New Statute Affects Small Business Leases in California
Go-To Guide:
California Senate Bill 1103 (SB 1103) introduces changes to commercial leases, offering enhanced protections for small business tenants.
Tenants that meet the “5/10/20 rule” and provide written notice of their qualified status can seek the benefits of these new protections.
Landlords must translate leases into the tenant’s primary language for qualified commercial tenants.
Leases with qualified commercial tenants automatically renew unless landlords provide timely nonrenewal notices, aligning commercial tenancy practices more closely with residential standards.
Rent increases for short-term leases require advance notice, and any fees for building operating costs must be proportionate and documented.
Effective Jan. 1, 2025, SB 1103 makes four principal changes to commercial tenancy law:
1.
increased notice periods for rental increases on short term tenancies (month-to-month or shorter);
2.
a new requirement for translating the lease into other languages;
3.
automatic renewal of the tenancy unless the landlord objects in a timely manner; and
4.
limitations on rental increases based on building operating costs. The law provides additional leasing protections to small business commercial tenants who meet the definition of “qualified commercial tenants.”
Commercial landlords should be aware of all the related changes and should build these new requirements into their form leases, tenant notices, and operating procedures. More generally, landlords should be aware that like the protections for small commercial tenants enacted during COVID-19, these new leasing regulations indicate a legislative policy towards treating small businesses more like residential tenancies, as opposed to traditional commercial leases with larger commercial tenants.
Definition of ‘Qualified Commercial Tenant’
Businesses must meet two elements of the qualified commercial tenant definition to qualify for these new protections.
First, a business must be a “microenterprise,” a restaurant with fewer than 10 employees, or a nonprofit with fewer than 20 employees. A microenterprise is defined in Business & Professions Code section 18000 as a sole proprietorship, partnership, LLC, or corporation with five or fewer employees (including the owner), who may be full or part-time, and which generally lacks sufficient access to loans, equity, or other financial capital. A convenient way to remember this definition is the “5/10/20 rule,” based on the number of employees.
Second, the tenant must have provided to the landlord, within the previous 12 months, written notice that the tenant is a qualified commercial tenant and a self-attestation regarding the number of employees the tenant employs before or upon the lease’s execution and annually thereafter. In other words, the law’s provisions are not self-executing – the tenant must give notice first. The rental rates, the premises’ square footage, and the tenant’s income or wealth are not considered when determining qualified status.
With these definitions in mind, here are the four principal changes SB 1103 makes to commercial tenancy law.
The Four New Tenant Protections
1.
Notice of Rent Increase for Short Term Rentals
Existing Civil Code Section 827 provides that for short term residential leases, namely month-to-month or a shorter period, the landlord must give prior notice of a rent increase. The amount of notice required depends on how much the rent will increase.
SB-1103 extends this notice requirement to qualified commercial tenant leases. If the increase is 10% or less of the prior year’s rent, the notice mut be given at least 30 days before the increase date, and if it is greater than 10%, then the notice must be given at least 90 days prior. The notice itself must advise the qualified commercial tenant of the requirements of this amended statute.
It is unclear how relevant this provision would be to most small businesses. Unlike short term residential tenancies such as residence hotels, a commercial business is not likely to be a month-to-month tenancy unless it is a holdover from a longer fixed lease. Due to an apparently unresolved inconsistency in the Senate and Assembly versions of this section, however, its protections may extend beyond month-to-month leases. Landlords may assume this provision applies to rental increases for all commercial real property leases by a qualified commercial tenant.
Violation of this provision does not entitle the qualified commercial tenant to civil penalties, but qualified commercial tenants may be eligible for restitution of overpaid rent or an injunction to prevent further violations.
2.
Translation of Lease
Existing law in Civil Code Section 1632 requires a business to deliver a translation of a contract from English to the primary language in which the agreement was negotiated, specifically in Spanish, Chinese, Tagalog, Vietnamese, or Korean (translation requirement) but provides an exception if the other party uses their own interpreter (interpreter exception).
SB 1103 expands this requirement to a landlord leasing to a qualified commercial tenant for leases negotiated on or after Jan. 1, 2025. It requires the landlord to comply with the translation requirement but does not grant the landlord the interpreter exception. In other words, the landlord must always comply with the translation requirement.
If the landlord fails to comply with this requirement, the qualified commercial tenant (but not the landlord) is entitled to rescind the lease.
3.
Automatic Renewal
Existing Civil Code Section 1946.1 provides that a residential lease is deemed renewed unless the landlord gives 30 to 60 days’ notice of nonrenewal prior to termination, depending on whether the lease was for less than one year.
SB 1103 expands this protection to qualified commercial tenant leases and requires the landlord to give notice of the provisions of this section in the notice to a qualified commercial tenant. Qualified commercial tenants who believe their landlord has violated this section’s notice requirement can file a complaint with local housing authorities or pursue legal action.
4.
Limitation On Building Cost Charges
Existing Civil Code Section 1950.8 prohibits a landlord from demanding an extra fee to continue or renew a lease unless the amount is stated in the lease, but this requirement does not apply if the increase is for building operating costs incurred on behalf of the tenant and the basis for calculation is established in the lease.
SB 1103 adds a new law, Civil Code Section 1950.9, that applies to leases executed or renewed on or after Jan. 1, 2025. The section prohibits a landlord from charging a qualified commercial tenant a fee to recover building operating costs unless the costs are allocated proportionately, the costs were incurred in the prior 18 months or are reasonably expected to be incurred in the next 12 months, and the landlord provides a prospective tenant notice that the tenant may inspect the cost documentation.
There are some substantial enforcement teeth in this particular provision, including actual damages, attorneys’ fees and costs, and in the case of willful, oppressive, fraudulent, or malicious violations, treble damages, and punitive damages. The tenant can also raise this section as a defense to eviction.
Application
SB 113 applies to all commercial tenancies in California where the tenant is a qualified commercial tenant. Obvious applications are shopping malls, strip malls, and other buildings where a variety of small business are collected. Some commercial landlords, for example the owner of a large commercial office building leased to large businesses, might think the statute is not relevant to them, but smaller tenants such as a café or gift shop in the lobby may be covered.
Unanswered Questions
Unanswered questions remain, such as the case of subleases, where the tenant might not be a qualified commercial tenant, but the subtenant might qualify under SB 1103. Similarly, it remains to be seen how and when a landlord could challenge the tenant’s self-attestation of qualified status, particularly if that status changes during the tenancy.
401(k) Plan Fiduciaries Breached ERISA’s Duty of Loyalty By Allowing ESG Interests To Influence Management Of The Plan
Last week, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas, issued the first-of-its-kind ruling on the merits pertaining to environmental, social, and corporate governance (“ESG”) investing in ERISA-covered retirement plans. In his 70-page Opinion, Judge O’Connor concluded that the plan fiduciaries of American Airlines’ (the “Plan Sponsor’s”) 401(k) plans breached their duty of loyalty, but not their duty of prudence, by allowing their corporate ESG interests, as well as the plan investment manager’s ESG interests, to influence management of the plans. The case is Spence v. American Airlines, Inc., No. 4:23-cv-552 (N.D. Tex. Jan. 10, 2025).
There have been numerous media reports on the Opinion which, as one may expect, have reached a wide array of views about its implications. On the one hand, some have viewed the Opinion as being limited to the specific facts of the case. On the other hand, some have viewed the Opinion as having far reaching consequences because (i) its undertone suggests it is yet another attack on the controversial practice of ESG investing, and (ii) it seeks to upend the common practice of plan fiduciaries delegating authority for proxy voting to investment managers.
Plan sponsors and fiduciaries will want to monitor developments in this action, including how Judge O’Connor addresses the issue of damages and what is likely to become a hotly contested appeal to the Fifth Circuit. In addition, a watchful eye should be kept on another case in this District recently remanded by the Fifth Circuit, where another judge is being asked to consider a legal challenge to ERISA’s ESG investing-related regulations.
Background
Bryan Spence, a participant in one of the Plan Sponsor’s two 401(k) plans, sued the plans’ fiduciaries under ERISA, alleging that they breached their fiduciary duties of prudence and loyalty by mismanaging certain funds in the plans’ investment menus that were managed by firms that pursued non-financial and non-pecuniary ESG policy goals through proxy voting and shareholder activism. Spence contended that such mismanagement harmed the financial interests of the plans’ participants and beneficiaries by pursuing ESG policy goals rather than exclusively financial returns.
The Court’s Opinion
After considering the evidence presented at trial, the court concluded that the plans’ fiduciaries did not breach their fiduciary duty of prudence, but that they did breach their duty of loyalty.
The court concluded that Spence did not prove that the plans’ fiduciaries acted imprudently because their process was consistent with, and in some ways better than, prevailing industry standards. While the court criticized the plans’ fiduciaries for failing to probe the investment manager’s ESG strategy, it concluded that the plans’ fiduciaries maintained a “robust process” for monitoring, selecting, and retaining investment managers, which included the following:
The plans’ fiduciaries held quarterly meetings, which included reporting from internal and external experts responsible for evaluating the plans’ investment managers;
The plans’ fiduciaries hired a well-qualified, independent investment advisor through a competitive bidding process;
The plans’ fiduciaries relied on in-house investment professionals to supplement the third-party advisor’s analysis, “another layer of review that few large-plan fiduciaries replicate”; and
The plans’ fiduciaries met industry standards regarding delegation and oversight of the plans’ investment manager’s proxy voting guidelines and practices.
Notably, the court lamented that “the ‘incestuous’ nature of the retirement industry” means that fiduciaries could escape liability for imprudence by following the prevailing practices of fiduciaries who set the industry standard, even where, in its view, those practices have shortcomings. The court concluded, however, that an act of Congress would be required “to avoid future unconscionable results like those here.”
The court next concluded that the plans’ fiduciaries violated their duty of loyalty “by doing nothing” to ensure that the plans’ investment manager acted in the best financial interests of the plans. In the court’s view, the following facts, taken together, proved that the plans’ fiduciaries failed to act with an “eye single” toward the plans and their participants and beneficiaries:
The investment manager was one of the Plan Sponsor’s largest shareholders and held more than $400 million of the Plan Sponsor’s debt;
A member of the plans’ fiduciary committee was responsible for the Plan Sponsor’s relationship with the investment manager, and the record included emails among fiduciaries referencing the importance to the Plan Sponsor of its relationship with the investment manager;
As a large consumer of fossil fuels, the Plan Sponsor had a corporate reason to be concerned about the investment manager’s ESG focus, which impermissibly clouded the fiduciaries’ judgment; and
The plans’ fiduciaries allowed the Plan Sponsor’s corporate commitment to ESG goals to influence their oversight and management of the plans; in other words, they failed to maintain the necessary divide between their corporate interests and the investment manager’s use of plan assets in the pursuit of ESG policy goals with little fiduciary oversight.
The court found that the evidentiary combination of the (i) Plan Sponsor’s corporate commitment to ESG, (ii) endorsement of ESG policy goals by the plans’ fiduciaries, (iii) influence of, and conflicts of interests related to, the plans’ investment manager that had emphasized ESG, plus the (iv) lack of separation between the defendants’ corporate and fiduciary roles, together established a convincing picture that the defendants had breached their duty of loyalty under ERISA. Whether that disloyalty was in service of the investment manager’s objectives or the Plan Sponsor’s own corporate goals, or both, did not matter. According to the court, the defendants did not act solely in the interests of the plans’ participants and beneficiaries and thus breached their fiduciary duty of loyalty to the plans.
The court ordered the parties to submit cross-supplemental briefing within three weeks on the question of whether the plans suffered any losses and other outstanding issues.
Proskauer’s Perspective
Only time will tell whether the Opinion is limited to its facts or, as some believe, will have broad consequences for the retirement plan industry. Regardless, the court’s decision is notable for several reasons.
To begin with, the premise of the court’s analysis was that the investment manager’s ESG focus was non-pecuniary. Consistent with the Department of Labor’s most recent ESG-related guidance (described here), the court acknowledged that ESG factors could be relevant to a pecuniary risk-and-return analysis where there is a “sole focus on [the] ESG factor’s economic relevance.” For example,the court explained that an investment manager would not be permitted to decide to divest from a company because the company lacks diversity in its leadership, but could consider the lack of leadership diversity if the investment manager believes, based on sound analysis, that it materially risks financial harm to shareholders.
The court drew consequential conclusions based on what it characterized as significant holdings by the investment manager of the Plan Sponsor’s equity and debt. The case illustrates the importance of maintaining clear separation between company considerations and plan fiduciaries’ deliberations. Because many large investment managers have significant holdings in major companies, the court’s analysis opens the door for increased scrutiny of whether an investment manager’s holdings might cloud fiduciaries’ judgment. In fact, it could be argued that the very same conduct the court found was consistent with industry norms and established that the plan fiduciaries acted prudently also established that the plan fiduciaries acted disloyally.
Nasdaq Board Diversity Rules Struck Down in Court
On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit, sitting en banc in Alliance for Fair Board Recruitment v. SEC, held that the approval by the U.S. Securities and Exchange Commission (SEC) of the Nasdaq Board Diversity Rules was arbitrary, capricious, and in contravention of the Securities Exchange Act of 1934, and vacated the approval of those Rules.
It is unclear if the SEC will seek to appeal the decision to the U.S. Supreme Court or if that court will grant the petition for certiorari. However, in a December 12, 2024, statement, Jeff Thomas, Nasdaq’s Global Head of Listings, confirmed that Nasdaq will not seek to appeal the ruling, and companies seeking Nasdaq listing or listed on the Nasdaq stock markets will not need to comply with the Diversity Rules.
The Diversity Rules, proposed as a securities exchange listing requirement in December 2020 and approved by the SEC under Section 19(b)(1) of the Exchange Act, went into effect in August 2021. Subject to certain transition periods and exceptions, it required each Nasdaq-listed company to publicly disclose information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the members of the company’s board of directors. The Exchange also required each Nasdaq-listed company, subject to certain exceptions, to have, or explain why it does not have, at least two members of its board of directors who are considered “diverse,” including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+. In connection with the Diversity Rules, Nasdaq provided recruiting assistance for interested public companies to recruit diverse board members.
A Wait Until the Deal Closes: The Antitrust Agencies Send a Strong Message About the Dangers of Gun-Jumping
One of the most common questions clients have after a merger or acquisition has been signed is, “When can we start on combining the operations and doing business?” And one of the most challenging pieces of counseling is to help a client understand the antitrust compliance principle that until a deal closes, the parties must compete as separate and independent entities. While merging companies may plan the integration of their operations, they may not actually integrate their operations or otherwise coordinate their competitive behavior before the transaction has closed without risking a “gun jumping” violation.
Gun-jumping violations can be triggered under two laws: (1) §1 of the Sherman Act, which prohibits agreements in restraint of trade (such as price fixing and market allocation); and (2) the Hart-Scott-Rodino Act (HSR Act), which requires parties to certain transactions to submit a premerger notification form and observe the necessary waiting period(s) prior to closing their transaction and the transfer of beneficial ownership.
While there have been a number of gun-jumping enforcement actions over the years, the Federal Trade Commission (FTC) and the Antitrust Division of Department of Justice (DOJ) (collectively, the “Antitrust Agencies”) made it clear recently that these types of violations will be scrutinized and penalized. The Antitrust Agencies imposed a record $5.6 million civil penalty on three crude oil suppliers for engaging in gun-jumping in violation of the HSR Act.1
According to the complaint, XCL Resources Holdings, LLC (XCL) and Verdun Oil Company II LLC (Verdun) filed an HSR for their $1.4 billion acquisition of EP Energy LLC (EP).2 However, prior to the expiration of the HSR waiting period, XCL and Verdun assumed control of a number of EP’s key operations including but not limited to managing EP’s customers and coordinating pricing strategies. These and other actions effectively transferred beneficial ownership to the buyers before the deal closed, in violation of the HSR Act.
The enforcement action is the largest civil penalty ever imposed for a gun-jumping violation in history. Moreover, the Antitrust Agencies imposed a number of antitrust compliance and monitoring obligations on the buyers.
[1]https://www.ftc.gov/news-events/news/press-releases/2025/01/oil-companies-pay-record-ftc-gun-jumping-fine-antitrust-law-violation and https://www.justice.gov/opa/pr/oil-companies-pay-record-civil-penalty-violating-antitrust-pre-transaction-notification
[2]https://www.ftc.gov/system/files/ftc_gov/pdf/complaintforcivilpenaltiesandequitablereliefforviolationsofthehartscottrodinoact.pdf
I Want You to Want Me. But I Don’t Need You to Need Me: Manti Holdings v. The Carlyle Group and the Meaning of Non-Ratable Benefit in Controller Transactions in Delaware
Delaware’s rigorous fairness standards for transactions involving controlling shareholders have recently come to the forefront of the Chancery Court’s docket.1
Delaware rigorously scrutinizes controller transactions, and its law provides that entire fairness review is required where a transaction involves a controlling shareholder and that controller receives a “non-ratable benefit;” i.e. the controller achieves something through the transaction that has no benefit to the entities’ other shareholders, even if both sets of shareholders nominally receive the same consideration.
Entire fairness is a demanding standard, and any controller transaction where it is likely to be applied is red meat to the plaintiffs’ bar. Indeed, once Chancery Court has determined, at the motion to dismiss stage,2 that entire fairness will apply to a transaction, the prospect of massive damages calculations exponentially increases pressure on defendants to settle, whatever the merits of their defenses.
But what if defendants are confident that, at trial, they can show there was no such non-ratable benefit? Or, to go a step further, what if they can show that the non-ratable benefit simply did not matter very much? Vice Chancellor Glasscock’s recent post-trial opinion in Manti Holdings v. The Carlyle Group provides defendants with a ray of hope.
The Transaction
Authentix Acquisition Company, Inc. (“Authentix”) is a company that prevents fraud with its authentication technology products. In 2016, Authentix’s Board of Directors began a wide-ranging sales process, which ultimately led to the sale of Authentix in 2017 to a private equity firm, Blue Water Energy LLP. Around the time of the sale, Authentix was facing several challenges, allegedly suppressing the price achieved.
The Plaintiffs, minority stockholders of Authentix, alleged that the Carlyle Group Inc. and its affiliates (“Carlyle”), as a controlling stockholder, convinced the Authentix’s Board of Directors to approve the “fire sale” of Authentix in order for Carlyle to meet its own liquidity needs, and to ensure the transaction occurred before the expiration of the private equity funds Carlyle had used to acquire its interests in Authentix. If the fund expired, Carlyle would no longer be able to obtain additional capital from investors to invest in Authentix. Holding the investment beyond the fund’s lifespan, therefore, was unappetizing to Carlyle.
The Benefit
In denying defendants’ motion to dismiss, VC Glasscock credited Plaintiffs theory that Carlyle was under intense pressure to sell in 2017 to meet investors’ expectations. Plaintiffs’ theory was that Carlyle faced a liquidity-based conflict driven by the need to make a “needle-moving deal” before the end of the fund’s life, which created enormous pressure from investors and effectively mandated that Carlyle sell Authentix in 2017. Moreover, Plaintiff’s alleged, the fund’s Limited Partnership Agreement included a “clawback” provision that would have required Carlyle to return excess distributions so long as it deployed capital on the Authentix investment.
Plaintiffs alleged that defendants sacrificed an astonishing $100,000,000 of value on the table (over half of which would have flowed to Carlyle) in order to push the transaction through on time. Carlyle, in Plaintiffs’ telling, had to sell, “consequences (and price) be damned.”
Have to vs. Want to
At trial, rather than focusing solely on the transaction’s fairness, Carlyle returned to the question of whether Plaintiffs had established a non-ratable benefit. Interestingly, Carlyle does not appear to have contested that it wanted to exit Authentix in 2017, or that it had reason to do so. Rather, Carlyle argued, Carlyle did not “need to” exit Authentix, at least to a degree that impacted the sales process.
The Court found that the sale of Authentix was not a “fire sale” driven by Carlyle acting under time pressure or liquidity pressure from the end of Carlyle’s fund life, in conflict to the minority stockholders’ interests. In support of this finding, the Court reasoned that Carlyle, as the largest stockholder, had an inherent economic incentive to negotiate a favorable transaction for the shareholders. Additionally, although Carlyle wanted to sell off its assets prior to the term expiration, the Court reasoned that the limited partnership agreement did not require Carlyle to do so. Moreover, the Court reasoned that Authentix was not the only remaining asset in Carlyle, indicating that regardless of whether the Authentix sale occurred prior to the end of Carlyle’ term, the fund may have needed an extension for other investments. Therefore, the Court held that Carlyle was “not under compelling pressure to sell Authentix prior to the end of Carlyle’s term, such that its self-interest, shared with the minority, to maximize value was overborne.”
In the Court’s reasoning, the absence of an imperative was sufficient, even though Carlyle conceded that it wanted the sale to go forward in 2017. Carlyle’s interest in moving forward, the court reasoned, was not tantamount to a disabling conflict of interest. For the non-ratable benefit to trigger entire fairness review, it must be sufficient to drive the controller to act against the interests of the minority. Only where there is a “crisis” sufficient to drive the controller to sell before exploring better offers does strict scrutiny apply.3
Don’t Surrender
This decision opens doors, if only a crack, for future defendants. First, it is a reminder that a finding of a well-plead non-ratable benefit is not a death sentence and can be successfully litigated at trial. Second, defendants may contest not just the existence of a non-ratable benefit, but its import. An appropriate, arms-length sales process is strong evidence that a transaction was not improperly tainted, and normal industry pressures, absent specific evidence of a fire-sale, will not be enough to implicate entire fairness.
Plaintiffs who plead a non-ratable benefit that was not sufficiently strong, in the court’s eyes, to motivate malfeasance may find their victories at the motion to dismiss stage merely a cheap trick.
1 See e.g., Thomas v. American Midstream GP, LLC, 2024 WL 5135828 (Del. Ch. Dec. 17, 2024); Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024); Palkon v. Maffer C.A. No. 2023-0449-JTL (Feb. 20, 2024) (“Palkon I”); In re Match Group, Inc. Derivative Litigation No. 368,2022 (Del. Apr. 4, 2024); In re Viacom Inc. Stockholders Litigation, 2020 WL 7711128 (Del. Ch. Dec. 29, 2020).
2 In Delaware Chancery, summary judgment is not available by right, and the court will often dispense with that step where it feels the summary judgment process and trial would be redundant.
3 See, In re Morton’s Rest. Gr. Inc. Shareholders Litig., 74 A.3d 656, 662 (Del. Ch. 2013) (citing In re Synthes, 50 A.3d 1022, 1036 (Del. Ch. 2012)).
What Happens Next When a Company Declines to Follow an NAD Decision? Off to the FTC it Goes
We have written here about the work of the NAD, the National Advertising Division of BBB National Programs. The NAD offers independent self-regulation and dispute resolution services for members of the national advertising community. NAD examines advertising to determine whether the evidence provided by the advertiser fully supports the advertising claims at issue in an NAD review. NAD’s findings and recommendations are detailed in a final written decision and outlined in an accompanying press release.
Participation in NAD proceedings is voluntary, and advertiser compliance with an NAD decision is generally quite high. If the NAD finds against an advertiser, the company is given the opportunity to confirm whether it intends to comply with the decision or to appeal it. If the advertiser refuses to comply, NAD will refer the matter to the appropriate regulatory agency, most often the Federal Trade Commission. Such referrals are announced by the NAD in its press release reporting the decision.
Two recent matters out of NAD highlight the jeopardy a company can find itself in when it refuses to comply with a NAD decision. The first involves a challenge against Larose Industries LLC, operating under the names Roseart and Cra-Z-Art. Larose claimed its pencils were “Proudly Made in USA,” displaying its products alongside American-themed imagery in ads. According to the challenger, Larose’s pencils are made from components sourced from China and involve foreign manufacturing and assembly. Larose refused to participate in the NAD proceedings; accordingly, the NAD referred the matter to the FTC for review and potential enforcement action. The NAD also indicated in its press release that it would notify the platforms with whom NAD has a reporting relationship to assess compliance with platform standards. The second case involves Relish Labs LLC, doing business as Home Chef, which has been before the NAD on several occasions. This round, the NAD investigated Home Chef for its “#1 in Customer Satisfaction” claims. Home Chef declined to make the changes NAD requested, prompting NAD to refer the matter to the FTC. And as in the Larose decision, NAD also indicated it would notify the various platforms of its decision.
The FTC has been a vocal supporter of the NAD process, prioritizing referrals it receives. When an NAD case is referred to the FTC, the FTC will first encourage the advertiser to go back to the NAD to participate in the self-regulatory process. At that point, many companies agree that reengaging with the NAD makes more sense than facing FTC scrutiny. If the company declines, FTC staff will undertake a more substantive review, applying its own applicable legal standards. In some instances, this review leads to formal law enforcement action; in others, the FTC may exercise its discretion (based on resources and priorities) not to open an investigation. In any event, once the FTC’s review is completed, the agency publicizes on its website the resolution of all referrals received from the NAD.
A decision to decline to follow NAD’s recommendations is highly specific to each company under investigation and is rarely made lightly. Businesses that do so can expect additional attention from, and engagement with, the FTC as the agency considers how to proceed.
FTC Proposes Changes to Business Opportunity Rule to Deter Deceptive Earnings Claims – Republican Commissioners Dissent
On January 13, 2025, the Federal Trade Commission announced that it is seeking comment on proposed changes to the Business Opportunity Rule and a proposed new Earnings Claim Rule. According to the FTC, the two, taken together, “would strengthen the agency’s tools to curb deceptive earnings claims in industries where they are pervasive: multi-level marketing (MLM) programs and money-making opportunities.”
The proposed changes to the FTC’s Business Opportunity Rule and the new Earnings Claim Rule would permit the FTC to seek stronger relief – including money back for consumers and civil penalties – from covered companies making deceptive claims.
“Phony claims about likely earnings lure people looking for honest income into spending thousands, even tens of thousands, of dollars on multi-level marketing, business coaching and other schemes,” said FTC lawyer Sam Levine, Director of the Bureau of Consumer Protection. “The proposed rules would help the FTC deter illegal conduct with civil penalties and put money back in consumers’ pockets. We look forward to getting public comment.”
The FTC is seeking comment from the public on three proposals: two Notices of Proposed Rulemaking (NPRM) and one Advance Notice of Proposed Rulemaking (ANPRM).
What is the FTC Notice of Proposed Rulemaking on Business Opportunity Rule?
The proposal would expand the Business Opportunity Rule to cover money-making opportunities, such as business coaching and investment opportunities, which are marketed to assist consumers in building a business or otherwise earning income. According to the FTC, “such operations proliferate, using deceptive tactics—and in particular, deceptive earnings claims—to take consumers’ money. They cause significant financial and other harm to consumers.”
The NPRM define “business coaching opportunities” broadly to include any program, plan, or product that is represented to train or teach a person how to establish or operate a business.” The FTC is also considering whether to use the term “coaching opportunity” instead of “business coaching opportunity.”
Pursuant to the proposed amendments, sellers of these types of opportunities would be, among other things, prohibited from making material misrepresentations, including about earnings. Sellers also would be required to have written substantiation to back up any earnings claims and make that substantiation available to consumers if they request it – in the language they used to make the earnings claim.
What is the FTC Notice of Proposed Rulemaking on Rule Covering Deceptive Earnings Claims in the MLM Industry?
The proposal would create a new rule that would address false or misleading earnings claims in the MLM industry. “Deceptive earnings claims are a widespread problem in this industry, and they have caused significant financial and other harm to consumers,” according to the FTC.
Like the Business Opportunity Rule, the new rule, if adopted, would prohibit MLM sellers from making deceptive earnings and related claims. Similarly, the proposal would require MLM sellers to have written substantiation to back up any earnings claims and make that substantiation available to consumers if they request it – in the language they used to make the earnings claim.
Advance Notice of Proposed Rulemaking on Additional Components of the Proposed Earnings Claim Rule
In addition to the NPRMs, the FTC is issuing an ANPRM in connection with the proposed Earnings Claim Rule, seeking comment from the public on the need for additional rule requirements addressing deceptive earnings claims and related conduct.
These include:
whether to require MLMs to provide earnings data to potential recruits and current MLM participants or to post such data on their websites;
whether all MLM earnings claims should be accompanied by clear and conspicuous information about the earnings MLM participants can generally expect;
whether there should be a waiting period before a recruit pays any money to the MLM or otherwise joins the MLM;
whether to prohibit misrepresentations relating to expenses, benefits, or the compensation plan; and
whether to prohibit MLMs from using non-disparagement or other “gag” clauses to prohibit participants from communicating truthful negative information to the Commission, potential recruits, or others.
The public comment period for all three proposals will last 60 days from when they are published in the Federal Register.
Republican FTC Commissioners Dissent
The Commission votes to approve the issuance of the proposals in the Federal Register were 3-2. Commissioner Ferguson issued a dissenting statement joined by Commissioner Holyoak, voting against all three proposals.
The dissent asks whether the proposed rules “are lawful, and whether they are prudent and sound policy choice … decisions that belong to the incoming Trump Administration.” It will be interesting to see whether President Trump instructs the Office of the Federal Register not to publish any pending rules, particularly those that seek to advance novel liability theories.
Takeaway: The FTC maintains an aggressive investigation and enforcement program relating to companies that lure in entrepreneurs, investors or participants with promises of significant earnings, and then fail to deliver. The proposed rulemakings are aimed at strengthening the agency’s tools to curb deceptive earnings claims in industries where reports indicate they are pervasive: money-making opportunities and MLM programs. The announcement involves three proposals that work together, a NPRM proposing amendments to the FTC’s Business Opportunity Rule to cover “money-making opportunities,” an NPRM proposing a new rule addressing deceptive earnings claims in the MLM industry, and an ANPR asking whether the FTC should propose additional rule requirements that would apply to the MLM industry.
Equity Is Neither a “Good” Nor a “Service” Under Lanham Act
The US Court of Appeals for the Ninth Circuit affirmed a district court’s decision that, in terms of trademark use in commerce, corporate equity is not a “good” or “service” under the Lanham Act. LegalForce RAPC Worldwide, PC v. LegalForce, Inc., Case No. 23-2855 (9th Cir. Dec. 27, 2024) (Thomas, Wardlaw, Collins, JJ.) (Collins, J., concurring).
LegalForce RAPC Worldwide is a California corporation that operates legal services websites and owns the US mark LEGALFORCE. LegalForce, Inc., is a Japanese corporation that provides legal software services and owns the Japanese mark LEGALFORCE.
Both parties had discussions with the same group of investors. After those meetings, LegalForce Japan secured $130 million in funding, while LegalForce USA received nothing. Thereafter, LegalForce USA brought several claims against LegalForce Japan, including a trademark infringement claim. To support its case, LegalForce USA cited LegalForce Japan’s expansion plan, a trademark application for the mark LF, website ownership, and the use of LEGALFORCE to sell and advertise equity shares to investors in California.
The district court dismissed claims related to the website for lack of personal jurisdiction and dismissed claims related to the US expansion plan, trademark application, and alleged software sales in the United States as unripe. The district court dismissed the trademark infringement claims related to the efforts to sell equity shares for failure to state a claim. The court found that advertising and selling equity cannot constitute trademark infringement because it is not connected to the sale of goods or services, and the case did not present justification for extraterritorial application of the Lanham Act. LegalForce USA appealed.
To state a claim for trademark infringement under the Lanham Act, plaintiffs must show that:
They have a protectible ownership interest in the mark, or for some claims, a registered mark
The defendant used the mark “in connection with” goods or services
That use is likely to cause confusion. 15 U.S.C. § 1114(1)(a), § 1125(a).
The Ninth Circuit agreed with the district court that LegalForce Japan had not used LegalForce USA’s mark “in connection with” goods or services, and thus LegalForce USA failed to state a claim for which relief could be granted.
The Ninth Circuit concluded that using LEGALFORCE to advertise and sell equity failed to satisfy the requirement that a defendant used the mark in connection with goods or services. Referring to the U.C.C., the Court explained that corporate equity is “not a good for purposes of the Lanham Act, because it is not a movable or tangible thing.” Equity is also not a service because it is not a performance of labor for the benefit of another. There is no “another” involved because those who buy LegalForce Japan equity are owners and so they are not legally separate “others.”
The Ninth Circuit also agreed with the district court that LegalForce Japan’s services in Japan did not satisfy the “in connection with” goods or services requirement under the Lanham Act. To determine when a statute applies extraterritorially, courts invoke the 2023 Supreme Court Abitron Austria two-step test:
“[W]hether Congress has affirmatively and unmistakably instructed that the provision at issue should apply to foreign conduct”
“[W]hether the suit seeks a (permissible) domestic or (impermissible) foreign application of the provision, based on the statute’s focus and whether the conduct relevant to that focus occurred in the [US] territory.”
For the first step, the Supreme Court has held that the Lanham Act does not provide a “clear, affirmative indication” that it applies extraterritorially. As for the second step, the conduct relevant to trademark infringement would be the defendant’s “use [of the mark] in commerce.” The Lanham Act’s “use in commerce” requirement is equivalent to the “in connection with goods and services” requirement. Explaining that the Lanham Act does not apply if the mark is only used in connection with goods and services outside the US, the Ninth Circuit determined that the Lanham Act was inapplicable here because all LegalForce Japan services are outside the US.
In a concurrence, Judge Collins agreed that a company’s own equity or stock shares do not count as goods or services offered to customers in the market under the Lanham Act. At oral argument, LegalForce USA confirmed that the only good or service underlying its Lanham Act claims was LegalForce Japan’s equity. Although the Lanham Act does not define “goods” or “services,” how a company is internally structured under corporate law is distinct from goods and services that the corporation offers in commerce to its customers. However, Judge Collins thought it unnecessary to reach any additional issues to resolve this case or to import specific definitions of goods. Because securities may qualify as movable or tangible, he explained in a footnote that he did not agree with the majority’s limitation as to goods that are “movable” or “tangible” or its explanation as to why securities fail this test.
Texas Business Court: Judges Take on Cases Across Divisions to Equalize Dockets
The Texas Business Court has established patterns after its first 90 days in business from September – November 2024. During that time the court received 50 total cases, comprising 33 new filings and 17 cases removed from Texas district courts. The Eleventh Division, serving Houston and surrounding areas, handles the majority with 26 cases. The remaining cases are distributed across other divisions:
First Division (Dallas area): 13 cases
Third Division (Austin area): four cases
Fourth Division (San Antonio area): four cases
Eighth Division (Fort Worth area): three cases
To help more evenly distribute the docket, on Nov. 25, 2024, Administrative Presiding Judge Dorfman assigned Judges Barnard and Sharp of the Fourth Division to preside over four cases filed in his and Judge Adrogué’s courts in the Eleventh Division. This was done “in order to equalize dockets within the Texas Business Court and to promote the orderly and efficient administration of justice.” The assigned judges will “handle all proceedings including final trial of the case, absent further order of the Administrative Presiding Judge.” The cases are not being transferred from the Eleventh Division to the Fourth Division; Fourth Division judges will preside over cases that will remain in the Eleventh Division.
Docket equalization may become the norm at the Texas Business Court, especially after the court adds divisions for the state’s less populated areas in September 2026. If the current case filing trends hold true, a case filed in Houston and/or Dallas may be administered by a Texas Business Court judge from another division, which will eventually include El Paso, Midland, Lubbock, Corpus Christi, Tyler, and Beaumont.
European Regulatory Timeline 2025
Following the turn of the new year, our UK Regulatory specialists have examined the key regulatory developments in 2025 impacting a range of UK and European firms within the financial services sector. The key dates have been distilled by the Proskauer team in an easy to read timeline with our commentary.
Download the 2025 European Regulatory Timeline
Michael Singh and Sulaiman I. Malik also contributed to this article.
What Might Happen with Business Immigration Under the New Trump Administration
Navigating the Future of H-1B, L-1 and O-1 Visas
As the new Trump administration takes shape, tech companies and foreign workers are keenly observing potential changes to the H-1B visa program and other related tech visas. The administration is expected to appease its opposing stakeholders by maintaining strong relationships with the tech industry while also addressing concerns from those advocating for stricter immigration policies.
H-1B and L-1 Visas: A Balancing Act
While some factions within the administration may push for a reduction in high-skilled immigration, the administration’s close ties with tech companies suggests it will likely maintain current levels of H-1B and L-1 visa issuances. The tech industry heavily relies on these visas, and any drastic reduction could disrupt business operations and innovation. However, procedural changes that we saw in the previous administration, as well as new ones, might be introduced to indirectly limit access, such as increased scrutiny during adjudications, slower processing times, increased requests for evidence, higher denial rates, and more frequent site visits.
A particular focus is expected on third-party placement firms and staffing companies, which have been accused of misusing the H-1B program. Companies that are in the outsourcing/staffing industry may face heightened scrutiny and additional requirements, especially in terms of documenting third-party worksite placements.
Buy American, Hire American: Implications and Expectations
The anticipated “Buy American, Hire American” executive order could lead to reviews of companies using large numbers of H-1B visas to determine if they are prioritizing foreign workers over U.S. citizens. This may also involve increased activity from the Department of Justice’s Immigrant and Employee Rights Section (IER), which scrutinizes whether foreign nationals are being unfairly preferred in hiring.
Geopolitical Considerations and Security Checks
The administration might impose stricter limitations on H-1B visa holders from countries perceived as unfriendly, such as China and those countries that have been designated as state sponsors of terrorism. Enhanced security and administrative checks could lead to delays for nationals from these countries, reflecting broader geopolitical concerns. The administration could also bring back its Travel Bans via executive orders, as it did previously.
Potential Revisions to Existing Policies
There is speculation about reversing USCIS’s deference policy, which has allowed USCIS adjudicators to rely on prior approvals involving the same parties and facts rather that adjudicating every visa petition from scratch. While the recent H-1B modernization rule codifies the deference policy, the administration could issue directives requiring case-by-case reviews, potentially complicating and slowing the process for employers and applicants.
Additionally, work authorization for some spouses of tech workers may disappear. The Trump administration proposed eliminating the H-4 EAD in 2021 and it may try to do this again. There have been no similar attempts at, or discussions around, rescinding L-2 work authorization.
Optional Practical Training (OPT) and STEM OPT
Previous attempts by the Trump administration to limit OPT and STEM OPT were met with resistance from the tech industry and educational institutions. Further restrictions on these programs seem unlikely in the short term because any changes would likely face significant pushback due to their importance to tech companies and universities.
Prevailing Wage and Union Advocacy
Efforts to increase prevailing wages for H-1B workers may gain traction, with heightened scrutiny on companies accused of undercutting wages through foreign hires. The incoming head of the Department of Labor could advocate for policies that favor higher prevailing wages and address union concerns.
Conclusion: Navigating Uncertainty
While the new administration may introduce challenges for high-skilled immigration, the business community’s pushback and the economic benefits of these programs could help prevent implementation of any drastic measures. Companies and foreign workers should stay informed and prepare for potential procedural changes.
GT Newsletter | Competition Currents | January 2025
United States
A. Federal Trade Commission (FTC)
1. Competitor collaboration guidelines withdrawal.
On Dec. 11, 2024, the FTC and DOJ Antitrust Division withdrew the Antitrust Guidelines for Collaborations Among Competitors. The agencies determined the Collaboration Guidelines, issued in April 2000, no longer provide reliable guidance on how enforcers assess the legality of collaborations involving competitors due to the subsequent development of Sherman Act jurisprudence, rapid evolution of technologies and business combinations, and reliance on outdated policy statements and analytical methods. The FTC voted 3-2 to withdraw the guidelines. Commissioners Andrew Ferguson and Melissa Holyoak issued separate dissents highlighting the absence of replacement guidance.
2. Trump names Andrew Ferguson as next FTC chair.
President-elect Donald Trump has named FTC Commissioner Andrew Ferguson as the next FTC chair. Sworn in on April 2, 2024, Commissioner Ferguson was one of two Republican FTC Commissioners President Biden appointed. He previously served as Virginia solicitor general, chief counsel to U.S. Sen. Mitch McConnell, and U.S. Senate Judiciary Committee counsel. Ferguson earned undergraduate and law degrees from the University of Virginia before clerking for the D.C. Circuit and U.S. Supreme Courts. The president-elect also announced his intention to nominate Mark Meador, a partner at law firm Kressin Meador Powers and former antitrust counsel to U.S. Sen. Mike Lee, as an FTC Commissioner to fill current FTC Chair Lina Khan’s seat.
B. U.S. Litigation
1. Borozny v. RTX Corp., Case No. 3:21-CV-01657 (D. Conn.).
On Jan. 3, 2025, the Honorable Judge Sarala V. Nagala initially approved a $34 million settlement for a nationwide “no-poach” class action against several aerospace companies. The proposed $34 million settlement from the principal defendant, RTX, settles claims that RTX entered into agreements with several suppliers and competitors to not hire one another’s aerospace engineers—a highly skilled profession. This civil suit ran parallel to the DOJ’s criminal case, which was dismissed by another court. If approved, the $34 million settlement from RTX would augment the $26.5 million settlement previously negotiated with other alleged conspirators.
2. 2311 Racing LLC, et al. v. National Association for Stock Car Auto Racing, LLC, Case No. 3:24-CV-886 (W.D. N.C.).
On Dec. 20, 2024, defendant National Association for Stock Car Auto Racing, LLC (NASCAR) sought to stay a preliminary injunction that prevents NASCAR from barring various racing teams who initiated an antitrust lawsuit from competing in the 2025 season. Initiated by 2311 Racing, the lawsuit alleges that NASCAR exercises monopoly power over racetracks and requires all NASCAR teams not to participate in competing events. According to 2311, NASCAR then barred its participation in the upcoming 2025 season because, among other things, 2311 would not sign contracts that require the teams to relinquish all rights to bring antitrust claims. The Honorable Judge Kenneth D. Bell granted 2311’s preliminary injunction requiring NASCAR to allow the teams to compete, which NASCAR intends to appeal in the Fourth Circuit.
3. SmartSky Networks, LLC v. Gogo Inc., Case No. 3:24-CV-01087 (W.D. N.C.).
On Dec. 17, 2024, airplane technology company SmartSky Networks, LLC brought a $1 billion lawsuit against competitor Gogo, Inc. and Gogo Business Aviation, LLC (collectively, Gogo). SmartSky alleges Gogo unfairly blocked it from selling its in-flight Wi-Fi services to private aircraft customers. According to the lawsuit, Gogo engaged in a systematic campaign to create “fear, uncertainty and doubt” about SmartSky’s allegedly superior services while falsely promoting a future Gogo alternative that never launched. As a result of this campaign, SmartSky claims it failed after nearly 10 years of trying to enter the market.
Mexico
A. COFECE discovers possible collusion in radiological material sales to the government.
COFECE’s Investigating Authority has issued a Probable Liability Opinion against several companies and individuals accused of rigging public tenders for radiological material, an illegal act under the Federal Economic Competition Law.
In Mexico, public health institutions perform more than 20 million x-rays a year. The Mexican Social Security Institute conducts approximately 19 million of these studies annually, while the Institute of Security and Social Services for State Workers conducts an additional 1.6 million.
In its announcement, COFECE highlighted that when companies agree not to compete in tenders, they not only affect public finances, but also compromise Mexicans’ access to essential medical services. COFECE further emphasized that transparency, equity, and efficiency are fundamental principles that should govern government procurement, especially in the health sector. A trial will follow.
B. COFECE investigates lack of effective competition in live entertainment events.
COFECE’s Investigating Authority (AI) has initiated an investigation into live entertainment markets to determine if there are obstacles that limit competition in these markets, which could negatively impact the millions of live entertainment event consumers.
Between 2023 and 2024, half of adults in Mexico attended live entertainment events, such as concerts, live music or dance performances, plays, and art or history exhibitions. In 2023 alone, Mexicans spent more than MEX 7 billion on online tickets for music events. This positions Mexico as the largest Latin American market for the sale of tickets to musical events and the 16th largest market worldwide.
Through its investigation, the AI seeks to identify and eliminate the barriers that prevent competition in these markets. If the AI identifies barriers to competition or essential inputs, the COFECE Plenary may order eliminating those barriers, issue recommendations and guidelines for their regulation, and/or order divestment to improve efficiency.
The Netherlands
Dutch ACM Statement
Further investigation into KPN joint venture’s acquisition of DELTA needed.
The Dutch Authority for Consumers and Markets (ACM) has decided that further investigation is required for Glaspoort’s (a joint venture of KPN and APG) acquisition of a portion of Delta Fiber Nederland’s fiber optic network. KPN is the incumbent telecommunications operator in the Netherlands, while Delta is currently KPN’s largest competitor in the fiber optic market.
According to the ACM, the acquisition may significantly reduce competition in the areas where KPN and Delta operate, potentially leading to higher prices for consumers. The ACM also points out that KPN already has a substantial market position, and the acquisition could further strengthen this position, putting smaller providers at a disadvantage. Finally, while each individual small acquisition may have a limited impact, the cumulative effect of KPN’s multiple, small acquisitions could significantly undermine competition in the long term, which may weaken smaller providers’ negotiating positions.
Before the acquisition can be finalized, Glaspoort and Delta must apply for an acquisition license – the equivalent of a Phase II or in-depth investigation in other jurisdictions – after which the ACM will continue its investigation.
Poland
A. The UOKiK President questions consortium agreements and other competitor practices accompanying tenders.
The Polish Office of Competition and Consumer Protection (UOKiK) has fined 11 geodesy and cartography companies PLN 1.8 million (approximately EUR 422,000 / USD 436,000) for bid-rigging in cartographic services contracts with the Geodesy and Cartography Agency.
The investigation found that these companies engaged in anticompetitive practices through several coordinated actions. The companies formed unnecessarily large consortia, submitted coordinated bids, and divided awarded contracts among themselves. Some participating companies performed no actual work, serving only as nominal consortium members. UOKiK determined that smaller consortia could have completed the projects independently, indicating the larger groups were formed solely to eliminate competition.
In a separate case, UOKiK has initiated antitrust proceedings against seven laundry service providers suspected of bid-rigging in hospital service contracts. The investigation uncovered evidence of potential price-fixing across multiple provinces and coordinated withdrawal of bids. During court-approved searches conducted with police assistance, investigators discovered mobile app communications showing companies exchanging specific price information to influence tender outcomes. The investigation revealed that participants strategically withdrew lower bids to ensure higher-priced bids would win, likely resulting in increased costs for hospitals and patients. This investigation remains ongoing.
Companies found engaging in bid-rigging face severe penalties under Polish law. Organizations can be fined up to 10% of their annual turnover, while individual managers may face personal fines up to PLN 2 million. These regulations apply regardless of company size, as there are no exemptions for companies with small market share. Any anti-competitive provisions in contracts are automatically void under law. Furthermore, affected parties retain the right to seek damages through private antitrust litigation. Notably, bid-rigging stands as the only form of competition-restricting agreement that may result in criminal penalties, including imprisonment.
B. The UOKiK President investigates ENEA Group’s potential abuse of dominant position in renewable energy market.
The Polish Office of Competition and Consumer Protection (UOKiK) has launched an explanatory investigation into the ENEA Group, a major Polish energy conglomerate responsible for electricity generation, distribution, and trading. The investigation focuses on ENEA Operator, the group’s distribution arm, which holds a natural monopoly in its regional distribution network.
The investigation stems from allegations that ENEA Operator may have provided unfair advantages to renewable energy installation (OZE) applications from its own group companies and select third-party businesses. Following these concerns, UOKiK conducted searches at three ENEA Group facilities. Complaints UOKiK received indicate that ENEA Operator may have shown preferential treatment by issuing connection approvals to certain entities that failed to meet formal requirements or by disregarding the chronological order of application submissions. These practices allegedly resulted in other entities being unfairly denied network connections for their renewable energy installations.
UOKiK suspects that this preferential allocation of connection capacity may have depleted available capacity at crucial balancing nodes, leading to the rejection of other companies’ connection requests due to claimed technical limitations. This issue is particularly significant because network access is fundamental for participation in the electricity trading market.
The investigation is examining whether these actions constitute an abuse of dominant market position, particularly regarding the selective restriction of access to essential infrastructure, discriminatory access conditions, or intentional delays in providing access. Additionally, UOKiK is investigating potential illegal agreements between ENEA Operator and the entities receiving preferential treatment for renewable energy installations.
Should the investigation yield sufficient evidence, UOKiK may initiate formal antitrust proceedings against the involved parties. Under Polish law, companies found to have abused their dominant position face fines of up to 10% of their previous year’s turnover. This penalty may extend to entities exercising decisive influence over the company engaged in such practices. Furthermore, any anti-competitive contractual provisions are automatically void, and affected parties maintain the right to pursue damages through court proceedings.
Italy
Italian Competition Authority (ICA)
1. ICA launches investigation into alleged cartel in copper cable manufacturing industry.
On Dec. 3, 2024, ICA opened an investigation against the Italian main copper cable producers for an alleged restrictive competition agreement aimed at coordinating prices and commercial conditions for producing and selling low-voltage copper cables in violation of Article 101 TFEU.
The proceeding started after a company submitted an application for leniency that disclosed the cartel to benefit from a reduced penalty.
The leniency applicant provided evidence to ICA about price coordination between the different parties. According to the applicant, this coordination started in 2005 when the parties aligned their list prices and initial discounts. Later, in 2008, they created a shared system within their association to adjust prices when copper costs changed. The system included a common way to calculate copper prices. This made the copper component a fixed price that was the same for all producers in the association.
2. Investigation against Booking.com (Italy) closed for allegedly abusing dominant position.
On Dec. 17, 2024, ICA closed its investigation against Booking.com S.r.l. (Italy), Booking.com B.V., and Booking.com International B.V. (Booking) for alleged abuse of dominant position after it accepted Booking’s proposed commitments.
ICA had initiated the proceedings because of Booking’s potentially abusive conduct that allegedly limited Italian hotel facilities’ autonomy to differentiate their rates between Booking.com and other online sales channels by adhering to certain programs Booking promoted, such as the Partner Preferiti and Preferiti Plus programs, which give search result visibility advantages in exchange for higher commissions, and the so-called Booking Sponsored Benefit, which allows Booking to apply – without the hotels’ consent – a discount to align the offer on its platform with the best among those available online.
The group submitted a commitment package that would seek to ensure that prices facilities charge on online sales channels, other than booking.com, would not be taken into account at any stage of its operation and program promotions. In addition, greater transparency around the Preferred Partner, Preferred Plus, and Booking Sponsored Benefit program operations allows facilities to make informed decisions regarding the costs and benefits of participating in them. According to ICA, Booking’s commitments are suitable both for removing competitive concerns and for ensuring the commercial autonomy of Italian hotel facilities.
3. ICA imposed penalties exceeding EUR 2 million on Hera S.p.A. and ComoCalor S.p.A. for excessive and unjustified district heating prices.
Between May and June 2023, ICA initiated three proceedings into the networks of Ferrara (operated by Hera S.p.A.), Como (operated by ComoCalor S.p.A.), and Parma and Piacenza (operated by Iren Energia S.p.A.) to investigate whether and to what extent the three companies had passed on an excessive and unjustified burden to the users of district heating networks between 2021 and 2022, when there had been natural gas price increases.
On Nov. 26, 2024, ICA stated that the conduct that Hera S.p.A. and ComoCalor S.p.A. engaged in from Jan. 1-Dec. 31, 2022, consisting of applying unjustifiably burdensome prices to district heating users, constitutes abusive conduct of their dominant position.
ICA imposed a penalty of EUR 1,984,736 on Hera S.p.A. and EUR 286,600 on ComoCalor S.p.A., arguing that the companies prevented consumers from benefiting from available and affordable renewable sources to produce an essential good (heat), and imposed prices that were unfair in relation to costs (including a fair return on investment).
ICA found no violations related to the Parma and Piacenza networks that Iren Energia S.p.A. operates.
European Union
A. European Commission
1. European Commission fined Pierre Cardin and Ahlers EUR 5.7 million for limiting cross-border clothing sales.
The European Commission fined Pierre Cardin and its licensee Ahlers EUR 5.7 million for violating EU antitrust rules. Pierre Cardin, a French fashion house, licenses its trademark to third parties for producing and distributing clothing branded with its name. Ahlers was Pierre Cardin’s largest licensee of clothing in the EEA during the relevant period. Between 2008 and 2021, both companies participated in anti-competitive agreements and coordinated practices that safeguarded Ahlers from competition within its licensed EEA area. This included preventing other licensees from selling Pierre Cardin clothing outside their territories or to low-price retailers. The Commission calculated the fines based on the severity, geographic scope, and duration of the infringement, with Pierre Cardin receiving a EUR 2,237,000 fine and Ahlers being fined EUR 3,500,000.
2. European Commission approves Nvidia’s acquisition of Run:ai.
The European Commission has unconditionally approved Nvidia’s below-threshold acquisition of Run:ai, concluding that it raises no competition concerns. This decision follows a referral by the Italian Competition Authority under Article 22 of the EU Merger Regulation (EUMR), which allows member states to request deal reviews that fall below national turnover thresholds, following concerns about Nvidia’s potential “super-dominance” in the advanced GPU market.
A recent ruling from the European Court of Justice influenced the European Commission’s review; the case invalidated its previous approach to Article 22 EUMR. In its recent assessment, the European Commission determined that the acquisition would not impair competition, as Nvidia would not have the incentive to make its GPUs less compatible with competitors’ software. The European Commission also found Run:ai’s position in the software market for GPU orchestration to be not significant, with sufficient alternative providers available.
B. ECJ Decision
Preliminary CJEU ruling in ongoing proceedings between Tallinna and KIA Auto.
The Court of Justice of the European Union (CJEU) provided a preliminary ruling on the interpretation of Article 101(1) TFEU (the EU’s cartel prohibition provision), following questions from the Administrative Regional Court of the Republic of Latvia. The case involved Tallinna Kaubamaja Grupp AS and KIA Auto AS, which were fined for a vertical agreement that imposed restrictions on car warranties. The national competition authority determined that this agreement hindered access to the Latvian market for independent repairers and restricted independent spare parts manufacturers. The CJEU stated that Article 101(1) TFEU should be interpreted to mean that a national competition authority does not need to demonstrate the existence of concrete and actual competition-restricting effects when investigating an agreement that imposes restrictions on car warranties. It is sufficient to establish the existence of potential competition-restricting effects, provided they are sufficiently appreciable. Now the proceedings shall resume, and the national court will have to evaluate if the Latvian competition authority’s decision demonstrated sufficiently appreciable effects on competition.
Alan W. Hersh, Rebecca Tracy Rotem, Sarah-Michelle Stearns, Miguel Flores Bernés, Hans Urlus, Robert Hardy, Chazz Sutherland, Gillian Sproul, Manish Das, Robert Gago, Filip Drgas, Anna Celejewska-Rajchert, and Ewa Głowacka also contributed to this article.