Advancing the IRS Whistleblower Program
The director of the IRS Whistleblower Office (the Office) released the Office’s first multi-year operating plan outlining its guiding principles, strategic priorities, achievements, and efforts to advance the program. As part of its plan, the Office’s mission and vision statements were enhanced. The mission states it is to effectively administer the Whistleblower Program by ensuring:
the IRS compliance functions receive and consider specific, timely and credible claims that identify non-compliance with the tax and other laws administered by the IRS;
whistleblowers receive required notifications timely; and
awards are fairly determined and paid
The IRS Whistleblower Office states its vision is “to effectively promote voluntary compliance and reduce the tax gap by providing excellent service to whistleblowers, taxpayers and other stakeholders.”
With the intention of making the Whistleblower Program a success, the plan is framed around six strategic priorities:
1.
Enhance the claim submission process to promote greater efficiency.
2.
Use high-value whistleblower information effectively.
3.
Award whistleblowers fairly and as soon as possible.
4.
Keep whistleblowers informed of the status of their claims and the basis for IRS decisions on claims.
5.
Safeguard whistleblower and taxpayer information.
6.
Ensure the workforce is supported with effective tools, technology, training, and other resources.
Each of these strategic proprieties sets forth its priority efforts for 2025 and, separately, for 2026-2027.
Apart from increasing processing efficiencies, expanding the use of data analytics, adjusting staffing and other procedural efforts to enhance the program, the plan proposes significant improvements for whistleblower claimants. It updated and improved Form 211 (Application for Award for Original Information), including an updated list of alleged violations to select from, and includes a new option for multiple whistleblowers to file jointly. It is developing a digital portal to make claim submission easier. It also is developing a new approach for the initial analysis of claims to ensure high-value submissions are identified and prioritized to improve and speed up the evaluation of claims for awards.
The Plan and its implementation will make it easier and faster to obtain a reward while still preserving confidentiality and protection of whistleblower records and taxpayer information. It also provides for improved communication with whistleblowers during the pendency of their claims.
China’s Supreme People’s Court Releases Typical Intellectual Property Cases in People’s Courts of 2024
On April 21, 2025, China’s Supreme People’s Court (SPC) the Typical Intellectual Property Cases in People’s Courts of 2024 (2024年人民法院知识产权典型案例). This year’s annual release includes only 8 cases and includes trade secret theft, an IP ownership dispute, copyright infringement, trademark infringement, and unfair competition. No patent infringement cases made the list this year. Typical cases are used by the SPC to promote uniformity to help ensure similar cases are treated consistently across different courts.
As explained by the SPC:
[Patent ownership dispute between Shenzhen ZhenXX Medical Technology Co., Ltd. and Shenzhen RuiXX Biotechnology Co., Ltd. and Hu]
Second instance: 最高人民法院（2023）最高法知民终871号
【Basic Facts】
Shenzhen ZhenXX Medical Technology Co., Ltd. was established in January 2018. It is a high-tech company co-founded by three entrepreneurs returning from overseas, Yu, Wang, and Hu, aiming to promote the research and development and transformation of mRNA technology in the field of biomedicine. In September 2019, Hu founded Shenzhen RuiXX Biotechnology Co., Ltd. The invention patent entitled “A mRNA based Osteoarthritis Drug Preparation and Its Preparation Method and Application” was applied by Shenzhen RuiXX Biotechnology Co., Ltd. in June 2021 and was granted in October 2021. Shenzhen ZhenXX Medical Technology Co., Ltd. filed a lawsuit claiming that the patent in question was a service invention completed by Hu during his tenure at the company. Shenzhen RuiXX Biotechnology Co., Ltd.’s application for the patent in question damaged the legitimate rights and interests of Shenzhen ZhenXX Medical Technology Co., Ltd. and requested a judgment to confirm that the patent right in question belongs to Shenzhen ZhenXX Medical Technology Co., Ltd. The court of first instance ruled to dismiss the lawsuit filed by Shenzhen ZhenXX Medical Technology Co., Ltd. Shenzhen Zhen Medical Technology Co., Ltd. filed an appeal.
[Judgment Result]
The Supreme People’s Court held in the second instance that this case involved a number of researcher returnees, a number of enterprises and institutions, and cutting-edge technologies in the field of biomedicine. Combined with the important position of mRNA technology in the field of medicine, and the fact that the three researchers had worked closely together, returned to China to start a business together, and made important contributions to the research and development of innovative drugs involving mRNA technology, it determined the trial ideas of “mediation first” and “untie the knot of emotions first, then the knot of law”. Through field investigations, circuit trials, and active mediation work, the parties were encouraged to sign a package settlement agreement on this case and other related lawsuits, which resolved the contradictions and series of disputes between the two parties for more than two years, and promoted the two parties to work together to return to cooperation on the cutting-edge track in the field of biomedicine, achieving win-win, multi-win, and win-win results.
【Typical significance】
The case was heard in public on “National Constitution Day” by a five-member panel headed by Tao Kaiyuan, Vice President of the Supreme People’s Court and Second-Level Justice, and was reported by nearly 40 media outlets. The mRNA technology involved in this case is a key common technology and cutting-edge high-tech in the field of biomedicine, and is a typical representative of new quality productivity. The substantive resolution of this case and related litigation disputes further released the clear orientation of the people’s courts to encourage innovation, promote integrity, respect science, and respect talents, which is conducive to scientific researchers’ courage to innovate and start businesses with peace of mind, better stimulate the innovation and creativity of the whole society, and promote the integrated development of scientific and technological innovation and industrial innovation.
Case 2. Trademark infringement and unfair competition in the real estate sector
[Dispute over trademark infringement and unfair competition between RenXX Land (Chengdu) Co., Ltd., Shanghai RenXX Real Estate Co., Ltd., Nanjing RenXX Enterprise Management Co., Ltd., Singapore RenXX Holdings Co., Ltd. and Lanzhou RenXX Real Estate Co., Ltd.]
Second instance: 最高人民法院（2023）最高法民终418号
【Basic Facts】
In 1993, RenXXLand (Chengdu) Co., Ltd. and Shanghai RenXX Real Estate Co., Ltd. were established. In 1994, Nanjing RenXX Enterprise Management Co., Ltd. was established. Since 1995, the above companies have launched real estate projects in Shanghai, Nanjing, Chengdu and other places, and have been approved to register multiple “RenXX” trademarks in multiple categories such as construction services. In January 2002, Jin, the legal representative of Lanzhou RenXX Real Estate Co., Ltd., purchased real estate developed by Shanghai RenXX Real Estate Co., Ltd. in Shanghai. Lanzhou RenXX Real Estate Co., Ltd. was registered and established on November 26, 2002, and began to use the “RenXX” corporate name, and successively developed and constructed RenXX International, RenXX Meilin County, and RenXX Jingcheng real estate projects in Lanzhou. RenXX Land (Chengdu) Co., Ltd. and others believed that the above-mentioned actions of Lanzhou RenXX Real Estate Co., Ltd. constituted trademark infringement and unfair competition, and thus filed a lawsuit. The court of first instance ruled that Lanzhou RenXX Real Estate Co., Ltd. should stop infringing trademark rights and engaging in unfair competition, compensate RenXX Land (Chengdu) Co., Ltd. and other companies for economic losses and reasonable expenses totaling RMB 13,405,992.3, and publish a statement to eliminate the impact. Lanzhou RenXX Real Estate Co., Ltd. appealed.
[Judgment Result]
The Supreme People’s Court held in the second instance that although Lanzhou RenXX Real Estate Co., Ltd. only used the alleged infringing logo in Lanzhou, considering the similarity between the alleged infringing logo and the four trademarks involved, the degree of relevance between the services and goods used, the popularity of the “RenXX” trademark, the actual use of Lanzhou RenXX Real Estate Co., Ltd., and the actual confusion that has occurred, it can be determined that the alleged infringing behavior of Lanzhou RenXX Real Estate Co., Ltd. is likely to cause confusion among the relevant public and constitute an infringement of trademark rights. Based on the use of the “RenXX” trademark by Shanghai RenXX Real Estate Co., Ltd. and others, including the fact that the legal representative of Lanzhou RenXX Real Estate Co., Ltd. had purchased a property developed by Shanghai RenXX Real Estate Co., Ltd. and was aware that Shanghai RenXX Real Estate Co., Ltd. had used the “RenXX” trademark first, it can be determined that the “RenXX” trademark constitutes a prior trademark with a certain influence. As a peer operator, Lanzhou RenXX Real Estate Co., Ltd. should have given way to the competition, but it still registered and used the “RenXX” brand name to engage in the same business activities as Shanghai RenXX Real Estate Co., Ltd., which easily led the relevant public to believe that the real estate projects it developed and constructed had a specific connection with Shanghai RenXX Real Estate Co., Ltd., etc. The above-mentioned behavior of Lanzhou RenXX Real Estate Co., Ltd. constituted unfair competition. The second-instance judgment dismissed the appeal and upheld the original judgment.
【Typical significance】
This case involves the protection of corporate name rights and trademark rights in the field of commercial housing development and construction. There are currently a large number of such disputes. This case clarifies common issues such as trademark use, likelihood of confusion, and fair use in trademark infringement in the field of commercial housing, and clarifies the review criteria and proof standards for the protection of competitive interests of corporate names in Article 6, Item 2 of the Anti-Unfair Competition Law of the People’s Republic of China. The judgment in this case includes the circumstances where the infringer is aware of the prior use of the name by others in the determination of “names with a certain influence”, conveying the judgment concept of protecting honest business and maintaining fair competition order.
Case 3. Infringement of trade secrets of undisclosed characters in a “spoiler” game
[Dispute between Shanghai MiXX Technology Co., Ltd. and Chen on infringement of trade secrets]
First instance: 上海市浦东新区人民法院（2024）沪0115民初38294号
【Basic Facts】
Shanghai MiXX Technology Co., Ltd. is the operator of a certain game and has obtained the permission of the copyright owner of the game to use and protect the rights. Since its launch, the game has aroused enthusiastic response in the global game market. During its operation, Shanghai MiXX Technology Co., Ltd. updates the version every once in a while, adding new characters, scenes, plots, activities and other content to maintain game attention and the vitality of the product. These contents will undergo internal testing in advance. To this end, Shanghai MiXX Technology Co., Ltd. and its affiliated companies recruited a number of players including Chen to participate in the internal testing and signed a confidentiality agreement. During Chen’s participation in the internal test, he secretly photographed and recorded the actual images (i.e. the images of the game characters that can be controlled by players), skill effects, skill data and other test content and pictures of the seven game characters involved in the game “Zhi XX” without permission, and disclosed them to third parties many times. After discovering this, Shanghai MiXX Technology Co., Ltd. filed an application for pre-trial behavior preservation (injunction) with the People’s Court on the grounds that the relevant information was a trade secret and further disclosure would cause irreparable damage to it, and filed a lawsuit within the statutory period, requesting an order to stop infringement, eliminate the impact and compensate for losses. Chen argued that the above-mentioned game content did not constitute a trade secret.
[Judgment Result]
The Shanghai Pudong New Area People’s Court reviewed the application for pre-litigation behavior preservation and held that the request of Shanghai MiXX Technology Co., Ltd. had factual basis and legal basis, and that failure to take corresponding preservation measures might cause irreparable damage to the legitimate rights and interests of Shanghai MiXX Technology Co., Ltd., and that taking behavior preservation measures would not lead to a significant imbalance of interests between the parties. Therefore, within 48 hours after receiving the application, the People’s Court of Pudong New Area of Shanghai made a ruling in accordance with the law, ordering Chen not to disclose, use, or allow others to use the game content that he had recorded without authorization during the game test.
The Pudong New District People’s Court of Shanghai held at first instance that the continuous dynamic game screens composed of elements such as the actual image of the characters, the effects of the characters’ skills, and the skill data of the seven game characters involved in the game met the business information characteristics and business secret constituent elements stipulated in the Anti-Unfair Competition Law, and were business secrets protected by the law. Chen violated the confidentiality obligation and secretly filmed and disseminated these business secrets, and should bear the corresponding legal responsibility. The essence of business secret protection is the competitive advantage that business secrets bring to operators. Even if the game characters have been made public due to version updates, Chen is still not allowed to disclose the test game screens that he may have. Therefore, Chen was ordered to stop the infringement, eliminate the impact, and compensate for economic losses and reasonable expenses totaling 500,000 RMB. After the first-instance judgment, neither party appealed.
【Typical significance】
This case involves the criteria for determining and adjudicating trade secrets based on undisclosed character designs and other information in the game, which is of positive significance for promoting the healthy development of the gaming industry. The pre-litigation behavior preservation ruling, combined with the characteristics of the online gaming industry, provides timely legal relief to the applicant. The judgment targets the situation of game character leakage, not only protecting the content of the game character itself, but also protecting the business model that increases attention through game version updates, as well as the competitive advantage brought by this business model, thus providing strong regulation on the behavior of early “spoilers”.
Case 4. “AI face-swapping” copyright infringement case
[Dispute between Chen XX and Shanghai Yi XX Network Technology Co., Ltd. over infringement of the right to disseminate information on the Internet]
First instance: 上海市嘉定区人民法院（2024）沪0114民初1326号
【Basic Facts】
Chen XX used the real-name authentication account “Photographer XX” on the Douyin (TikTok) platform to post 13 short videos of women wearing ancient costumes, each about 10 seconds long. Shanghai YiXX Network Technology Co., Ltd. developed the Douyin mini program “XXyan”, which uses AI video synthesis algorithms to provide users with face-swapping technology. The 13 short videos displayed on “XXyan” and the 13 short videos posted by Chen only differ in the facial features of the characters, while the video scenes, lenses, character modeling, and movements are basically the same. “XXyan” users can replace the faces in the videos displayed on the mini program with their own faces and save them by watching advertisements or purchasing memberships. Chen filed a lawsuit, requesting that Shanghai YiXX Network Technology Co., Ltd. be ordered to stop the infringement, apologize, and compensate for the loss of 48,000 RMB and reasonable expenses of 2,000 RMB.
[Judgment Result]
The Jiading District People’s Court of Shanghai held at first instance that the original video shot by Chen XX reflected original selection and arrangement in terms of content arrangement, scene selection, shooting angle, etc., and was an audiovisual work protected by copyright law. The video involved in the case displayed by the “XXyan” mini program was synthesized by partially replacing the original video through AI algorithms, and the two are substantially similar. Shanghai YiXX Network Technology Co., Ltd. used “AI face-swapping” as a selling point, provided platforms, materials and technologies, and enabled users to use the original video in a “face-swapping” manner at any selected time and place to seek commercial interests, infringing on Chen’s right to disseminate information on the Internet. This behavior is neither an original adaptation nor a fair use, nor does it apply to the technical neutrality defense. Shanghai YiXX Network Technology Co., Ltd. actively cooperated in the litigation to delete videos, perform algorithm filing procedures and other rectification behaviors, and accepted judicial suggestions on the use of algorithm technology to provide network services, and made a commitment to standardize operations. Chen XX expressed understanding and withdrew his request to stop infringement and apologize. Based on this, Shanghai YiXX Network Technology Co., Ltd. was ordered to compensate Chen XXfor economic losses and reasonable expenses totaling 7,500 RMB. After the first-instance judgment, neither party appealed.
【Typical significance】
This case is a typical dispute in the application scenario of generative synthesis algorithms, involving the nature of the use of artificial intelligence technology to partially synthesize other people’s works. The judgment in this case clarified that “AI face-swapping” does not constitute an original adaptation and fair use of the original work; those who use artificial intelligence technology to provide network services have a reasonable duty of care and may not use algorithmic technology to infringe on the copyright of others. This case balances technological innovation and rights protection, and clarifies the legal boundaries of the application of artificial intelligence technology. The people’s courts focus on the innovative application of emerging technologies and the needs of algorithm governance, urging companies to strengthen the legality review of material sources and generated content and algorithm security assessments, strengthen the protection of intellectual property rights and personal rights, and guide companies to standardize digital transformation.
Case 5. Game “skin-changing” infringement case
[Copyright infringement and unfair competition dispute between Chengdu LeXX Technology Co., Ltd., Shanghai LiXX Network Technology Co., Ltd. and Shenzhen JiuXX Interactive Technology Co., Ltd. and Hainan FanXX Technology Co., Ltd.]
Second instance: 广东省高级人民法院（2023）粤民终4326号
【Basic Facts】
“Awakening XX” is a war strategy simulation game (SLG), developed and operated by Chengdu LeXX Technology Co., Ltd. and Shanghai LiXX Network Technology Co., Ltd. “XX Official” is a WeChat platform mini-program game, developed and operated by Shenzhen JiuXX Interactive Technology Co., Ltd. and Hainan FanXX Technology Co., Ltd. From December 2020 to March 2022, the revenue of the game “XX Official” was approximately 18.9 million RMB, and after deducting the corresponding channel fees, it was approximately 12.5 million RMB. Chengdu LeXX Technology Co., Ltd. and Shanghai LiXX Network Technology Co., Ltd. filed a lawsuit, believing that the “skin-changing” behavior of the game “XX Official” constituted copyright infringement and unfair competition, and requested an order to stop the infringement, publish a statement to eliminate the impact, compensate for economic losses of 10 million RMB and reasonable rights protection costs of 500,000 RMB. After comparison, the overall structure and gameplay system of the two games are basically the same, and the parameter types, specific values, and interactive relationships of the game elements all have one-to-one correspondence, and even a large number of text expressions are completely consistent. The only difference is the art and audio-visual materials. The court of first instance determined that the alleged acts constituted copyright infringement and ordered Shenzhen JiuXX Interactive Technology Co., Ltd. and Hainan FanXX Technology Co., Ltd. to immediately stop developing, operating and promoting the “XXX” game, publish a statement to eliminate the impact, and compensate for economic losses of 10 million RMB and reasonable rights protection costs of 500,000 RMB. Shenzhen JiuXX Interactive Technology Co., Ltd. and Hainan FanXXTechnology Co., Ltd. appealed.
[Judgment Result]
The Guangdong Provincial High People’s Court held in the second instance that copyright law protects the original expression of game play rules. The game structure, system, numerical planning and corresponding relationship requested for protection in this case belong to the game play mechanism design, reflecting all the ideas of the game developers for the virtual game world from details to the whole, and are not expressions in the sense of copyright law. Game play rules do not constitute “other intellectual achievements that meet the characteristics of works”, so the accused behavior does not constitute copyright infringement. However, the accused behavior violates the principle of good faith and business ethics, and exceeds reasonable limits to imitate and copy the overall classification framework of game play design to the details of numerical settings. It only simply replaces the art resources, diverts and seizes the market share of related games through this “skin-changing” method, disrupts the market competition order, and seriously damages the core competitive interests of Chengdu LeXX Technology Co., Ltd. and Shanghai LiXX Network Technology Co., Ltd., constituting unfair competition. The first-instance judgment found that the facts were clear, and although the application of the law was improper, the judgment was correct. The second-instance judgment dismissed the appeal and upheld the original judgment.
【Typical significance】
This case clearly states that game play rules do not belong to expressions in the sense of copyright law and should not be considered as “other intellectual achievements that meet the characteristics of works.” The judgment clarifies the legal boundaries, analytical framework, and adjudication rules for copyright law and anti-unfair competition law to protect game play, which will help promote innovation, creation, and healthy competition in the digital entertainment industry.
Case 6. Unfair competition case of online evaluation with “some criticizing and some praising”
[Unfair competition dispute between Wuxi ShiXX Clothing Co., Ltd., Wuxi JiuXX Trading Co., Ltd. and Suzhou BuXX E-commerce Co., Ltd., Suzhou XiXX E-commerce Co., Ltd., Suzhou XiXX Network Technology Co., Ltd., and Suzhou KuXX Network Technology Co., Ltd.]
Second instance: 江苏省苏州市中级人民法院（2023）苏05民终5492号
[Omitted as it relates to false advertising and not IP]
Case 7. Unfair competition case involving ticket grabbing software
[Dispute over unfair competition on the Internet between Beijing DaXX Culture Media Development Co., Ltd. and Zheng XXzhong]
First instance: 北京市东城区人民法院（2024）京0101民初4607号
【Basic Facts】
Beijing DaXX Culture Media Development Co., Ltd. is a large domestic comprehensive ticketing platform enterprise, operating DaXX.com and DaXX APP with ticketing functions. Zheng XXzhong sells ticket grabbing software for Damou APP through online stores. Beijing Damou Culture Media Development Co., Ltd. filed a lawsuit, claiming that Zheng XXzhong specially developed and sold plug-in software for its ticketing APP to grab tickets on sale on the APP, which constituted unfair competition, and requested that Zheng XXzhong be ordered to stop the infringement and compensate for economic losses and reasonable expenses. Zheng XXzhong argued that he did not have a competitive relationship with Beijing DaXX Culture Media Development Co., Ltd., and he was only the seller of the ticket grabbing software involved in the case, not the developer. His behavior of selling ticket grabbing software did not cause a reduction in the ticketing revenue of Beijing DaXX Culture Media Development Co., Ltd., nor would it affect the public ticket purchasing order, and did not constitute unfair competition.
[Judgment Result]
The Beijing Dongcheng District People’s Court held at first instance that Zheng XXzhong provided ticket grabbing services to users of Beijing DaXX Culture and Media Development Co., Ltd., and used the business activities and user base of Beijing DaXX Culture and Media Development Co., Ltd. as the basic resources for its own business. Therefore, the alleged behavior was a market competition behavior and fell within the scope of regulation of the Anti-Unfair Competition Law. The essence of the alleged behavior was that software replaced manual methods to help users grab tickets for performances on the DaXX platform. This behavior not only directly increased the operating costs of the platform and interfered with the operator’s correct business decisions, but also increased the difficulty for users to use the DaXX platform to buy tickets, and reduced users’ evaluation of the services provided by the DaXX platform. Although the alleged behavior did not directly reduce the ticket sales revenue of a single performance on the DaXX platform, it caused damage to the operating interests and goodwill of the DaXX platform and damaged the competitive interests of Beijing DaXX Culture and Media Development Co., Ltd. At the same time, the alleged behavior did not belong to fair competition in technological innovation, and also damaged the legitimate rights and interests and long-term interests of consumers, which was not conducive to the fair and orderly market competition order and the improvement of overall social welfare. In summary, the alleged behavior constituted unfair competition. Since the alleged behavior has been stopped, no separate judgment is made to stop the infringement, and Zheng XXzhong is ordered to compensate Beijing DaXX Culture Media Development Co., Ltd. for economic losses and reasonable expenses totaling 20,000 RMB. After the first-instance judgment, neither party appealed.
【Typical significance】
This case clearly points out that the ticket grabbing software involved in the case uses technical means to provide users with unfair advantages in ticket grabbing, undermines the platform’s ticket purchasing rules, interferes with and hinders the normal operation of the platform’s ticket sales business, and damages the competitive interests of specific operators. On this basis, the consumer’s fair ticket purchasing rights and the normal order of the ticket market are taken into consideration, and it is determined that the alleged behavior constitutes unfair competition. This case warns ticket grabbing service practitioners and technology developers to abide by legal rules, which has positive significance for combating online black and gray industries, safeguarding the legitimate rights and interests of operators and consumers, and building a fair and orderly ticket purchasing order and market competition environment.
Case 8. Criminal and civil lawsuit involving copyright infringement of popular film and television works
First instance: 浙江省东阳市人民法院（2024）浙0783刑初585号
【Basic Facts】
Since May 2020, the defendant Lu XXqian has built multiple illegal film and television websites by purchasing domain names, renting servers, purchasing system programs and film and television website templates. During this period, the defendants Ji XXshi and Fang XX knew that the defendant Lu XXqian was operating an illegal film and television website and still sold him the film and television navigation Content Management System program and multiple film and television website templates, and provided program technical maintenance services, charging more than 6,990 RMB. Without the permission of the copyright owner Beijing Guang XX Film Co., Ltd. and other rights holders, Lu XXqian added more than 120,000 film and television works such as “YOLO” and “Pegasus 2” on the website by adding video links, etc., for visitors to watch online, and cooperated with illegal advertisers to place advertisements on the website. From April 30, 2022 to February 15, 2024, the defendant Lu XXqian collected more than 1.48 million RMB in advertising fees. The People’s Procuratorate of Dongyang City, Zhejiang Province accused the defendants Lu XXqian, Fang XX, and Ji XXshi of copyright infringement and filed criminal charges. During the criminal proceedings, five companies including Beijing GuangXX Film Co., Ltd. filed a supplementary civil lawsuit, requesting that Lu XXqian be ordered to bear corresponding civil liability.
[Judgment Result]
The Dongyang People’s Court of Zhejiang Province held at first instance that the defendant Lu XXqian, for the purpose of profit, disseminated other people’s audiovisual works to the public through the information network without the permission of the copyright owner, and the illegal income was huge; the defendants Fang XX and Ji XXshi knew that others infringed the copyright and still provided assistance, and their actions also constituted the crime of copyright infringement. In response to the incidental civil lawsuits filed by the plaintiffs of the incidental civil lawsuits, the defendant Lu XXqian was determined to compensate the plaintiffs of the incidental civil lawsuits for economic losses by taking into account the nature, time, and profit of the defendant’s infringement. The defendant Lu XXqian was sentenced to four years in prison and a fine of 1.5 million RMB; the defendant Fang XX was sentenced to one year in prison, suspended for one year and six months, and fined 16,000 RMB; the defendant Ji XXshi was sentenced to ten months in prison, suspended for one year and four months, and fined 10,000 RMB; the defendant Lu XXqian compensated the plaintiffs of the incidental civil lawsuits for economic losses totaling 880,000 RMB; the illegal income was returned and seized crime tools were confiscated. After the verdict, none of the defendants or plaintiffs in the ancillary civil lawsuit filed an appeal, and the procuratorate did not file a protest.
【Typical significance】
This case is an example of severely punishing the illegal and criminal acts of broadcasting key protected cinema films during the Spring Festival. Pirated broadcasts of popular TV series and movies, the establishment of illegal and irregular film and television websites, and the dissemination of related film and television works to the public through information networks involve infringement of the copyright of film and television works. The trial of this case fully reflects the advantages of the “three-in-one” trial mechanism of civil, criminal, and administrative intellectual property rights, which not only solves the problems of conviction and sentencing of the defendants, but also solves the problem of civil compensation for the victims, and provides timely and comprehensive protection for intellectual property rights holders, achieving the organic unity of combating crime and efficiently safeguarding rights.
Litigating Trade Secret Cases: A Strategic Guide for In-House Counsel
When faced with trade secret misappropriation, swift and strategic action is crucial.
For in-house counsel, understanding the litigation process and available remedies can mean the difference between protecting valuable intellectual property and watching it lose its protected status.
This guide focuses on key litigation strategies and the critical role of injunctive relief in trade secret cases.
The Race to the Courthouse
Trade secret cases often begin with a race to secure immediate court intervention.
Unlike other intellectual property disputes that might benefit from lengthy pre-litigation investigation, trade secret cases frequently require immediate action to prevent irreparable harm. The first 48 to 72 hours after discovering potential misappropriation are critical.
Immediate Action Items
Before or contemporaneous with filing suit, in-house counsel should immediately:
Implement a litigation hold and preserve all relevant evidence
Engage digital forensics experts (internal or external) to document unauthorized access or downloads
Review all relevant agreements (NDAs, employment contracts, etc.)
Document the specific trade secrets at issue and their value
Gather evidence of protection measures in place
Consider whether to engage criminal authorities
Identify key witnesses to provide affidavits supporting injunction filings
Draft preservation letters to all potential parties and witnesses
Remember, courts will scrutinize your company’s response time. Delays in seeking protection can undermine claims of irreparable harm and make obtaining injunctive relief more difficult.
Choosing Your Forum
Trade secret cases generally can be filed in either federal or state court, as the federal Defend Trade Secrets Act (DTSA) does not preempt state law claims. This choice requires careful strategic consideration.
Federal courts may offer advantages in cases involving interstate commerce or international parties, while state courts might provide faster injunctive relief or more favorable precedent.
For cases in North Carolina, the North Carolina Business Court has developed substantial trade secret jurisprudence and can be an attractive venue. It provides some of the features of a federal court, such as a single judge assigned to hear all aspects of the case, expedited discovery, dispute resolution, formal briefing for most substantive motions, along with an overall case management order.
Trade secret cases in state court with amounts in controversy over $5 million must be designated to the Business Court, while those under $5 million may be designated there by either party.
Securing Injunctive Relief
Temporary restraining orders (TROs) and preliminary injunctions are crucial tools in trade secret litigation. However, obtaining them requires careful preparation and specific evidence. Courts typically won’t grant injunctive relief based on mere suspicion or generalized allegations of misappropriation.
Elements of a Strong Injunction Motion
Your motion should clearly establish:
The specific trade secrets at issue
How the trade secret derives value from being secret
The reasonable measures taken to maintain secrecy
Clear evidence of misappropriation
Threat of immediate and irreparable harm
Why monetary damages are inadequate
Balance of hardships favoring an injunction
Public interest considerations
Most importantly, be specific about what relief you’re seeking.
Courts are increasingly rejecting vague injunction requests that simply reference “confidential information” or “trade secrets” without more detail.
Crafting Effective Injunctive Relief
Consider requesting specific provisions such as:
Orders to isolate and sequester devices containing trade secret information
Prohibition on accessing or deleting potentially misappropriated information
Required submission of devices for forensic examination
Certification of compliance with injunctions by counsel
Restrictions on specific work activities by former employees that could lead to disclosure
Prohibition on product distribution incorporating trade secrets
Requirements for return or destruction of trade secret information
Remember that courts generally do not prohibit a former employee from working for a competitor solely based on a non-disclosure agreement.
Instead, focus on preventing the use of specific trade secrets while allowing the employee to use their general skills and knowledge.
Discovery Strategies
Trade secret litigation demands a sophisticated approach to discovery, particularly given the complex electronic evidence often involved. A critical threshold issue is the pre-discovery identification of trade secrets.
Many courts require plaintiffs to identify their trade secrets with particularity before obtaining discovery of defendants’ confidential information. This requirement serves to balance the protection of legitimate trade secrets against the risk of plaintiffs using discovery as a fishing expedition to learn competitors’ secrets.
The identification process requires careful consideration of competing interests. You must be specific enough to support your claims and meet court requirements while avoiding public disclosures that could jeopardize trade secret status. Working with outside counsel to obtain entry of an appropriate protective order that allows you to file sensitive information under seal often provides the best solution to this challenge.
The time-sensitive nature of trade secret cases frequently necessitates expedited discovery, particularly in conjunction with temporary restraining orders or preliminary injunction proceedings.
To secure expedited discovery, you must demonstrate why standard discovery timelines would prove inadequate, specifically identify crucial early-stage discovery needs, and explain how the requested discovery relates to preventing irreparable harm. Courts will weigh these factors against the burden expedited discovery would impose on defendants.
When electronic evidence plays a central role, as it often does in trade secret cases, establishing a proper forensic examination protocol becomes essential.
An effective protocol should address the selection and compensation of neutral forensic experts, define the scope of examination, establish procedures for handling privileged and confidential information, and set clear timelines and reporting requirements.
The protocol should anticipate potential disputes and provide mechanisms for their resolution.
Criminal Implications and Parallel Proceedings
The criminal implications of trade secret misappropriation add another layer of complexity to civil litigation strategy.
While potential criminal liability under federal and state law can provide significant leverage, it requires thoughtful handling to avoid ethical pitfalls. Timing of criminal referrals can impact civil discovery and may lead to stays of civil proceedings. Individual defendants may invoke Fifth Amendment protections, complicating both discovery and settlement discussions.
In-house counsel must work closely with outside counsel to navigate these parallel proceedings effectively.
Protective Orders in Trade Secret Cases
Trade secret litigation requires particularly robust protective orders that go beyond standard confidentiality provisions.
Effective orders typically establish multiple tiers of confidentiality, including “attorney’s eyes only” designations for the most sensitive information. They should carefully define access restrictions for individual defendants and establish concrete requirements for information storage and transmission.
The order should anticipate the entire lifecycle of confidential information, from initial disclosure through post-litigation destruction or return.
The Role of Expert Witnesses
Expert testimony plays a pivotal role in trade secret litigation, with three types of experts proving particularly valuable.
Digital forensics experts provide analysis of electronic evidence and documentation of misappropriation patterns. Their work often proves decisive in preliminary injunction proceedings and shapes the overall trajectory of the case.
Damages experts help quantify losses and establish both trade secret value and the improper benefit gained by a defendant.
Industry experts provide essential context about technical aspects, the value of information, and help courts value and distinguish between protected trade secrets and general industry knowledge.
The timing of expert engagement can significantly impact case outcomes. Early involvement of experts, particularly forensic specialists, often proves crucial in preliminary injunction proceedings and shapes the development of the overall case strategy.
These experts can help identify key evidence, develop preservation protocols, and guide discovery requests.
Looking Ahead
The complexity of trade secret litigation demands a balanced approach that combines urgency with strategic planning. While immediate action remains critical, hasty or poorly planned litigation can prove counterproductive.
Success requires gathering key evidence and developing a coherent strategy while moving quickly enough to prevent irreparable harm and preserve available remedies.
The New Alien Registration Requirement: Considerations for Foreign Nationals
The Department of Homeland Security (DHS)’s Alien Registration Requirement, effective April 11, 2025, requires most noncitizens aged 14 and older who remain in the United States for over 30 days, to register and complete biometrics. Parents or guardians are responsible for registering minors under 14, and individuals turning 14 must re-register within 30 days of their birthday. The registration can be completed by filing Form G-325R through an individual USCIS online account. This registration does not grant any immigrant or nonimmigrant status. Once an individual has registered and completes fingerprinting, DHS will issue the proof of registration, which anyone over the age of 18 will be required to carry and keep in their personal possession at all times.
However, many individuals are already considered registered and not required to register, including:
lawful permanent residents;
individuals paroled into the United States under INA 212(d)(5) for urgent humanitarian reasons or significant public benefits, even if the period of parole has expired;
individuals admitted to the United States as nonimmigrants who were issued Form I-94 or I-94W (paper or electronic), even if the period of admission has expired;
all individuals present in the United States who were issued immigrant or nonimmigrant visas in their passports at the U.S. consular posts abroad before their last date of arrival;
individuals placed into removal proceedings;
individuals issued an employment authorization document;
individuals who have applied for lawful permanent residence using Forms I-485, I-687, I-691, I-698, I-700, and provided fingerprints (unless waived), even if the applications were denied; and
individuals issued border crossing cards.
For additional information about the Alien Registration Requirement, please refer to the Q&A section below. According to USCIS:
Q: What is “alien registration”?
A: Alien registration is a federal legal requirement under Section 262 of the Immigration and Nationality Act (INA). It requires most noncitizens who remain in the United States for more than 30 days to register with DHS, provide biometric information (like fingerprints), and carry evidence of registration at all times if age 18 or older.
Q: Why is this being enforced now?
A: On Jan. 20, 2025, President Trump issued Executive Order 14159, directing DHS to ensure that noncitizens comply with the registration requirement and to treat failure to register as a civil and criminal enforcement priority. As of April 11, 2025, DHS began enforcing this process and introduced the online registration process.
Q: Who must register?
A: Anyone who falls into “not registered” category, if:
you are aged 14 or older and have not registered and fingerprinted when applying for a visa to enter the United States and remain in the United States for 30 days or longer;
you entered the United States without inspection or parole;
you were not fingerprinted during your visa application or entry;
you are the parent or guardian of a child under 14 who has not been registered; or
you are a child who just turned 14 and were previously registered by a parent
Q: Who is considered “Not Registered”?
A:
Individuals present in the United States without inspection and admission OR inspection and parole and who have not otherwise registered.
Canadian visitors who entered the United States at land ports of entry and were not issued evidence of registration.
Individuals who were not fingerprinted during a visa application or entry.
Individuals who submitted applications for deferred action or TPS who were not issued evidence of registration.
Q: Who is exempt from registration?
A: You are exempt if you are:
a holder of an A or G visa (diplomatic or international representatives); or
a nonimmigrant who DHS waived from fingerprinting (e.g., diplomats, certain short-term visitors under reciprocal arrangements).
Q: How do I know if I’ve already registered?
A: Anyone who has been issued one of the documents designated as evidence of registration is considered “already registered,” including:
lawful permanent residents;
you filed a qualifying form such as:
Form I-485 (adjustment of status),
you were fingerprinted (biometrics) by USCIS; or
you were issued any of the following:
I-94/I-94W
Green card (I-551)
Employment authorization document (I-766)
Notice to appear (I-862) or other DHS-issued removal notices
Border crossing card (I-185/I-186)
Q: What does not count as registration?
A: The following documents are not considered evidence of registration:
a state driver’s license or ID;
an application for TPS, DACA, or asylum without an approved registration form or DHS fingerprinting; and
entering via land border as a Canadian or Mexican national without receiving DHS documentation.
Q: How do I register if I haven’t already?
A: To register properly, follow these steps:
Create a USCIS online account at https://my.uscis.gov, if not already created. If you are registering a minor child, create an account on their behalf.
Complete Form G-325R (Biographic Information – Registration) online through your USCIS account.
Biometrics Appointment: After submitting the form, you will receive a biometrics appointment notice.
Attend your biometrics appointment at an USCIS Application Support Center.
Download Proof of Registration: Once processed, download your proof of alien registration PDF from your USCIS account.
Note: If you are 18 or older, you must carry this registration at all times.
Q: Is there a fee to register?
A: Currently, there is no fee. The registration is free, including the biometric appointment. DHS is considering a $30 biometric services fee in the future.
Q. What happens if I don’t register?
A: Failure to comply with the register requirement or carry proof of registration may result in:
a misdemeanor charge;
fines up to $5,000;
imprisonment for up to 30 days; and
deportation proceedings under INA § 237 unless an individual can prove that a failure was reasonable, excusable, or was not willful.
Note: False statements during registration may also lead to criminal prosecution and deportation.
Q: What happens if I change my address?
A: You must report a change if address to USCIS within 10 days of moving. This can be completed through your USCIS account by completing Form AR-11 online.
Q: After registering, what else do I need to do?
A: You must:
carry your registration document at all times if you are 18 or older;
file AR-11 with USCIS within 10 days of any address change; and
re-register if you were registered as a child and just turned 14.
Q: Can I use the registration document for work or immigration benefits?
A: No. Alien registration is not an immigration status, does not create an immigration status, establish employment authorization, or provide any other rights, public benefits, or protection from removal.
The UK’s Failure To Prevent Fraud Act
Effective September 1, 2025, the UK’s Failure to Prevent Fraud offense will go into effect as part of the UK’s Economic Crime and Corporate Transparency Act 2023 (the ECCTA). The law significantly expands corporate liability for fraud committed by employees and other associated persons of relevant corporates and will require compliance refinement for any business within scope of the offense operating in connection with the UK. The UK government (its Home Office) published guidance in 2024 (the “Guidance”) to help companies navigate this corporate criminal fraud offense as well as take appropriate action to help prevent fraud.
As companies continue to grapple with recent developments regarding enforcement of the FCPA, international efforts to curb bribery and corruption have not waned. Foreign governments continue to prioritize anti-corruption enforcement such as the European Commission’s proposed directive from May 2023 to combat corruption, the ECCTA and Failure to Prevent Fraud Offense, as well as the recently announced International Anti-Corruption Prosecutorial Task Force with the UK, France, and Switzerland. These cross-border initiatives demonstrate how a temporary pause in U.S. enforcement of the FCPA should not result in companies moving away from maintaining robust and effective compliance programs.
The Failure to Prevent Fraud Offense
You can see more detail on the new offense in this article from our UK colleagues (Failure to prevent fraud: get ready for September | Womble Bond Dickinson). In summary, a “large organization” can be held criminally liable where an employee, agent, subsidiary, or other “associated person” commits a fraud offense intending to benefit the organization or its clients, and the organization failed to have reasonable fraud prevention procedures in place. An employee, an agent or a subsidiary is considered an “associated person” as are business partners and small organizations that provide services for or on behalf of large organizations. Regarding the underlying fraud offense itself, this includes a range of existing offenses under fraud, theft and corporate laws, which the UK’s Home Office notes as including “dishonest sales practices, the hiding of important information from consumers or investors, or dishonest practices in financial markets.”
A “large organization” for purposes of the fraud offense is defined as meeting two of the following three thresholds: (1) more than 250 employees; (2) more than £36 million (approx. USD $47.6 million) turnover; (3) more than £18 million (approx. USD $23.8 million) in total assets – and includes groups where the resources across the group meet the threshold. Further, the fraud offense has extraterritorial reach, meaning that non-UK companies may be liable for the fraud if there is a UK nexus. This could play out in several scenarios. For example, the fraud took place in the UK, the gain or loss occurred in the UK, or, alternatively, if a UK-based employee commits fraud, the employing organization could be prosecuted, regardless of where the organization is based.
What Companies Can Do Now
The Failure to Prevent Fraud offense is an important consideration in corporate compliance, extending beyond UK-based companies to non-UK companies with operations or connections in the UK. The only available defense to the failure to prevent fraud offense is for the company to demonstrate that it “had reasonable fraud prevention measures in place at the time that the fraud was committed” Or, more riskily that it was not reasonable under the circumstances to expect the organization to have any prevention procedures in place. To that end, the Guidance outlines six core principles that should underpin any effective fraud prevention framework: (1) top-level commitment; (2) risk assessment; (3) proportionate and risk-based procedures; (4) due diligence; (5) communication and training; and (6) ongoing monitoring and review. Specifically, the Guidance makes clear that even “strict compliance” with its terms will not be a “safe harbor” and that failure to conduct a risk assessment will “rarely be considered reasonable.” These principles mirror the now well-established principles in the UK that apply to the UK offences of failure to prevent bribery under the UK Bribery Act 2010, and failure to prevent the facilitation of tax evasion under the UK Criminal Finances Act 2017.
Companies should consider the following proactive steps:
Determining whether they fall within the scope of the ECCTA’s fraud offense.
Identifying individuals who qualify as “associated persons.”
Conducting and documenting a comprehensive fraud risk assessment to determine whether the company’s internal controls adequately address potential fraudulent activity involving the company.
Ensuring due diligence procedures, as related to, for instance, external commercial partner engagements and other transactions, address the risk of fraud in those higher risk activities.
Reviewing and updating existing policies and procedures to address the risks of fraud.
Communicating the company’s requirements around preventing fraud and providing targeted training to employees and other associated persons, including subsidiaries and business partners, to make clear the company’s expectations around managing the risk of fraud.
Establishing fraud related monitoring and audit protocols, including in relation to third party engagements, for ongoing oversight and periodic review.
Ensuring these policies and procedures are aligned with other financial crime prevention policies and procedures and relevant regulatory expectations.
The months ahead are a critical window to align internal policies and procedures not only with the UK’s elevated enforcement expectations as evidenced by the ECCTA and the Failure to Prevent Fraud offense, but also as bribery and corruption remain a mainstay priority for other foreign regulators. Companies should continue to prioritize the design, implementation, and assessment of their compliance internal controls. Companies with a well-designed and effective compliance program will be better equipped to adapt as regulatory landscapes shift and emerging risks develop, enabling companies to more efficiently respond to new enforcement trends.
Let the Shakedowns Begin: Tax False Claims Legislation in California
Legislators in Sacramento, California, are mulling over one of the most (if not the most) troubling state and local tax bills of the past decade.
Senate Bill (SB) 799, introduced earlier this year and recently amended, would expand the California False Claims Act (CFCA) by removing the “tax bar,” a prohibition that exists in the federal False Claims Act (FCA) and the vast majority of states with similar laws.
If enacted, SB 799 will open the floodgates for a cottage industry of financially driven plaintiffs’ lawyers to act as bounty hunters in the state and local tax arena. California taxpayers would be forced to defend themselves in high-stakes civil investigations and/or litigation – even when the California Attorney General’s Office declines to intervene. As seen in other states, this racket leads to abusive practices and undermines the goal of voluntary compliance in tax administration.
While the CFCA is intended to promote the discovery and prosecution of fraudulent behavior, Senator Ben Allen introduced the bill specifically to “protect public dollars and combat fraud.” The enumerated list of acts that lead to a CFCA violation does not require a finding of civil fraud. In fact, a taxpayer who “knowingly and improperly avoids, or decreases an obligation to pay or transmit money or property to the state or to any political subdivision” would be in violation of the CFCA (See Cal. Gov’t Code § 12651(a)(7)).
This standard is particularly inappropriate in the tax context and is tantamount to allowing vague accusations of noncompliance with the law, leading to taxpayers being hauled into court. Once there, taxpayers would be held hostage between an expensive legal battle and paying an extortion fee to settle. The CFCA is extremely punitive: Violators would be subject to (1) treble damages (i.e., three times the amount of the underreported tax, interest, and penalties), (2) an additional civil penalty of $5,500 to $11,000 for each violation, plus (3) the costs of the civil action to recover the damages and penalties (attorneys’ fees).
To the extent the action was raised by a private plaintiff (or relator) in a qui tam action, the recovered damages or settlement proceeds would be divided between the state and the relator, with the relator permitted to recover up to 50% of the proceeds (Cal. Gov’t Code § 12652(g)(3)). If the state attorney general or a local government attorney initiates the investigation or suit, a fixed 33% of the damages or settlement proceeds would be allotted to their office to support the ongoing investigation and prosecution of false claims (Cal. Gov’t Code § 12652(g)(1)).
Adding further insult to injury, the CFCA has its own statute of limitations independent of the tax laws. Specifically, the CFCA allows claims to be pursued for up to 10 years after the date the violation was committed (Cal. Gov’t Code § 12654(a)). A qui tam bounty hunter’s claim would supersede the tax statutes of limitations.
Next, the elements of a CFCA violation must only be shown “by a preponderance of the evidence” (Cal. Gov’t Code § 12654(c)). The common law burden of proof for fraud is by “clear and convincing evidence,” a much higher bar.
Absent amendments, SB 799 would put every significant California taxpayer in jeopardy when the taxpayer takes a legitimate tax return position on a gray area of the state or local tax law, even when the position was resolved through the California Department of Tax and Fee Administration, the California State Board of Equalization, the California Franchise Tax Board, or a local government. Settlement agreements, voluntary disclosure agreements, and audit closing agreements all would be disrupted if the attorney general or a plaintiff’s lawyer believes the underlying tax dispute or uncertainty is worth pursuing under the CFCA.
In countless cases in Illinois and New York, we have seen companies face False Claims Act shakedowns after the company already had been audited, had entered into a settlement with the state, or when the tax statute of limitations had long closed. SB 799 would bring the horrors experienced in Illinois and New York to taxpayers doing business in California.
Fundamentally, SB 799 threatens to open the litigation floodgates and undermine the authority of California tax administrators, putting tax administration in the hands of profit-seeking “whistleblower” bounty hunters. The goal of motivating whistleblowers and addressing tax fraud can be accomplished by simply adopting (and funding) a tax whistleblower program similar to the very successful programs offered by the Internal Revenue Service and many other states.
Ideally, SB 799 will be rejected in full or deferred for further consideration by an interim/study committee. With this in mind, the following amendments are essential to prevent the most severe abuses that stem from the CFCA’s application to tax.
Bring qui tam suits without government involvement. Eliminating the ability of private plaintiffs to bring qui tam suits without the involvement of the attorney general would significantly reduce the number of frivolous claims and give the state its sovereign right to decide whether a claim should be pursued under the CFCA. If this amendment is not accepted, companies that introduce new technology and innovative products will be at the greatest risk of being targeted for qui tam It is always the case that tax law does not keep up with technological advances. Thus, the gray areas of tax law will be most present for high-tech taxpayers.
Protect reasonable, good-faith tax positions. Companies should not be liable under the CFCA merely for taking a reasonable return position or otherwise attempting to comply with a reasonable interpretation of law. CFCA exposure should be limited to cases of specific intent to evade tax, proven by clear and convincing evidence. Tax law is notoriously murky, and good-faith disputes are what keep lawyers and accountants employed worldwide.
Defer to existing tax statutes. The CFCA should not override the California Revenue and Taxation Code provisions governing statutes of limitation or burden of proof.
Apply prospectively only. The CFCA should be limited in application to prospective matters (i.e., claims for taxable years beginning on or after January 1, 2026) to avoid retroactive liability and constitutional risk.
Additionally, there is an emerging body of caselaw involving the federal FCA, holding it violates the separation of powers under the US Constitution. Justice Thomas, in a dissent, suggested that the federal FCA might be unconstitutional because it transfers executive power to the private sector. A district court in Florida recently dismissed a qui tam action brought under the federal FCA on similar grounds. The California Constitution is structured like the US Constitution in this regard, with executive power vested in the governor and the attorney general serving as the chief law enforcement officer (See Cal. Const. art. V, §§ 1, 13). The qui tam provisions of the existing CFCA transfer these powers to private actors with no political accountability. It is likely these qui tam provisions of the CFCA similarly violate the California Constitution.
Health Care Marketing: The Seventh Circuit Addresses “Referrals” Under The Anti-Kickback Statute
Health care organizations working with marketers, independent sales representatives, advertising, and other consulting support to promote sales of products or services received welcomed news that their arrangements may be lower risk than some believe. On April 14, 2025, the United States Court of Appeals for the Seventh Circuit issued an opinion providing a crucial interpretation of the meaning of “referrals” under the federal Anti-Kickback Statute (AKS), found at 42 U.S.C. § 1320a-7b.
The case, United States v. Sorenson, addressed whether a Medicare-registered distributor violated the AKS in making payments to advertising, marketing, and manufacturing companies that worked to sell orthopedic braces to Medicare patients. The court held that such payments were not “referrals” within the meaning of the AKS because the payments were made to entities that were neither physicians in a position to refer their patients nor other decisionmakers in positions to “leverage fluid, informal power and influence” over health care decisions.
Background
The AKS is a criminal law that prohibits the knowing and willful offering, paying, or receiving any form of compensation or benefit — known as “remuneration” — in exchange for patient referrals or generating business related to services or items reimbursable by federal health care programs (e.g., Medicare or Medicaid-covered drugs, supplies, or health care services). Remuneration is broadly defined to include anything valuable beyond just cash payments, such as free rent, luxury hotel accommodations, expensive meals, or inflated payments for consulting roles and medical directorships. The statute targets arrangements involving individuals who can influence patient decisions or have access to patients, thus affecting patient health care choices. A common example would be a physician receiving money for referring patients to specific health care providers, like hospitals or specialists, but the statute can reach non-physicians, as well, although such cases seem to be less common among those prosecuted. The AKS is also used as a basis for the assertion of civil false claims that are tainted or caused by a violation of the AKS.
In Sorenson, SyMed Inc., a Medicare-registered distributor of durable medical equipment, entered into a complex series of arrangements with a durable medical equipment manufacturer, PakMed LLC, a marketing agency, Byte Success Marketing, and a medical billing agency, Dynamic Medical Management, to advertise orthopedic braces to patients, to obtain signed prescriptions from the patients’ doctors, to distribute the braces, and then to collect reimbursement from Medicare.
The business model involved multiple steps. Initially, Byte and another marketing company, KPN, ran advertisements for orthopedic braces. Patients interested in the braces responded by submitting electronic forms containing their names, addresses, and physician contact details. These details were then sent to call centers, where sales agents from Byte or KPN reached out to patients to discuss brace orders and prepare prescription forms. Once additional details were collected and patient consent was obtained, the sales agents faxed prefilled, unsigned prescription forms to the patients’ doctors. The prescription forms prepared by Byte included SyMed’s name and corporate logo, along with a list of devices to be ordered.
Critical to the court’s analysis, physicians who received these unsigned prescription forms had complete discretion to either sign and return them to SyMed and Dynamic for further processing or to ignore them entirely. Physicians rejected approximately 80% of the orders originating from KPN and frequently disregarded those from Byte. If a physician decided to sign and approve a prescription, SyMed instructed PakMed to deliver the braces directly to patients, while Dynamic submitted billing to Medicare on SyMed’s behalf. SyMed retained a 21% service fee from the Medicare or insurance payments, from which it compensated Dynamic for its billing services, and forwarded the remaining 79% to PakMed. PakMed then used part of its share to pay KPN and Byte, the marketing firms, based on how many patient leads each had generated.
Based on this business model, a federal grand jury indicted Sorensen on four counts. Count One charged Sorensen with conspiring to offer and pay remuneration, including kickbacks and bribes, for furnishing services for which payment may be made in whole or in part under a federal health care program in violation of the AKS. Counts Two, Three, and Four charged Sorensen with substantive violations of the AKS citing three specific payments. The district court characterized the question as a “close call,” but ultimately convicted Sorensen because the evidence regarding willfulness allowed the jury to find beyond a reasonable doubt that Sorensen “knew from the beginning of the agreement in 2015 that the percentage fee structure and purchase of the doctor’s [sic] orders violated the law.”
Analysis
On appeal, the Circuit Court considered whether the payment fell within the prohibitions of the AKS, which require that a payor act with the intent to induce referrals from the payee (recipient) to implicate the statute. As the court noted, in considering whether a payment falls within the prohibitions of the AKS, the focus is on an intent to induce referrals — as opposed to the titles or formal authorities — from the payee in order to “broaden liability to reach operatives who leverage fluid, informal power and influence” over health care decisions. Payments to non-physicians, however, present uncommon scenarios, as the power to guide patients to specific providers and approve care presents a significantly lower risk in comparison to such power held by a physician.
The Department of Justice (DOJ), which had commenced the prosecution, made the argument that the term “refer” is broad, “encapsulating both direct and indirect means of connecting a patient with a provider.” In DOJ’s perspective, the inquiry was to be focused on substance, not form, and thus a non-physician makes a referral within the meaning of the AKS when he or she “steer[s] a patient to a particular provider,” even if the referring person is neither a “‘relevant decisionmaker”’ nor “in a similar position as the relevant decisionmaker.” The court, however, rejected such a broad interpretation, noting that DOJ produced no evidence that Sorensen, PakMed, KPN, or Byte authorized medical care in such a way to implicate the AKS referral prohibition.
Moreover, the fact that SyMed shared revenue with PakMed on a percentage basis did not render the arrangement illegal. The court noted that “percentage-based compensation structures are not per se unlawful.” Instead, to violate the AKS, “payments have to be made in order to induce an unlawful referral,” which “requires proof beyond showing that a percentage-based compensation contract existed.”
Fundamentally, due to an advertiser’s lack of “any sort of informal power and influence over healthcare decisions,” here, the Court concluded that there was no referral under the AKS. There was a notable difference “between a payment to induce referrals from a payee who is in a position to make or influence healthcare decisions, which violates the statute, and a payment for advertising services, which does not.” Without authority to act on behalf of a physician, authorize medical care, or unduly influence physician decision making, a violation of the AKS did not exist. Under the arrangement in question, physicians always had ultimate control over their patients’ health care choices and applied independent judgment in exercising that control.
One interesting observation of the Court was that if the entities and the advertisers had all worked for the same company, their actions would never have been viewed as federal crimes. To align incentives, employers regularly structure compensation based on how much business employees generate. The AKS recognizes this common practice. Among its exclusions, for example, the statute contains a safe harbor provision, 42 U.S.C. § 1320a-7b(b)(3)(B), that exempts payments by “an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services․” Though this comment was resigned to a footnote, perhaps the Court was signaling that the distinction between independent contractor and employer is not as critical as some commenters have worried in the past.
Conclusion
Both physicians and non-physicians can wield formal or informal influence over patients’ choices of health care providers, often leveraging personal relationships to limit competition and harm patients, and consequently increasing costs for federal health care programs. The AKS explicitly prohibits payments intended to induce improper influences, which is consistent with public policy. In this case, however, Sorensen’s payments to PakMed, KPN, and Byte were compensation for legitimate, routine services — such as advertising, manufacturing, and product delivery — and not in exchange for patient referrals.
Although refraining to comment on the broader social implications or desirability of aggressive, even intrusive, marketing strategies like Sorensen’s, the court noted that vigorous advertising alone was not equivalent to illegal patient referrals. Since no evidence was presented that would permit a reasonable jury to conclude beyond a reasonable doubt that Sorensen made payments or agreements in exchange for referrals as defined by the AKS, the district court’s judgment was reversed.
This decision does not mean that providers, manufacturers, or others engaged in the health care ecosystem need to change any current practices. But it does stand for an important milestone in the ongoing interpretation of the AKS, one of the key fraud and abuse enforcement tools, that will be closely monitored by entities defending against AKS or FCA actions premised on certain compensation arrangements that previously had been questioned. Under the Court’s ruling, heath care providers may structure compensation arrangements involving marketing and sales without implicating AKS, as non-physician recommendations may evade classification as an illegal referral. The Court’s ruling, emphasizing the payee’s inability to leverage influence or power over health care decisions, suggests that providers could, with the proper safeguards in place, utilize percentage-based compensation structures or per lead compensation arrangements with marketing and sales teams. Providers should consult legal counsel on structuring any such arrangement to ensure AKS compliance and meet any applicable safe harbor protections.
Joint SEC Whistleblowers Awarded $6 Million for Disclosure
On April 21, the U.S. Securities and Exchange Commission (SEC) announced that it had awarded $6 million to joint whistleblowers who voluntarily provided original information which led to the opening of an examination resulting in a successful enforcement action.
According to the SEC, the whistleblowers’ “tip and supplemental submissions were helpful in connection with the Commission Examination as well as Exams’ ultimate examination findings.” The award order further notes that Exams referred the matter to Enforcement staff who “found the referral from Exams to be helpful as a roadmap to the investigation that resulted in the Covered Action.”
“Today’s award illustrates that the agency can leverage whistleblower information in various ways, including by prompting an examination,” said Jonathan Carr, Acting Chief of the SEC’s Office of the Whistleblower. “If that examination ultimately results in an enforcement action, the whistleblower may be eligible for an award.”
Through the SEC Whistleblower Program, qualified whistleblowers are eligible to receive monetary awards of 10-30% of the sanctions collected in connection with their disclosure when their information contributes to an enforcement action where the SEC is set to collect at least $1 million.
The SEC weighs a number of factors in determining the exact percentage to award a whistleblower. In this case, the Commission notes that it considered the following factors: “(1) the significance of information provided; (2) the assistance provided; (3) the law enforcement interest in deterring violations by granting awards; (4) participation in internal compliance systems; (5) culpability; (6) unreasonable reporting delay; and (7) interference with internal compliance and reporting systems.”
Established in 2010 with the passage of the Dodd-Frank Act, the SEC Whistleblower Program has now awarded a total of more than $2.2 billion to 444 individuals.
In FY 2024, the SEC Whistleblower Program received a record 24,980 whistleblower tips and awarded over $255 million, the third highest annual amount. According to SEC Office of the Whistleblower’s annual report, the most common fraud areas reported by whistleblowers in FY 2024 were Manipulation (37%), Offering Fraud (21%), Initial Coin Offerings and Crypto Asset Securities (8%), and Corporate Disclosures and Financials (8%).
Seventh Circuit Decision Clarifies Distinction Between Face-to-Face Sales and Advertising Under the Anti-Kickback Statute
Overview
In a significant decision, United States v. Sorensen, — F.4th —-, 2025 WL 1099080 (7th Cir. Apr. 14, 2025), the United States Court of Appeals for the Seventh Circuit reversed the conviction of Mark Sorensen, who was previously found guilty of conspiracy and kickbacks under the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). This ruling aligns with recent Fifth Circuit cases that draw a clear distinction between illegal kickbacks for face-to-face sales and lawful payments for advertising and marketing services.
Case Background
Mark Sorensen, owner of SyMed Inc., a Medicare-registered distributor of durable medical equipment, was convicted of conspiracy and offering kickbacks for payments made to advertising and marketing companies. These companies were involved in promoting orthopedic braces to Medicare patients. The government argued that these payments constituted illegal referrals under the Anti-Kickback Statute.
Business Model for Orthopedic Product Sales
The business model for selling orthopedic braces involved several steps:
Advertising Campaigns: Byte Success Marketing (“Byte”) and KPN, the marketing firms involved, published advertisements for orthopedic braces. These ads targeted potential patients who might benefit from the braces.
Patient Engagement: Interested patients responded to the advertisements by filling out electronic forms with their personal information, including names, addresses, and doctors’ contact details.
Sales Agent Interaction: The collected information was forwarded to call centers where sales agents from Byte or KPN contacted the patients to discuss ordering a brace. These agents also generated prescription forms for the braces.
Physician Approval: The sales agents, with the patients’ consent, faxed the prefilled but unsigned prescription forms to the patients’ physicians. These forms included SyMed’s name and corporate logo and listed the devices to be ordered. Physicians had the discretion to sign and return the forms or ignore them. Notably, physicians declined 80 percent of the orders sent by KPN and regularly ignored forms sent by Byte.
Order Fulfillment: If a physician signed and approved a prescription, SyMed directed PakMed, the manufacturer, to ship the braces to the patients. Dynamic Medical Management, a billing agency, then billed Medicare on behalf of SyMed.
Revenue Sharing: SyMed paid PakMed 79 percent of the funds collected from Medicare or other insurance, keeping 21 percent as a service fee. Out of its 79 percent share, PakMed paid the advertising firms, KPN and Byte, based on the number of leads generated.
Seventh Circuit’s Analysis
The Seventh Circuit found insufficient evidence to support the conviction, emphasizing that the payments made by Sorensen were for advertising services and not for referrals. The Court highlighted that the physicians retained ultimate control over patient prescriptions and decisions, which is a critical factor in determining whether a payment constitutes an illegal referral.
Key Points from the Decision
Advertising vs. Face-to-Face Sales: The Court distinguished between payments made for advertising services and those made to induce referrals through face-to-face sales interactions. Payments to advertising companies that promote medical products do not fall under the Anti-Kickback Statute if the physicians retain independent decision-making authority. In contrast, face-to-face sales interactions, where sales representatives may exert influence over healthcare decisions, are more likely to be scrutinized under the statute.
Physician Control: The Court noted that the physicians who received the prescription forms from the marketing companies had the discretion to approve or reject the prescriptions. This autonomy is crucial in differentiating lawful advertising from illegal kickbacks. In face-to-face sales scenarios, the potential for undue influence is higher, making it essential to ensure that physicians’ decisions remain independent.
Legal Precedents: The decision aligns with the Fifth Circuit’s rulings in cases such as United States v. Miles and United States v. Marchetti. In these cases, the Fifth Circuit also overturned convictions where payments were made for marketing and advertising services rather than for referrals. The courts emphasized the importance of distinguishing between general advertising activities and direct sales efforts that could influence healthcare decisions.
Implications for Healthcare Providers
This decision provides clarity for healthcare providers and marketers regarding the boundaries of the Anti-Kickback Statute. It underscores the legality of compensating advertising and marketing firms for their services, provided that the ultimate decision-making authority remains with the physicians. However, it also highlights the need for caution in face-to-face sales interactions, where the risk of violating the statute is higher.
Conclusion
The Seventh Circuit’s decision in United States v. Mark Sorensen reinforces the distinction between lawful marketing activities and illegal kickbacks, particularly differentiating between general advertising and face-to-face sales efforts. Healthcare providers should ensure that their marketing practices comply with this legal framework, maintaining clear boundaries to avoid potential violations of the Anti-Kickback Statute.
Eleventh Circuit Further Clarifies its “Reliable Indicia” Pleading Standard Under the False Claims Act
It has long been the law of the Eleventh Circuit that, under the False Claims Act (FCA) and Federal Rule of Civil Procedure 9(b), a relator must provide sufficient “indicia of reliability … to support the allegation of an actual false claim for payment being made to the government.” U.S. ex rel. Clausen v. Laboratory Corp., 290 F.3d 1301, 1311 (11th Cir. 2002). To do so, a relator may either allege details of specific false claims, see U.S. ex rel. Atkins v. McInteer, 470 F.3d 1350, 1358 (11th Cir. 2006), or direct knowledge based on the relator’s own experiences and on information gathered in the course of their employment, see United States v. HPC Healthcare, 723 F. App’x 783, 789 (11th Cir. 2018).
But what if a relator alleges the details of a scheme to submit false claims rather than the details of any individual claim? Is that enough to satisfy the Eleventh Circuit’s “reliable indicia” standard? The Eleventh Circuit says no. In United States ex rel. Vargas v. Lincare, Inc. et al., — F.4th —-, No. 24-11080 (11th Cir. Apr. 16, 2025), the court reversed in part and affirmed in part a dismissal for failure to plead a false claim with particularity as required under the FCA and Federal Rule of Civil Procedure 9(b).
Vargas began several years ago in the Middle District of Florida. Two relators sued under the FCA based on the following purported schemes: (1) delivering CPAP supplies coded as more expensive ventilator supplies or upcoding of billing of CPAP batteries and battery accessories; (2) allowing patient financial hardship co-pay waivers without assessing patients’ true financial situations; (3) delivering and billing for unnecessary durable medical equipment, and (4) paying kickbacks in the form of setup fees.
The crux of the relators’ FCA claim was the allegedly “routine” practice of submitting waivers of copayments for alleged financial hardships. They contended that the defendants “never” required patients to actually establish their financial hardship and, consequently, that the Government paid more than it should have for the claims submitted. The defendants moved for dismissal, and the court dismissed the entire complaint—the fourth amended—with prejudice. The court concluded, in a somewhat cursory fashion, that the complaint “d[id] not comply” with Rule 9(b)’s requirement to “state with particularity the circumstances constituting fraud or mistake.”
The Eleventh Circuit reversed as to the battery upcoding scheme but affirmed as to the rest. With respect to the “upcoding” scheme, relators provided detailed accounts of upcoding, complete with identifying information as to individual patients, specific claim numbers, and examples. As to the alleged “co-pay” scheme, by contrast, relators identified neither specific claims submitted “in connection with a co-pay waiver” nor any “patient whose co-pay was improperly waived.” So too with the remaining alleged schemes; the relators identified no specific false claims. And the relators could not rely on allegations of direct knowledge to avoid the requirement to allege specific claims because, put simply, they did not “allege any direct knowledge of billing activity or access to claims data.” Ultimately, the court held that the relators were not excused from “pleading claims that were actually submitted to the government” merely by pleading a “reliable indicia that there was a scheme to submit false claims.”
In Vargas, the Eleventh Circuit provides much-needed clarity as to the “reliable indicia” standard under the FCA and Rule 9(b). That standard is not a crutch that a relator may use to prop up an otherwise deficient pleading. To the contrary, the Eleventh Circuit strictly demands that a relator allege either details of specific false claims or a basis for direct personal knowledge of the submission of individual false claims with particularity. If, as in Vargas, the relator does not meet this strict standard, their claims should be dismissed.
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Summer Concert (Seizure) Season
The summer concert season is almost here. As the weather warms, artists and fans alike are gearing up for highly anticipated tours, like the Oasis reunion, as well as annual festivals, such as Lollapalooza in Chicago, IL, both of which sold out in under an hour. Undoubtedly, John Doe, bootleg merchandiser, is gearing up too, ready to sell counterfeit summer tour t-shirts outside venues. A recent case out of the Central District of California suggests that if artists want to crack down on John Doe’s sales this summer, it may be wise to wait until the tour is underway and the knock-off sales have begun.
On March 24, 2025, rock band AC/DC filed a complaint and ex parte application for a temporary restraining order (“TRO”), seeking nationwide relief against anticipated but yet-to-be-identified Doe defendants. See Leidseplein Presse, B.V. v. Various John Does, Jane Does, and XYZ Companies, No. 2:25-cv-02585 (C.D. Cal. Filed 03/24/2025). The band sought to seize counterfeit merchandise at the opening date of its upcoming tour and to restrain bootleggers from engaging in further sales across the country. However, on April 4, the federal district court in Los Angeles denied AC/DC’s TRO application on the basis that any injury to plaintiff was hypothetical at this point as the complaint and TRO application did not identify particular individuals or repeat offenders, even though the identities of bootleggers are almost never known, and difficult to ascertain.
To counteract the proclivity of bootlegging, touring artists and promoters employ a creative combination of Federal Rule of Civil Procedure 65 and the Trademark Counterfeiting Act of 1984 to seize and restrain ongoing sales of counterfeit merchandise. This mechanism combines five unusual, often disfavored, litigation tactics: 1) emergency proceedings; 2) ex parte seizure orders; 3) seizure without deprivation hearings; 4) Doe defendants; and 5) nationwide restraining orders. Courts are often uncomfortable with the mechanism, consistently expressing due process concerns, even when granting such orders.
Touring artists and promoters see this strategy as one of the only ways to effectively stem the flood of illegal, bootleg merchandise by sellers who are not easily identifiable and who may not be susceptible to normal service of process and litigation practices. However, with increasing judicial skepticism of the practice, artists are put in a precarious position, especially when faced with lost revenue in the early legs of tours, before hard evidence of actual damages can be shown to a court.
The court declined to issue the TRO AC/DC requested because, in its view, while likely plausible, the potential abuse was not enough to persuade the court to grant the application as it read the complaint as making conclusory allegations based on past experience; i.e., that bootleggers would present themselves at the opening date of the tour. The court expressed concerns about granting nationwide seizure and restraining orders, echoing the due process concerns of other courts around the country.
By contrast, jam band Phish adopted a different strategy with a similar goal, making a motion in the District Court of Massachusetts in summer 2024. See Phish, Inc. v. Various John Does, Jane Does, and ABC Companies, No. 1:24-cv-11749 (D. Mass. Filed 07/08/2024). Phish succeeded in obtaining both a seizure order and a restraining order for the remainder of its tour, stretching from New York to Colorado. Phish made its motion after the tour had begun, once bootleggers were present and the injury was concrete and ongoing. Further, Phish specifically identified the remaining tour dates and cities in which it sought a restraining order, limiting the often-sweeping nature of the nationwide restraining order requests, and apparently alleviating courts’ common discomfort with the perceived lack of due process.
For artists and promoters embarking on summer tours who want to shut down merchandisers of counterfeit concert memorabilia, specificity and certainty are key, even if the offenders are unidentified John Does. The recent court decisions suggest that knowing an injury might occur—even if almost certain—may not be enough to persuade some courts of the need for immediate, temporary relief. Artists and promoters should be specific in the scope of their request, limiting the restraining order to the remaining dates and cities on the tour schedule. By working with courts’ sympathies for mark owners, while simultaneously alleviating courts’ common procedural and due process concerns, artists may be able to rid themselves of bootleggers this summer, and fans can be sure to be offered only the genuine article.
New Seventh Circuit Decision Signals Greater Flexibility for Healthcare Marketing Services
On April 14, 2025, the United States Court of Appeals for the Seventh Circuit issued a decision in a case involving the federal Anti-Kickback Statute (“AKS”) and marketing services that the court framed as an appeal “test[ing] some of the outer boundaries of the [AKS]….”
In United States vs. Mark Sorensen, the Court of Appeals overturned the judgment of conviction against Mark Sorensen from the United States District Court for the Northern District of Illinois. In the district court case, Sorensen, the owner of SyMed Inc., a durable medical equipment (“DME”) distributor, was found guilty of one count of conspiracy and three counts of offering and paying kickbacks in return for the referral of Medicare beneficiaries to his DME company, which the United States claimed resulted in SyMed’s fraudulently billing $87 million and receiving $23.6 million in payments from Medicare. The district court judge denied Sorensen’s post-trial motions for acquittal and for a new trial, finding that the evidence regarding willfulness allowed the jury to find beyond a reasonable doubt that Sorensen “knew from the beginning of the agreement in 2015 that the percentage fee structure and purchase of the [doctors’] orders violated the law.” He was sentenced to 42 months in prison and ordered to forfeit $1.8 million.
The charges against Sorensen stemmed from SyMed’s arrangements with several advertising and marketing companies, a DME manufacturer, and a billing company. Under the business model for which Sorensen was convicted, the marketing companies published advertisements for orthopedic braces, to which interested patients could respond using an electronic form providing their names, addresses, and doctors’ contact information. This information was forwarded to call centers where sales agents from the marketing companies would contact the patients to discuss ordering braces and generating prescription forms. After collecting additional information, and with consent from patients to proceed, the sales agents faxed the prefilled, but unsigned, prescription forms to patients’ physicians. The prescription forms contained SyMed’s name and corporate logo and listed the devices to be ordered. SyMed paid the DME manufacturer 79 percent of the payments it received from Medicare or another payor, and kept 21 percent, from which it paid the billing company for its services. The DME manufacturer paid the marketing companies out of its 79 percent share based on the number of leads each company generated. The government argued that the payments to these marketing companies constituted illegal kickbacks under the AKS because they were intended to induce the referral of Medicare beneficiaries.
According to the Seventh Circuit, a critical fact leading to its reversal of Sorensen’s conviction was that the physicians who received these unsigned prescription forms got to decide whether to sign and return the forms to SyMed and the billing company for review—or to ignore them. According to the court’s decision, physicians declined 80 percent of the orders from one of the marketing companies and “regularly ignored forms sent by” the other marketing company.
The appellate court reversed the district court’s decision for insufficient evidence, noting that “[t]he other individuals and businesses Sorensen paid were advertisers and a manufacturer. They were neither physicians in a position to refer their patients nor other decisionmakers in positions to ‘leverage fluid, informal power and influence’ over healthcare decisions.” The Seventh Circuit characterized the marketing companies’ communications to physicians as “proposals for care, not as referrals”, noting that to the extent they could be considered “recommendations” to physicians, “they were frequently overruled.” The appellate court further stated, “[t]he key point is that, on this record, physicians always had ultimate control over their patients’ healthcare choices and applied independent judgment in exercising that control.” Consequently, the appellate court concluded that “Sorensen’s payments thus were not made for “referring” patients within the meaning of the statute.” Interestingly, the court focused more on the percentage payments to the DME manufacturer and less on the “per lead” payments to the marketing companies. This was likely due to the low use or conversion of orders for orthopedic braces by physicians using these prefilled forms by the marketing companies which, to the court, demonstrated that the physicians retained and exercised control over whether an orthopedic brace would be ordered for their patients.
In considering whether the 80 percent declination rate experienced by the one marketing company was dispositive, the Seventh Circuit declined to adopt a bright-line rule. Instead, the appellate court noted in a footnote to its decision that “[o]ur focus is on whether a payee exerts informal but substantial influence so that a physician’s choice of care becomes a formality rather than an exercise of independent medical judgment.”
The Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) has previously considered pay per lead arrangements with advertising companies in advisory opinion (“AO”) 08-19. In AO 08-19, the HHS-OIG allowed a pay per lead arrangement involving chiropractors under the limited circumstances presented in that AO: the advertising company was not a health care provider, the advertising did not target only Federal health care program beneficiaries, fees paid by the chiropractors would not depend on whether the lead became an actual patient, and the advertisers would not steer patients to a particular chiropractor. The OIG’s analysis in AO 08-19 also relied on the fact that the advertising company did not collect any health care information, such as payor information, medical history, or diagnosis information about prospective patients using the advertiser’s platform.
The Seventh Circuit’s decision signals that payments to marketing firms for services like advertising and lead generation are less likely to be considered illegal kickbacks, provided that (1) the marketing firms do not exert direct influence over prescribing physicians, and (2) physicians retain genuine autonomy in their medical decisions, in which one factor that may be considered is the conversion rate of a marketing lead to a physician order. While the Seventh Circuit did not provide an explicit definition of the term “referrals” for purposes of the AKS, the court’s emphasis on the independent decision-making of the physicians suggests a potential limit on what actions by a third party can be considered to trigger the AKS’s prohibition against payments for referrals. This could create a clearer path forward for legitimate marketing activities while still prohibiting direct inducements to healthcare providers for specific referrals. We will monitor how other Circuits treat similar issues and report back on our findings.