, Samsung C&T America, Inc. (SCTA) resolved a FCA lawsuit that was initially filed by a whistleblower. SCTA admitted that, between May 2016 and December 2018, it misclassified imported footwear under the United States’ Harmonized Tariff Schedule (HTS) and underpaid customs duties. SCTA further admitted that it had reason to know that certain documents provided to its customs brokers inaccurately described the construction and materials of the imported footwear and that SCTA failed to verify the accuracy of this information before providing it to its customs brokers.
SCTA, with its business partner, imported footwear manufactured overseas, including from manufacturers in China and Vietnam. The tariff classifications for footwear depend on the characteristics of the footwear, including the footwear’s materials, construction, and intended use. Depending on the classification of the footwear, the duties varied significantly.
In the settlement agreement, SCTA specifically admitted and accepted responsibility for the following conduct:
As the importer of record (IOR), SCTA was responsible for paying the customs duties on the footwear and providing accurate documents to the United States Customs and Border Protection (CBP) to allow CBP to assess accurate duties.
SCTA and its business partner provided SCTA’s customs brokers with invoices and other documents and information that purportedly reflected the tariff classification of the footwear under the HTS, as well as the corresponding materials and construction of the footwear. SCTA knew that its customs brokers would rely on the documents and information to prepare the entry summaries submitted to CBP, which required classifying the footwear under the HTS, determining the applicable duty rates, and calculating the amount of the customs duties owed on the footwear.
SCTA had reason to know that certain documents provided to its customs brokers, including invoices, inaccurately stated the materials and construction of the footwear. SCTA failed to verify the accuracy of this information before providing it to its customs brokers. Thus, SCTA materially misreported the classification of the footwear under the HTS and misrepresented the true materials and construction of the footwear.
SCTA, through its customs brokers, misclassified the footwear at issue on the associated entry documents filed with CBP and, in many instances, underpaid customs duties on the footwear.
This case makes clear that the company and/or IOR bears responsibility for accurately reporting to CBP and that the government will not allow an importer to pass the blame to the customs broker when it has reason to know that it is providing the customs broker with inaccurate information.
Ford Motor Company
In March 2023, Ford Motor Company (Ford) agreed to pay the United States $365 million to resolve allegations that it violated the Tariff Act of 1930 by misclassifying and understating the value of hundreds of thousands of its Transit Connect vehicles. This settlement is one of the largest recent customs penalty settlements.
While Ford did not admit to any wrongful conduct, the settlement resolves allegations that it devised a scheme to avoid higher duties by misclassifying cargo vans. Specifically, the government alleged that from April 2009 to March 2013, Ford imported Transit Connect cargo vans from Turkey into the United States and presented them to CBP with sham rear seats and other temporary features to make the vans appear to be passenger vehicles. The government alleged that Ford included these seats and features to avoid paying the 25% duty rate applicable to cargo vehicles instead of the 2.5% duty rate applicable to passenger vehicles. The settlement also resolves allegations that Ford avoided paying import duties by under-declaring to CBP the value of certain Transit Connect vehicles.
King Kong Tools LLC (King Kong)
In November 2023, a German company and its American subsidiary agreed to pay $1.9 million to settle allegations of customs fraud under the FCA. The government alleged that King Kong was falsely labelling its tools as “made in Germany” when the tools were really made in China. By misrepresenting the origin of the tools, King Kong avoided paying a 25% tariff.
This case began when a competitor of King Kong filed a whistleblower complaint alleging that King Kong was manufacturing cutting tools in a Chinese factory (U.S. ex rel. China Pacificarbide, Inc. v. King Kong Tools, LLC, et al.,1:19-cv-05405 (ND Ga.) ). The tools were then shipped to Germany, where additional processing was performed on some, but not all, of the tools. The tools were then shipped to the United States and declared to be “German” products.
Homestar North America LLC
In December 2023, Homestar North America LLC (Homestar) agreed to pay $798,334 to resolve allegations that it violated the FCA by failing to pay customs duties owed for furniture imports from China between September 2018 and December 2022. The government alleged that the invoices were created and submitted to the CBP containing false, lower values for the goods. The settlement resolved allegations that Homestar and its Chinese parent company conspired to underreport the value of imports delivered to Homestar following two increases on Section 301 tariffs for certain products manufactured in China under the HTS.
This case was filed by a whistleblower in the Eastern District of Texas under the FCA, and the government subsequently intervened (U.S. ex rel. Larry J. Edwards, Jr. v. Homestar North America, LLC, Cause No. 4:21-cv-00148 (E.D. Tex.)).
Alexis LLC
In August 2024, women’s apparel company Alexis LLC agreed to pay $7,691,999.63 to resolve a FCA case also initially filed by a whistleblower (U.S. ex rel. CABP Ethics and Co. LLC v. Alexis et al., Case No. 1:22-cv-21412-FAM (S.D. Fla.)). The settlement, which was not an admission of liability by Alexis, resolved claims that from 2015 to 2022 Alexis materially misreported the value of imported apparel to CBP and thereby avoided paying the customs duties and fees owed on the imports. Alexis did, however, admit and acknowledge certain errors and omissions regarding the value and information reported on customs forms. Specifically, the errors related to failure to include and apportion the value of certain fabric and garment trims, discrepancies between customs forms and sales-related documentation, misclassifying textiles, and listing incorrect ports of entry.
In negotiating this settlement, Alexis and its senior management received benefits for its cooperation with the government. For example, Alexis voluntarily and timely submitted relevant information and records to the government. These submissions assisted the government in determining the amount of losses. Also, Alexis and its management implemented compliance procedures and employee training to prevent future issues.
Criminal Case
Kenneth Fleming and Akua Mosaics, Inc. (Akua Mosaics)
Kenneth Fleming and Akua Mosaics, Inc. plead guilty to a conspiracy to smuggle goods into the United States under 18 U.S.C. §§371 and 545. According to the plea agreements, from 2021 through June 2022, the defendants conspired to defraud the United States by smuggling and importing porcelain mosaic tiles manufactured in China by falsely representing to the CBP that the merchandise was of Malaysian origin. This was done with the intent to avoid paying antidumping duties of approximately 330.69%, countervailing duties of approximately 358.81%, and other duties of approximately 25%.
Fleming and Akua Mosaics conspired with Shuyi Mo, a citizen and resident of China who was arrested when he was attempting to flee the United States. They caused “Made in Malaysia” labels to be placed on boxes containing tiles manufactured in China and then caused a container with tiles manufactured in China to be shipped from Malaysia to Puerto Rico, misrepresenting the country of origin as Malaysia. The amount of unpaid duties and tariffs on this shipment was approximately $1.09 million. At sentencing, Fleming was ordered to pay restitution of $1.04 million and was sentenced to two years of probation.
Takeaways
Based upon DOJ’s new prioritization of trade and customs fraud, companies that import or export goods should ensure that they have the resources and training for employees working in jobs related to customs. Even simple errors and omissions could have more significant monetary consequences with increased tariffs. Companies should implement compliance programs to properly train employees and to identify and correct any issues as they occur.
Companies should also work with experienced trade counsel to determine if they are following the law. Failure to heed trade counsel’s advice could potentially put a company in a worse situation, like in the IVC matter discussed above.
If there is any indication of a criminal or civil investigation, companies should be proactive in retaining counsel with expertise in this area. Regardless of whether they dispute or settle the matter, experienced counsel is key in reaching a favorable resolution. Counsel can help determine when and how best to cooperate with the government to maximize cooperation credit in any settlement, as discussed above in the Alexis LLC matter.
Finally, companies should be diligent in their employment law practices. That means not only complying with applicable employment law when dealing with whistleblowers, but also ensuring that personnel files are appropriately documented when there are employee issues. FCA whistleblowers are often former, disgruntled employees who were terminated for performance issues. However, the employees’ files often do not reflect their poor performance, which can create unnecessary challenges in defending whistleblower claims. Companies that import or export goods should expect to see more whistleblowers come forward, both as traditional FCA relators and because DOJ has now added trade, tariff, and customs fraud issues to the Criminal Division’s Corporate Whistleblower Awards Pilot Program. All such companies will be best served by being diligent and prepared for DOJ’s new focus in this area.
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Florida’s CHOICE Act Offers Employers Unprecedented Tools for Non-Compete + Garden Leave Agreements
Takeaways
The Florida Legislature’s recently passed CHOICE Act allows covered non-compete and garden leave agreements to extend for up to four years — double the current amount of enforcement time.
The Act makes it significantly easier for employers to obtain an injunction and enforce covered agreements.
Employers looking to take advantage of the Act will need to comply with its technical requirements.
Article
The Florida Legislature passed the Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act on April 24, introducing the most sweeping changes to Florida’s restrictive covenant framework in years and offering employers unprecedented tools to protect their valuable business interests. If enacted, the Act will take effect on July 1, 2025.
Who Does the CHOICE Act Cover?
The CHOICE Act applies to covered employees or independent contractors earning more than twice the annual mean wage in the Florida county where either (i) the covered employer’s principal place of business is located or (ii) where the covered individual resides if the covered employer’s business is located outside of Florida. Therefore, depending upon the Florida county, the compensation threshold could range anywhere from $80,000 to nearly $150,000. Notably, the Act expressly excludes licensed healthcare practitioners as defined in Section 456.001, Florida Statutes, from its scope. But the Act does not prohibit enforcement of — or otherwise render unenforceable — restrictive covenants with healthcare practitioners under existing Florida restrictive covenant law, subject to the exclusions of Section 542.336, Florida Statutes, which prohibits restrictions between physicians who practice a medical specialty and an entity that employs or contracts with all physicians who practice that same specialty within the same Florida county.
Covered Non-Compete Agreements
Under the CHOICE Act, non-compete agreements with covered employees or contractors can extend up to four years post-employment. In contrast, under Florida’s current non-compete statute, employee-based non-competes lasting longer than two years are presumed to be unreasonable and unenforceable. To be enforceable under the CHOICE Act, covered non-compete agreements must:
Be in writing and advise the worker of their right to consult legal counsel, providing at least seven days for review before execution.
Include a written acknowledgment from the worker confirming receipt of confidential information or substantial client relationships during employment.
Specify the non-compete period will be reduced day-for-day by any nonworking portion of a concurrent garden leave period, if applicable.
Covered Garden Leave Agreements
The CHOICE Act also codifies enforcement of certain garden leave arrangements, allowing employers to require covered employees or contractors to provide advance notice — up to four years—before employment or contract termination. During this notice period, employees remain on the employer’s payroll at their base salary and benefits but are not entitled to any discretionary compensation. During the first 90 days of the garden leave period, an employer may require the worker to continue working. But a worker may engage in nonwork activities at any time thereafter.
To be enforceable under the Act, a covered garden leave agreement must:
Be in writing and advise the worker of their right to consult legal counsel, providing at least seven days for review before execution.
Include a written acknowledgment from the worker confirming receipt of confidential information or substantial client relationships during employment.
Not obligate the worker, after the first 90 days of the notice period, to provide any further services to the employer and allow the worker to engage in nonwork activities. (The worker may also work during the remainder of the notice period for another employer so long as the covered employer has provided permission to the worker.)
How Are Covered Agreements Enforced?
The CHOICE Act provides robust remedies for employers seeking to enforce covered agreements. For covered entities, the Act requires strict enforcement and makes it significantly easier for employers to obtain injunctions. Upon application, courts are required to issue preliminary injunctions to enforce a covered agreement unless the employee or contractor can demonstrate, by clear and convincing evidence, the agreement is unenforceable or unnecessary to prevent unfair competition. Further, if an employee or contractor engages in “gross misconduct,” an enforcing employer may reduce the salary or benefits provided to the employee or “take other appropriate action” without such activity constituting a breach of the covered agreement. An employer who prevails in its enforcement action is entitled to recover its monetary damages and attorney’s fees.
What Should Employers Do Now?
The CHOICE Act represents a significant development in Florida’s restrictive covenant law, offering employers enhanced mechanisms to safeguard their business interests through enforceable non-compete and garden leave agreements. Employers seeking to avail themselves of the new Act should take immediate steps to review and modify existing agreements or, if appropriate, draft new agreements.
DOJ Announces Long-Awaited Corporate Enforcement Priorities
On May 12, 2025, the Department of Justice’s (DOJ) Criminal Division issued a much-anticipated memorandum outlining its enforcement priorities and policies for prosecuting corporate and white-collar crimes. The memorandum, issued by Matthew R. Galeotti, Head of the Criminal Division, is a notable realignment of the Criminal Division’s priorities to promote policy goals of the Trump administration, including national security, foreign trade, and market integrity. It instructs prosecutors to “avoid overreach that punishes risk-taking and hinders innovation,” explaining that the Division’s policies are intended to “strike an appropriate balance between the need to effectively identify, investigate, and prosecute corporate and individuals’ criminal wrongdoing while minimizing unnecessary burdens on American enterprise.” The memorandum identifies the administration’s focus areas for white-collar criminal enforcement but also emphasizes its intent to reward corporate cooperation and remediation.
The DOJ’s Ten Focus Areas for Corporate Enforcement
The memorandum directs that the Criminal Division be “laser-focused on the most urgent criminal threats to the country,” seemingly suggesting that the DOJ’s focus during the prior administration was too broad. It identifies ten areas of focus that it asserts significantly impact the harms posed by white-collar crime:
1. Waste, fraud, and abuse, including health care fraud and federal program and procurement fraud that harm the public fisc;
2. Trade and customs fraud, including tariff evasion;
3. Fraud perpetrated through variable interest entities;[1]
4. Fraud that victimizes U.S. investors, individuals, and markets including, but not limited to, Ponzi schemes, investment fraud, elder fraud, servicemember fraud, and fraud that threatens the health and safety of consumers;
5. Conduct that threatens the country’s national security, including threats to the U.S. financial system by gatekeepers, such as financial institutions and their insiders that commit sanctions violations or enable transactions by cartels, transnational criminal organizations (TCOs), hostile nation-states, and/or foreign terrorist organizations;
6. Material support by corporations to foreign terrorist organizations, including recently designated cartels and TCOs;
7. Complex money laundering, including Chinese Money Laundering Organizations, and other organizations involved in laundering funds used in the manufacturing of illegal drugs;
8. Violations of the Controlled Substances Act and the Federal Food, Drug, and Cosmetic Act (FDCA), including the unlawful manufacture and distribution of chemicals and equipment used to create counterfeit pills laced with fentanyl and unlawful distribution of opioids by medical professionals and companies;
9. Bribery and associated money laundering that impact U.S. national interests, undermine U.S. national security, harm the competitiveness of U.S. businesses, and enrich foreign corrupt officials; and
10. As provided by an April 7, 2025 memorandum from the Deputy Attorney General: crimes (1) involving digital assets that victimize investors and consumers; (2) that use digital assets in furtherance of other criminal conduct; and (3) willful violations that facilitate significant criminal activity. Cases impacting victims, involving cartels, TCOs, or terrorist groups, or facilitating drug money laundering or sanctions evasion shall receive the highest priority.
The memorandum also emphasizes that Criminal Division prosecutors will “prioritize efforts to identify and seize assets that are the proceeds of, or involved in, such offenses and, where authorized under law, use forfeited assets to compensate victims of these offenses.”
Revisions to Corporate Enforcement and Voluntary Self-Disclosure Policies
Mr. Galeotti also directed amendments to several corporate enforcement policies. Specifically, the DOJ clarified and enhanced the benefits available to companies that voluntarily self-report, tightened its monitor selection policy, and added four priority areas to its recently announced whistleblower program.
Although the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP) has been applied across the Division since 2018, Mr. Galeotti has directed several significant changes. First, the memorandum states that companies that self-disclose will be entitled to a declination, as opposed to a presumption of a declination. In other words, companies that satisfy the requirements of the CEP (voluntary self-disclosure, full cooperation, and timely remediation without aggravating circumstances) will not be required to enter into a criminal resolution.
The memorandum also directs the Criminal Division’s Fraud Section and the Money Laundering and Asset Recovery Section to “revise the CEP and clarify that additional benefits are available to companies that self-disclose and cooperate, including potential shorter terms.” The memorandum notes that “[i]t is individuals—whether executives, officers, or employees of companies—who commit these crimes, often at the expense of shareholders, workers, and American investors and consumers.” The memorandum also instructs that agreements with companies that cooperate and remediate should last for an appropriate term as necessary but should not be longer than three years “except in exceedingly rare cases.” The memorandum directs the Fraud Section and the Money Laundering and Asset Recovery Section to review the terms of all existing agreements with companies to determine if they should be terminated early.
The memorandum emphasizes its goal of streamlining corporate investigations, which it notes can be “costly and intrusive for businesses, investors, and other stakeholders” and “significantly interfere with day-to-day business operations and cause reputational harm that may at times be unwarranted.” The memorandum, therefore, directs prosecutors to “move expeditiously” when investigating cases and making charging decisions. The DOJ will track investigations to ensure they “do not linger and are swiftly concluded.”
Finally, the memorandum announced an individualized review of all existing independent compliance monitorships and instructed the narrowly tailored use of monitors. Mr. Galleoti announced a new monitor selection memorandum intended to (1) “clarif[y] the factors that prosecutors must consider when determining whether a monitor is appropriate and how those factors should be applied; and (2) ensur[e] that when a monitor is necessary, prosecutors narrowly tailor and scope the monitor’s review and mandate to address the risk of recurrence of the underlying criminal conduct and to reduce unnecessary costs.”
Conclusion
There has been much speculation about how the Trump administration would approach white-collar criminal enforcement while increasing enforcement of immigration and other criminal statutes. The DOJ memo appears to reaffirm a commitment to corporate criminal enforcement and prosecution consistent with the administration’s priorities. We expect the DOJ to continue its focus on fraud, waste, and abuse, specifically concerning health care fraud, federal program fraud, procurement fraud, trade and customs fraud (including tariff evasion), and violations of the FDCA, specifically including the manufacture and distribution of materials used to manufacture fentanyl and other unlawful opioids.
Endnotes
1. The memorandum describes variable interest entities as “typically Chinese-affiliated companies listed on the U.S. exchanges that carry significant risks to the investing public[.]”
Lost in Translation: Key Deal Points in European vs. U.S. M&A Transactions
After two decades practicing law in Silicon Valley and five formative years working on cross-border deals in Europe, I’ve come to appreciate the subtle (and not-so-subtle) differences in how merger and acquisition (M&A) transactions are structured on either side of the Atlantic. For buyers and sellers on opposite sides of the divide, these can be the difference between a smooth closing and a deal that gets lost in translation.
Below, we look at the key distinctions between U.S. M&A deal terms (sourced from SRS Acquiom) and European M&A deal terms (sourced from CMS), personal insights from the trenches, and practical takeaways for buyers and sellers trying to structure and execute cross-border transactions.
The infographic above provides a comprehensive overview of the six key differences in M&A practices between the U.S. and European markets. These points illustrate the fundamental structural variations that deal teams must navigate when working across borders.
1. Purchase Price Adjustments (PPA): Certainty vs. Flexibility
In the U.S., PPAs are nearly universal. Buyers expect to be made whole for gaps in working capital, shortfalls in cash in the bank, and any remaining debt post-closing. It’s a well-oiled machine, and most parties know the drill.
In Europe, it’s a different story. While PPAs are gaining ground (found in less than half of all M&A deals per CMS), many deals still rely on the “locked box” mechanism, where the price is fixed based on a historical balance sheet, and the seller warrants that there has been no leakage in value since the balance sheet date. This approach offers price certainty but requires trust and diligence.
U.S. clients doing deals in Europe should be open to lock box structures, especially in competitive auctions. European clients entering the U.S. should be ready for detailed post-closing adjustments and the accounting gymnastics that come with them.
2. Earn-outs: A Tale of Two Metrics
Earn-outs are common in both markets, making up 33% of U.S. deals and 25% of European ones. But the way they are structured varies widely. In the U.S., revenue-based earn-outs are more common, as opposed to Europe, where EBIT/EBITDA is king.
In tech and healthcare, where future performance is often speculative, earn-outs can bridge valuation gaps. But they are also a breeding ground for disputes.
Defining metrics clearly is table stakes, as is aligning incentives and not underestimating the emotional toll of earn-out negotiations, especially when founders are staying on board.
The chart above quantifies the prevalence of key M&A practices in both markets. Note especially the dramatic difference in MAC clause usage (98% in the U.S. versus just 14% in Europe) and the inverse relationship in arbitration preference (17% U.S. versus 42% Europe). These statistical differences highlight the importance of understanding regional norms when structuring cross-border transactions.
3. Liability Caps: How Much Skin in the Game?
In the U.S., seller liability is often capped at 10% or less of the purchase price, thanks to the widespread use of transactional, or “rep and warranties” insurance (otherwise known as “RWI”). In Europe, caps are higher, often 25% to 50%, though RWI is catching up.
European sellers are more accustomed to bearing risk, while U.S. sellers expect to shift it. This can lead to friction, so aligning expectations early is key.
United States
Europe
Liability Cap Comparison
Liability is typically capped at 10% or less of purchase price
Heavy reliance on representations & warranties insurance
Focus on limiting seller’s post-closing risk
Shorter survival periods for representations
Higher liability caps (25% to 50% of purchase price)
Growing but still lower adoption of W&I insurance
Sellers more accustomed to bearing risk
Longer warranty periods common in certain jurisdictions
Legal Framework Differences
Litigation-focused dispute resolution (83% of deals)
MAC clauses standard (98% of deals)
Common law principles
More extensive due diligence process
Arbitration more common (42% of deals)
MAC clauses rare (14% of deals)
Mix of civil and common law systems
70% of arbitration clauses apply national rules
This interactive comparison illustrates the fundamental differences in liability approaches and legal frameworks between regions. Toggle between the tabs to explore how these differences might impact deal structuring and negotiations. The higher liability caps in Europe (25-50%) versus the U.S. (typically 10% or less) reflect different risk allocation philosophies that must be reconciled in cross-border transactions.
4. MAC Clauses: Rare in Europe, Routine in the U.S.
Material Adverse Change (MAC) clauses are standard in U.S. deals and used in 98% of transactions. The idea is that between signing and closing, the business has not suffered a MAC, and if it has, the buyer does not have to close. Sometimes, it’s worded that the business hasn’t suffered a MAC since the balance sheet date. In Europe, however, they are rarefied air, appearing in only 14% of M&A deals, and often heavily qualified.
This can lead to surprises when U.S. buyers find no MAC clause in a European deal, and European sellers may balk at the broad language typical in U.S. agreements.
5. Dispute Resolution: Courts vs. Arbitration
Dispute resolution is where things really diverge. In the U.S., litigation is the default remedy, with arbitration used in only 17% of deals. In Europe, the use of arbitration is much higher (42% of deals in 2024), especially in cross-border transactions.
But there is a twist. 70% of European arbitration clauses apply national rules, not international ones. That means a “standard” arbitration clause in Germany may look very different from one in France or the UK.
U.S. clients should be prepared for arbitration in Europe and understand the local rules. European clients doing deals in the U.S. should be ready for court proceedings and the discovery process that comes with them.
6. Transactional Insurance: Growing, But Not Yet Global
RWI, or transactional insurance, is a game-changer. It smooths negotiations, caps liability, and speeds up closings. In the U.S., it’s used in 38% of deals. In Europe, it’s at 24%, but rising fast, especially in the UK and Germany.
I have seen RWI insurance unlock deals that would otherwise stall over the scope of representations and warranties, indemnity caps, or escrow mechanics. But it is not a silver bullet, so underwriting diligence still matters.
Bridging the Gaps
Cross-border M&A is never just about the numbers. It’s about culture, expectations, and communication. I have seen deals that were super smart on paper fall apart because the counterparties did not understand each other’s norms. And I have seen unlikely partnerships thrive because they took the time to bridge those gaps.
So, whether you’re a U.S. buyer eyeing a European AI startup, or a European medtech platform bolting on a U.S. target, remember that what is “market” depends on where you are. When in doubt, ask someone who’s been on both sides of the table.
CPSC Announces “Record-Breaking Week” of Enforcement Actions Against Chinese Manufacturers
On May 15, 2025, the Consumer Product Safety Commission (CPSC or Commission) announced a “record-breaking week” of enforcement actions against “foreign violators.”[1] Namely, the Commission announced 28 separate product safety recalls and warnings for products manufactured in China, including a “first-of-its-kind enforcement sweep of off-brand Chinese faucets found to leach lead and other contaminates into U.S. drinking water.”[2] Many of these actions were taken “unilaterally,” meaning the Commission issued press releases warning consumers of potentially hazardous products without final approval from the products’ manufacturer or retailer.
The CPSC’s authority to take such unilateral action originates from Section 6(b) of the Consumer Product Safety Act (CPSA). Historically, the Commission’s use of unilateral action has been minimal. Companies typically find it advantageous to cooperate with the CPSC in disclosing hazards to the public. However, this recent “record-breaking week” may signify a more aggressive approach by the CPSC, particularly when it comes to foreign manufacturers that are arguably outside the CPSC’s immediate jurisdiction.
Unilateral Press Releases under the CPSA Section 6(b)
Section 6(b) governs the CPSC’s ability to publicly disclose information about consumer products, such as identifying the manufacturer and any product-specific information.[3] Before publicly disclosing this information, the agency must notify the company and provide it with an opportunity to correct, contest, or comment on the disclosure’s content.[4] The CPSC must give the company at least fifteen days to provide comments.[5] If, however, the CPSC disagrees with the company’s comments, the CPSC may unilaterally release information to the public—without the company’s final approval—so long as it has taken “reasonable steps” to ensure the information is accurate, fair in context, and reasonably related to the agency’s mission to protect the public.[6]
Section 6(b) proponents argue these safeguards are necessary to protect against reputational damage caused by false or inaccurate disclosures. Critics maintain its rigid framework delays potentially life-saving information from prompt public disclosure, with some arguing it should not exist at all. Even so, unilateral press releases could result in litigation, especially if the content turns out to be inaccurate.[7] Thus, the CPSC may delay the issuance of a unilateral press release to independently verify the information therein—which typically requires cooperation and further disclosure from the company.
Insight from the Commission
Previous statements made by Acting Chair Peter Feldman and Commissioner Douglas Dziak provide insight into their views on unilateral activity by the CPSC. In 2023 Peter Feldman publicly touted the Commission’s Section 6(b) powers stating, “The law provides due process for a firm to seek revisions of what it believes to be erroneous information. Nevertheless, the Commission is under no obligation to make edits if it disagrees.” Further, in 2024, the CPSC refused to retract a unilateral statement by Commissioner Richard Trumka encouraging retailers to refrain from selling certain weighted infant sleep products. The manufacturer of those products complained Trumka’s statement violated Section 6(b) procedures, compelling a response from both Feldman and Dziak: “We do not take such relief lightly” and “the publication of the statements constitutes final agency action. Given the procedural deficiencies in this matter, we believe that the relief sought is best obtained through an Article III court.”[8] Now, with Acting Chair Feldman at the helm, it may not be a surprise that the CPSC is turning to this regulatory tool with more frequency, particularly in instances involving products made in foreign countries.
Implications for Domestic Stakeholders and Foreign Manufacturers
For domestic importers, distributors, and retailers of foreign products, the increased risk of unilateral press releases may present some challenges. If a foreign supply partner fails to meet U.S. safety standards and refuses to cooperate with the CPSC, the burden of compliance may fall on the U.S. entity. The CPSC may also leverage the threat of a unilateral press release naming the domestic retailer to compel cooperation, even when the foreign manufacturer may be the more appropriate focus for the violation.
Given the CPSC’s increased exercise of its unilateral authority, particularly with respect to products manufactured abroad, companies that import, distribute, or sell consumer products—especially those sourced from foreign manufacturers—should perform the appropriate vetting and due diligence, verifying product safety at the outset of the supply chain. In addition—and to the extent possible—domestic stakeholders who import from abroad should work to include provisions in supply contracts that require foreign suppliers to cooperate with CPSC inquiries and recalls.
[1] The CPSC’s official statement is available here: https://www.cpsc.gov/Newsroom/News-Releases/2025/CPSC-Sets-New-Record-for-Safety-Notices-Protecting-American-Families-and-Leveling-the-Playing-Field-for-American-Business#:~:text=WASHINGTON%2C%20D.C.%20%E2%80%93%20This%20week%2C,weekly%20high%20for%20safety%20warnings.
[2] Id.
[3] See 16 C.F.R. Part 1101.
[4] 16 C.F.R. § 1101.1(b)(1).
[5] Id.
[6] 16 C.F.R. Part 1101 Subpart D. The CPSC must first warn the company of its decision to do so and wait an additional five days before releasing the contested information to the public. 16 C.F.R. § 1101.25.
[7] See 16 C.F.R. § 1101.1(b)(3).
[8] The full statement can be found on the CPSC website: https://www.cpsc.gov/About-CPSC/Commissioner/Douglas-Dziak-Peter-A-Feldman/Statement/Statement-of-Commissioners-Peter-A-Feldman-and-Douglas-Dziak-on-the-Retraction-of-Infant-Sleep-Products-Statements.
Tenth Circuit Decision Highlights Distinction Between Traditional Non-Compete and Forfeiture-for-Competition
In Lawson v. Spirit AeroSystems, Inc., the U.S. Court of Appeals for the Tenth Circuit upheld the forfeiture of certain stock awards for violating a covenant not to compete. Like the Seventh Circuit in LKQ Corp. v. Rutledge(which applied Delaware law), the Tenth Circuit concluded that, under Kansas law, the remedy of forfeiting future compensation is not subject to the same reasonableness standard as traditional enforcement of a non-compete obligation. The Tenth Circuit reached this conclusion even though the executive’s agreement included both a forfeiture-for-competition provision and traditional enforcement rights (i.e., the right for the company to pursue monetary damages and specific performance), because the agreement terms enabled the forfeiture provision to be severed from the traditional enforcement provisions.
Background and the Court’s Analysis
A retirement agreement allowed the former CEO of Spirit AeroSystems (“Spirit”) to receive cash payments and continue vesting in certain stock awards if he continued working for Spirit as a consultant and complied with a non-compete agreement. The CEO subsequently contracted with a hedge fund that was pursuing a proxy contest against one of Spirit’s suppliers. Spirit determined that this activity breached the non-compete and therefore stopped payments to the CEO and cut off continued vesting of the stock, resulting in forfeiture of the CEO’s then-unvested stock awards. Notably, Spirit did not seek to claw back cash that had already been paid or stock that had already vested: only future compensation and vesting were affected.
The court first found under Kansas case law a distinction between a traditional penalty for competition and forfeiture of future compensation for competition. Under Kansas case law, the former is valid and enforceable only if “reasonable under the circumstances and not adverse to the public welfare.” But the court concluded that Kansas law does not subject the latter to the same reasonableness standard because it does not restrain competition in the same way. Rather than imposing a penalty, a forfeiture for competition provision “merely provides a monetary incentive in the form of future benefits for not competing.” The court reasoned that a forfeiture for competition provision gives the worker “a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits.” And because the forfeiture applied only to future compensation, it did not amount to a penalty: the executive forfeited only “the opportunity for the shares to vest notwithstanding his retirement.”
Second, the court reasoned that the policy justifications for reasonableness review did not apply to forfeiture in this case. The court stated that reasonableness review addresses the risk that (1) the employer’s bargaining power can lead to a one-sided non-compete that leaves former employees unable to support themselves after their employment ends and (2) “overbroad” restrictions on competition can “decrease options available to consumers and generate market inefficiencies.” The court concluded that neither of those risks were present in this case, noting that the executive was sophisticated and had support of counsel and that the executive had an opportunity to receive substantial compensation if he had complied with the covenant.
Third, the court reasoned that “[f]reedom of contract is the fountainhead of Kansas contract law.” Accordingly, the court determined that the forfeiture-for-competition provision should be presumed enforceable, absent the policy concerns described above.
Unlike the Seventh Circuit in LKQ—which certified a question of Delaware law to the Delaware Supreme Court—the Tenth Circuit refused to certify the question of Kansas law to the Kansas Supreme Court. For the reasons described above, the court determined that it could predict the Kansas Supreme Court’s interpretation of Kansas law with sufficient confidence to make certification unnecessary.
Finally, the court rejected an argument that reasonableness review should be required because Spirit had both the right to invoke forfeiture and the right to seek traditional enforcement (monetary damages and specific performance). The court determined that, in this case, the right to seek traditional enforcement could be severed from the right to invoke forfeiture. Because Spirit relied exclusively on the forfeiture provision and expressly declined to pursue traditional enforcement, the fact that Spirit could have pursued traditional enforcement was not fatal.
Takeaways
Although Lawson is binding only on federal courts in the Tenth Circuit that are applying Kansas state law (and Kansas state courts could still reach a different conclusion), it provides meaningful authority for the proposition that a forfeiture for competition provision can be enforced even if applicable law otherwise limits the enforceability of non-compete provisions. (Notably, however, some states reject forfeiture for competition.) The decision offers a few important practical takeaways:
The particular facts matter. In this case, the court noted that the forfeiture provision had been negotiated by sophisticated parties represented by counsel and determined that policy concerns with non-compete provisions (interfering with the ability to make a living and potential to generate market inefficiencies) were not present.
Drafting matters. If an agreement has more than one enforcement mechanism (e.g., a right to seek damages and injunctive relief and a separate statement that breach will result in forfeiture of certain compensation or benefits), it is important to make each enforcement mechanism distinct and severable from the others. The result of this case could have been different if the agreement did not have a severability clause. It also helps to state clearly that amounts subject to forfeiture are not considered earned or fully vested (even if considered vested for tax purposes) unless and until the employee has satisfied all applicable conditions. Clarity on this point helps the court to distinguish between a permissible compensatory incentive to comply and a potentially impermissible penalty for breach.
Enforcement strategy matters. The court emphasized that Spirit did not pursue injunctive relief or damages and that the forfeiture applied only with respect to future payments and vesting. Had Spirit sought to claw back prior payments or stock that had already vested, the court might have treated the forfeiture as a penalty that required reasonableness review.
The Trump Administration Announces Trade Agreement With China
On Thursday, 8 May, shortly after the announcement of the trade agreement with the United Kingdom and the United States, US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent provided additional details on the trade “agreement” reached with representatives of the People’s Republic of China in Geneva. The agreement was realized in the 12 May executive order “Modifying Reciprocal Tariff Rates to Reflect Discussions with the People’s Republic of China.”
Both countries announced that they would lower the 125% tariffs that were put in place after 2 April to 10% for 90 days. China will also end its restrictions on rare earth and other exports of sensitive goods during the 90-day pause. The United States will retain its 20% tariffs related to fentanyl issues and all other tariffs and duties (including the Section 301 tariffs that have been in place since 2018 and the Section 232 tariffs on steel, aluminum, and automobiles/automobile parts, as well as antidumping/countervailing duties and normal customs duties). This temporary pause brings the minimum US tariff rate on imports from China to 30%.
President Donald Trump’s 12 May executive order also amends the duty rates for goods from China or Hong Kong that fall under the US$800 de minimis threshold that were raised in the 2 April executive order “Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China As Applied to Low-Value Imports.” The new duty rates, effective 14 May, impose a 54% ad valorem duty rate or a flat specific duty rate of US$100 per package.
The two sides are continuing to negotiate, with the US delegation repeatedly emphasizing the “constructive” and “positive” tone in the negotiations and a “path forward” on the 20% fentanyl tariffs. Representatives from the Chinese trade delegation have also described the engagement with the United States as constructive but have not commented on the next steps in the negotiation, including a potential call between President Trump and China’s President Xi Jinping. Both countries have committed to establishing a “communication mechanism” to proceed with trade negotiations.1
The agreement, while demonstrating progress in the ongoing trade negotiations between the United States and China, is not a permanent deal and will require an extension or renegotiation before the end of the mutually agreed 90-day pause. As negotiations continue between the White House and global leaders, the trade and policy professionals at our firm remain actively involved in this area and are excited to help you navigate the fast-moving trade environment.
Footnotes
1 Anniek Bao, China calls U.S. trade talks ‘good’ but quiet on next steps, as Trump hints at Xi call, CNBC (May 16, 2025, 5:02 AM), https://www.cnbc.com/2025/05/16/china-calls-us-trade-talks-good-as-trump-hints-at-xi-call.html.
Additional Authors: Jasper G. Noble, Jeffrey Orenstein
Orange Book Listings: Republican Led FTC Picks Up Where Democrat Led FTC Left Off
Key Takeaways
The Federal Trade Commission (FTC), now under Republican leadership, has continued its scrutiny of Orange Book listings for device patents, signaling bipartisan concern over potential anti-competitive practices
Despite new Warning Letters, many of the questioned patents were already delisted or tied to discontinued products, suggesting limited immediate impact on generic competition
Both branded and generic drugmakers may need to reassess litigation strategies and patent listings as regulatory and enforcement dynamics evolve
During the past two years, we have reported on actions regarding the listing of certain patents in the U.S. Food and Drug Administration’s (FDA) Orange Book for drug/device products where the patents focus on the device aspect of the product.1 During the Biden Administration, the FTC, under Democratic-led leadership, started taking note of what it deemed to be “improper” Orange Book patent listings. With all of the changes being implemented by the Trump Administration and at FTC, an open question remained as to whether the FTC would remain active in this area. We now have at least a partial answer to this question – the propriety of certain Orange Book patent listings will remain a focus of FTC.
Under the Biden Administration, the FTC issued two sets of Warning Letters (on November 7, 2023, and April 30, 2024) to multiple drug manufacturers and FTC commenced so-called patent listing dispute proceedings before FDA. Historically, however, the FDA has treated the listing of patents as an administrative matter and does not challenge the information submitted by the NDA holder. As we noted on July 17, 2024, those proceedings initiated by FTC had a minimal impact, as many of the patents remained in the Orange Book.
However, on December 20, 2024, the United States Court of Appeals for the Federal Circuit held that certain patents that were listed in the Orange Book for an asthma inhaler should have been delisted as the claims in question did not recite the active ingredient. Teva Branded Pharmaceutical Products R&D, Inc. et al. v. Amneal Pharmaceuticals of New York, LLC et al., (Fed. Cir Case 2024-1936, Dec. 20, 2024). On March 3, 2025, the Federal Circuit denied Teva’s petition for an en banc hearing. We have observed that in recent updates to the Orange Book, many device type patents have been delisted, presumably at the NDA holder’s request.
For certain products, the Teva decision could lead to additional patent listing disputes and the potential for antitrust counterclaims where patents focusing on the device aspect of drug/device patents are listed. Determining when this would be a potential strategy for generic companies involves an analysis of the competitive landscape, the timeliness of the FDA’s review, the types of patents the brand holds and what the expiration date is for each patent. But, with the significant changes brought about by the Trump Administration, it was an open question how active the FTC would be going forward, even after the Teva decision.
Specifically, on January 20, 2025, President Trump designated Andrew Ferguson to become the new Chairman of the FTC. Then, on March 18, 2025, President Trump fired the two remaining FTC Democratic Commissioners. All these changes begged the question as to whether a Republican-led FTC would continue to take aim at Orange Book listings? The answer to that question appears to be ‘yes’! On May 21, 2025, the new FTC leadership issued Warning Letters that were similar to the ones sent in 2023 and 2024 to seven companies, questioning the legitimacy of the listings for multiple products. Like the previous Warning Letters, FTC’s action was to institute patent dispute procedures at FDA.
In the May 21, 2025, FTC Press Release, Commissioner Ferguson stated:
The American people voted for transparent, competitive, and fair healthcare markets and President Trump is taking action. The FTC is doing its part, . . . . When firms use improper methods to limit competition in the market, it’s everyday Americans who are harmed by higher prices and less access. The FTC will continue to vigorously pursue firms using practices that harm competition.
We have reviewed each of the seven Warning Letters published by FTC (that cover 16 products) and a deeper dive indicates that Commissioner Ferguson’s proclamation may not have a significant impact on competition. Of the 16 brand products identified, seven have been discontinued by the brand, one of the products already has multiple generic competitors, the patents for two of the products will expire in roughly three months, and, for five others, the products in question have Orange Book listed patents whose legitimacy for listing was not questioned by FTC expiring later than those whose legitimacy was questioned. It appears that only one of the sixteen products appears to only list patents questioned by FTC. Moreover, at the time the FTC’s letters were sent, several of the patents in question had already been delisted from the Orange Book.
We also note that FTC has deferred action to the FDA, which is in the midst of significant staffing reductions that have led to slower response times. And, as discussed above, the FDA has traditionally taken the position that its role in patent listings is only ministerial. That being said, it will be interesting to see whether the new FDA leadership will take a different view.
While the new FTC has continued in its predecessor’s wake by sending out a series of Warning Letters relating to Orange Book patents, whether this action will create a more competitive landscape remains to be seen. And, both branded and generic companies may need to rethink their strategies in dealing with patents whose Orange Book listing is questionable. For example, for those products where there are both FTC questioned and unquestioned patents listed in the Orange Book, both the brand and generic company may desire legal certainty and the inclusion of both types of patents in a single lawsuit may be preferred to separate suits. Even if device patents are ultimately removed from the Orange Book, the possibility of litigation over these patents at some point in time still exists. The industry should certainly pay close attention to future developments in this area.
1] See Chad A. Landmon, Andrew M. Solomon, Federal Circuit Refuses to Rehear Case Involving Orange Book Listing of Device Patents, Polsinelli (Mar. 05, 2024), https://natlawreview.com/article/federal-circuit-refuses-rehear-case-involving-orange-book-listing-device-patents ; Court Ruling Alters the Calculus for Orange Book Patent Listings, Polsinelli (Jan. 23, 2025), https://www.polsinelli.com/publications/court-ruling-alters-the-calculus-for-orange-book-patent-listings; Federal Circuit Decides Case Involving Orange Book Listing of Device Patents, Polsinelli (Dec. 23, 2024), https://natlawreview.com/article/federal-circuit-decides-case-involving-orange-book-listing-device-patents; The FTC’s Challenge to the Listing of Device Patents in the Orange Book: What Challenge?, Polsinelli (Jul. 17, 2024), https://natlawreview.com/article/ftcs-challenge-listing-device-patents-orange-book-what-challenge
Tenth Circuit Rules Forfeiture-for-Competition Not Subject to Non-Compete Reasonableness Test
In Lawson v. Spirit AeroSystems, Inc., the U.S. Court of Appeals for the Tenth Circuit upheld the forfeiture of certain stock awards for violating a covenant not to compete. Like the Seventh Circuit in LKQ Corp. v. Rutledge(which applied Delaware law), the Tenth Circuit concluded that, under Kansas law, the remedy of forfeiting future compensation is not subject to the same reasonableness standard as traditional enforcement of a non-compete obligation. The Tenth Circuit reached this conclusion even though the executive’s agreement included both a forfeiture-for-competition provision and traditional enforcement rights (i.e., the right for the company to pursue monetary damages and specific performance), because the agreement terms enabled the forfeiture provision to be severed from the traditional enforcement provisions.
Background and the Court’s Analysis
A retirement agreement allowed the former CEO of Spirit AeroSystems (“Spirit”) to receive cash payments and continue vesting in certain stock awards if he continued working for Spirit as a consultant and complied with a non-compete agreement. The CEO subsequently contracted with a hedge fund that was pursuing a proxy contest against one of Spirit’s suppliers. Spirit determined that this activity breached the non-compete and therefore stopped payments to the CEO and cut off continued vesting of the stock, resulting in forfeiture of the CEO’s then-unvested stock awards. Notably, Spirit did not seek to claw back cash that had already been paid or stock that had already vested: only future compensation and vesting were affected.
The court first found under Kansas case law a distinction between a traditional penalty for competition and forfeiture of future compensation for competition. Under Kansas case law, the former is valid and enforceable only if “reasonable under the circumstances and not adverse to the public welfare.” But the court concluded that Kansas law does not subject the latter to the same reasonableness standard because it does not restrain competition in the same way. Rather than imposing a penalty, a forfeiture for competition provision “merely provides a monetary incentive in the form of future benefits for not competing.” The court reasoned that a forfeiture for competition provision gives the worker “a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits.” And because the forfeiture applied only to future compensation, it did not amount to a penalty: the executive forfeited only “the opportunity for the shares to vest notwithstanding his retirement.”
Second, the court reasoned that the policy justifications for reasonableness review did not apply to forfeiture in this case. The court stated that reasonableness review addresses the risk that (1) the employer’s bargaining power can lead to a one-sided non-compete that leaves former employees unable to support themselves after their employment ends and (2) “overbroad” restrictions on competition can “decrease options available to consumers and generate market inefficiencies.” The court concluded that neither of those risks were present in this case, noting that the executive was sophisticated and had support of counsel and that the executive had an opportunity to receive substantial compensation if he had complied with the covenant.
Third, the court reasoned that “[f]reedom of contract is the fountainhead of Kansas contract law.” Accordingly, the court determined that the forfeiture-for-competition provision should be presumed enforceable, absent the policy concerns described above.
Unlike the Seventh Circuit in LKQ—which certified a question of Delaware law to the Delaware Supreme Court—the Tenth Circuit refused to certify the question of Kansas law to the Kansas Supreme Court. For the reasons described above, the court determined that it could predict the Kansas Supreme Court’s interpretation of Kansas law with sufficient confidence to make certification unnecessary.
Finally, the court rejected an argument that reasonableness review should be required because Spirit had both the right to invoke forfeiture and the right to seek traditional enforcement (monetary damages and specific performance). The court determined that, in this case, the right to seek traditional enforcement could be severed from the right to invoke forfeiture. Because Spirit relied exclusively on the forfeiture provision and expressly declined to pursue traditional enforcement, the fact that Spirit could have pursued traditional enforcement was not fatal.
Takeaways
Although Lawson is binding only on federal courts in the Tenth Circuit that are applying Kansas state law (and Kansas state courts could still reach a different conclusion), it provides meaningful authority for the proposition that a forfeiture for competition provision can be enforced even if applicable law otherwise limits the enforceability of non-compete provisions. (Notably, however, some states reject forfeiture for competition.) The decision offers a few important practical takeaways:
The particular facts matter. In this case, the court noted that the forfeiture provision had been negotiated by sophisticated parties represented by counsel and determined that policy concerns with non-compete provisions (interfering with the ability to make a living and potential to generate market inefficiencies) were not present.
Drafting matters. If an agreement has more than one enforcement mechanism (e.g., a right to seek damages and injunctive relief and a separate statement that breach will result in forfeiture of certain compensation or benefits), it is important to make each enforcement mechanism distinct and severable from the others. The result of this case could have been different if the agreement did not have a severability clause. It also helps to state clearly that amounts subject to forfeiture are not considered earned or fully vested (even if considered vested for tax purposes) unless and until the employee has satisfied all applicable conditions. Clarity on this point helps the court to distinguish between a permissible compensatory incentive to comply and a potentially impermissible penalty for breach.
Enforcement strategy matters. The court emphasized that Spirit did not pursue injunctive relief or damages and that the forfeiture applied only with respect to future payments and vesting. Had Spirit sought to claw back prior payments or stock that had already vested, the court might have treated the forfeiture as a penalty that required reasonableness review.
FTC Extends ‘Click-to-Cancel’ Rule Deadline
On May 9, 2025, the Federal Trade Commission (FTC) voted to extend the compliance deadline for the Negative Option Rule by 60 days. The Rule, sometimes called the “Click-to-Cancel Rule,” will now be effective July 14, 2025.
In a statement regarding the extension, the FTC explained that, in its view, companies need additional time to address the complexities of the Click-to-Cancel Rule. “Having conducted a fresh assessment of the burdens that forcing compliance by [May 14, 2025] would impose, the Commission has determined that the original deferral period insufficiently accounted for the complexity of compliance.”
Background
On Oct. 16, 2024, the FTC announced its final “Click-to-Cancel” Rule for subscription services and other negative option offers. The rule requires sellers to make it as easy for consumers to cancel subscriptions as it was to sign up for them. The rule also changes businesses’ marketing, disclosure, consent, and recordkeeping requirements and gives the FTC the authority to seek redress and civil penalties for rule violations.
The rule amends the FTC’s 1973 Negative Option Rule. In a press release issued at the time the final rule was issued, the Commission explained it was “modernizing” the Negative Option Rule “to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs in an increasingly digital economy where it’s easier than ever for businesses to sign up consumers for their products and services.” The Commission also explained that it “receives thousands of complaints about negative option and recurring subscription practices each year,” with the number of complaints “steadily increasing over the past five years.”
The Rule
Negative Option Features
The rule applies to “negative option features.” Negative option features are contract provisions “under which a consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance of the offer.”
Negative option features are widely used. They include “prenotification plans,” like book-of-the-month clubs, in which sellers first offer and then send—and charge for—a good if the consumer takes no action to decline the offer. They include “continuity plans,” like bottled-water delivery, in which consumers agree in advance to receive period shipments of goods or provision of services until they cancel the agreement. They include “automatic renewals,” like magazine and streaming service subscriptions, in which sellers automatically renew consumers’ subscriptions when they expire, unless consumers affirmatively cancel the subscriptions. And they include “free trials” in which goods or services are offered for free (or at a reduced price) for a trial period and, after the trial period, at a higher price unless consumers affirmatively cancel or return the goods or services.
Compliance Requirements
The rule defines four practices as unfair and deceptive within the meaning of Section 5 of the FTC Act.
1.
Misrepresentations. The rule prohibits negative option sellers from misrepresenting, expressly or by implication, any material fact, including any fact regarding the negative option feature or the cost, purpose or efficacy, health, or safety of the underlying good or service.
2.
Disclosures. The rule requires negative option sellers to clearly and conspicuously disclose, prior to obtaining the consumer’s billing formation, all material terms, including, but not limited to, the material terms relating to the negative option offer.
3.
Consent. The rule requires negative option sellers to obtain the consumer’s express, informed consent to the negative option feature, separately from any other portion of the transaction and before charging the consumer—for instance, via a separately presented check box.
4.
Easy Cancellation. The rule requires negative option sellers to provide a simple cancellation mechanism for consumers to cancel the negative option feature, with that mechanism being “at least as easy to use as the mechanism the consumer used to consent” to the negative option feature. Moreover, the cancellation mechanism must be provided through the same medium the consumer used to sign up for the negative option feature, and cannot be only a live or virtual representative, like a chatbot. That is, if consumers sign up for a service online, they cannot be required to interact with a live or virtual representative, like a chatbot, to cancel.
Takeaways
With the rule’s new compliance deadline now set for July 14, 2025, businesses should take this additional time to review their current negative option offers and develop remediation plans, if necessary, to comply with the rule—and with additional state law requirements that apply to negative option features.
Fourth Circuit Decides “Non-Ink-to-Paper” Agreement Among Defense Contractors May Toll Statute of Limitations for Antitrust Claims
On May 9, 2025, the U.S. Court of Appeals for the Fourth Circuit published a significant decision in Scharpf v. General Dynamics Corp., reviving a dormant class action lawsuit against a group of the country’s largest naval defense contractors. The plaintiffs, two former naval engineers, alleged that the defendants maintained an unwritten “no-poach” agreement not to recruit each other’s employees, thereby suppressing labor mobility and wages for over two decades. While the district court dismissed the claims as time-barred under the Sherman Act’s four-year statute of limitations, the Fourth Circuit reversed, holding “that an agreement that is kept ‘non-ink-to-paper’ to avoid detection can qualify as an affirmative act of concealment” sufficient to toll the statute of limitations.
The case is notable for both its subject matter – a purported industry-wide, decades-long no-poach conspiracy among the largest players in the $40 billion shipbuilding industry – as well as its reaffirmation and arguable expansion of a relatively plaintiff-friendly fraudulent concealment standard. In adopting a practical view of what constitutes an “affirmative act” of concealment, the Fourth Circuit aligns itself with a growing consensus among federal courts and signals that unwritten antitrust conspiracies cannot escape judicial scrutiny merely because they were designed to leave no paper trail.
Background
The plaintiffs, Susan Scharpf and Anthony D’Armiento, are former naval engineers who worked for various naval shipbuilding companies between 2002 and 2013. In 2023, they brought a putative class action against “many of the largest shipbuilders and naval-engineering consultancies in the country,” alleging that the defendants had entered into an unwritten agreement to not actively recruit each other’s employees. This alleged no-poach conspiracy, which the plaintiffs claim “began as early as 1980 and was ubiquitous by 2000,” purportedly suppressed wages and prevented labor mobility across the industry.
The plaintiffs only discovered the alleged conspiracy in April 2023, following an investigation centered on insider witness accounts. According to the complaint, the conspiracy was deliberately concealed through a “non-ink-to-paper agreement,” which consisted of verbal agreements, passed down through oral instruction and enforced through coded language and informal executive communications. The plaintiffs argued that such tactics justified tolling the statute of limitations under the doctrine of fraudulent concealment.
The district court disagreed. In granting the defendants’ Rule 12(b)(6) motion, the court held that merely keeping an agreement unwritten did not constitute an affirmative act of concealment and dismissed the suit as barred by the statute of limitations. The plaintiffs appealed.
Fourth Circuit Decision
The Fourth Circuit reversed and remanded. Writing for the majority, Judge James Wynn concluded that the district court misapplied the standard for fraudulent concealment. Under “cornerstone” Fourth Circuit precedent in Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, a plaintiff can toll the statute of limitations by alleging that the defendants engaged in affirmative acts intended to conceal their illegal conduct. In Scharpf, the majority held that maintaining a “non-ink-to-paper” agreement specifically for the purpose of avoiding detection qualified as such an affirmative act.
The court rejected the defendants’ argument that “a secret agreement… is not an affirmative act of concealment” and emphasized that “neither logic nor our precedent supports distinguishing between defendants who destroy evidence of their conspiracy and defendants who carefully avoid creating evidence in the first place.” Indeed, the latter may be even more effective at concealing misconduct. According to the court, the defendants’ alleged strategy of enforcing the no-poach agreement exclusively through oral instruction, euphemistic language (such as referring to other firms as “friends”), and private phone calls amounted to a deliberate scheme to avoid scrutiny. These tactics, if proven, reflected more than mere silence or passive nondisclosure and instead amounted to affirmative efforts to suppress evidence of the conspiracy.
Importantly, the court also applied a relaxed pleading standard under Rule 9(b), which governs fraud allegations. Recognizing the challenges plaintiffs face in pleading fraud-by-omission claims without access to discovery, the court held that the plaintiffs’ detailed factual allegations, “the bulk of [which] are quotes from interviews with industry insiders,” constituted particularity sufficient to survive a motion to dismiss.
Context in Federal Antitrust Law
Scharpf reinforces the Fourth Circuit’s alignment with the intermediate “affirmative-acts standard” for fraudulent concealment – a standard increasingly favored by federal courts. The First, Fourth, Fifth, Sixth, and Ninth circuits have adopted this standard holding that concealment need not be separate from the underlying antitrust violation, so long as the defendants undertook deliberate acts to keep the conspiracy hidden. For instance, the Fourth Circuit cited for support Texas v. Allan Construction Co., in which the Fifth Circuit held that covert price-fixing meetings could qualify as acts of fraudulent concealment, and Conmar Corp. v. Mitsui & Co., in which the Ninth Circuit emphasized that plaintiffs need not show additional deception beyond the conspiracy itself if the antitrust violation was secretly executed.
The Fourth Circuit again declined to adopt the “inapplicable” “self-concealing standard” enforced in the Second, Eleventh, and D.C. circuits, which allows tolling whenever “deception or concealment is a necessary element of the antitrust violation.” The court also declined to follow the Tenth Circuit’s lonely adherence to the restrictive “separate-and-apart” standard that allows tolling only on a showing of active concealment distinct from the underlying misconduct. Scharpf explained that the self-concealing standard is “inapplicable” to cases involving alleged price-fixing because “price-fixing is not inevitably deceptive or concealing.” Without discussion, the majority summarily dismissed the separate-and-apart standard as “too stringent and indeterminate.”
Notably, the Fourth Circuit also distinguished its ruling from its earlier, arguably more defendant-friendly decisions in Pocahontas Supreme Coal Co. v. Bethlehem Steel and Robertson v. Sea Pines Real Estate, in which the court had rejected tolling arguments based on an alleged “failure to admit wrongdoing” despite little to no initiative by plaintiffs to uncover such wrongdoing. In Scharpf, by contrast, the court held that defendants engaged in active concealment through coordinated non-documentation, covert verbal policies, and indirect enforcement mechanisms, all of which are hallmarks of intentional secrecy rather than mere passive non-disclosure.
Diaz Dissent
Chief Judge Albert Diaz dissented, arguing that the majority effectively adopted the lenient self-concealing standard rather than applying the Fourth Circuit’s established affirmative acts standard for fraudulent concealment. He contended that the plaintiffs failed “to allege discrete and particularized acts by the defendants to conceal the conspiracy” beyond “general descriptions” of the conspiracy itself. According to the dissent, simply labeling the no-poach agreement as unwritten or secret was insufficient to constitute an affirmative act of concealment, as the concealment was inherent in the alleged unlawful conduct. Diaz warned that the majority’s approach risks collapsing the distinction between conspiratorial conduct and concealment, thereby undermining the statute of limitations and permitting time-barred claims to proceed based solely on the inherently secretive nature of the original violation.
The Impact
The Scharpf decision is poised to create ripple effects in antitrust and employment litigation, particularly as courts and enforcers increasingly scrutinize collusion in labor markets.
Most immediately, the decision reinforces that the statute of limitations will not shield conspirators who hide their agreements through sophisticated concealment tactics. Employers in high-skill or high-security industries – especially those with limited pools of specialized labor – should pay close attention to this ruling. “Gentlemen’s agreements” and “non-ink-to-paper agreements” among competitors, even if never memorialized or acknowledged publicly, may still allow tolling for actionable antitrust claims.
More broadly, the ruling validates plaintiffs’ reliance on insider testimony and circumstantial evidence to plead fraudulent concealment in complex conspiracies. In practical terms, the Fourth Circuit may have lowered the procedural barriers for employees and other would-be plaintiffs to challenge long-running but unwritten anticompetitive arrangements.
Data Breach Lawsuits Surge Against Chord Specialty Dental Partners
Pennsylvania-based Chord Specialty Dental Partners is under fire after a September 2024 data breach compromised the personal information of over 173,000 individuals. At least seven proposed class action lawsuits have been filed in federal courts in Tennessee and Pennsylvania, alleging the company failed to secure and protect patient data properly.
The lawsuits claim Chord Dental violated its obligations under state and federal laws, including the Federal Trade Commission (FTC) Act and the Health Insurance Portability and Accountability Act (HIPAA). Plaintiffs argue that the company did not implement reasonable cybersecurity measures or provide timely and sufficient notice of the breach.
Exposed data included names, addresses, Social Security numbers, driver’s license numbers, bank and payment card information, dates of birth, and medical and insurance records.
The plaintiffs claim that they have suffered harm, including out-of-pocket costs, time spent mitigating the damage, emotional distress, and increased risk of identity theft. One plaintiff also seeks to represent a specific subclass of affected Pennsylvania residents.
The flurry of suits alludes to various legal claims, from negligence and breach of contract to unjust enrichment. Plaintiffs are seeking damages, restitution, credit monitoring, and court orders requiring stronger data protections.
As legal proceedings unfold, the case highlights ongoing concerns over cybersecurity practices in the healthcare industry—and the steep costs of failing to protect protected health information.