No Protectable Code: No Literal or Nonliteral Copying
The US Court of Appeals for the Eighth Circuit affirmed a district court’s ruling that a plaintiff failed to establish copyright protection for its software platforms, drawing a distinction between “literal” copying (direct duplication of source code) and “nonliteral” copying (reproduction of structure, sequence, or user interface). InfoDeli, LLC v. Western Robidoux, Inc., et al., Case No. 20-2146 (8th Cir. May 5, 2025) (Gruender, Kelly, Grasz, JJ.)
InfoDeli partnered with Western Robidoux, Inc. (WRI), a commercial printing and fulfillment firm co-owned by family members, in 2009 to form a joint venture. The agreement leveraged InfoDeli’s expertise in developing custom webstore platforms and WRI’s capacity for printing and fulfillment. Their collaboration served major clients such as Boehringer Ingelheim Vetmedica Inc. (BIVI) and CEVA Animal Health, LLC, both providers of animal health products. InfoDeli built webstores enabling the companies’ sales teams to order promotional materials, which WRI then fulfilled. InfoDeli developed the Vectra Rebate platform for CEVA, allowing marketing staff to issue customer coupons that were also fulfilled by WRI.
By early 2014, tensions emerged. Without informing InfoDeli, WRI hired a competitor, Engage Mobile Solutions, to replace InfoDeli’s platforms for CEVA and BIVI. Engage used open-source software, in contrast to InfoDeli’s proprietary systems. WRI also shared InfoDeli-developed content with Engage to aid the transition. Shortly thereafter, WRI abruptly terminated its joint venture with InfoDeli.
InfoDeli sued WRI, CEVA, BIVI, and Engage for copyright infringement, tortious interference, and violations of the Missouri Computer Tampering Act related to certain webstores. The defendants counterclaimed conversion and tortious interference. The district court ruled in favor of the defendants on the copyright claims and denied InfoDeli’s motion on the counterclaims. After a jury sided with the defendants, InfoDeli filed motions for judgment and a new trial, both of which were denied. InfoDeli appealed.
The Eighth Circuit found that InfoDeli failed to prove its platforms were protected by copyright. The Court distinguished between “literal” and “nonliteral” copying, explaining that literal copying referred to direct duplication of original source code while nonliteral copying involved reproducing the overall structure or user interface. The district court had already determined that the nonliteral elements of InfoDeli’s platforms were not copyrightable. On appeal, InfoDeli did not challenge this determination regarding the individual elements. Instead, InfoDeli argued that the platforms should be protected “as a whole,” claiming that the interrelationship of elements made them protectable. However, the Eighth Circuit found that InfoDeli did not explain how the elements’ arrangement exhibited the required creativity for copyright protection.
InfoDeli further argued that the district court erred in not considering the verbatim copying of its source code. However, since InfoDeli’s complaint only alleged infringement of nonliteral elements, the Eighth Circuit found that the district court properly focused on those claims.
InfoDeli also argued that the district court erred by relying on InfoDeli’s expert’s list of protectable elements for the BIVI platform. However, the Court rejected this claim, pointing to precedent holding that when a plaintiff identifies specific elements as protectable, it effectively concedes that the remaining elements are not.
District Court Holds Pension Fund Misapplied Prior Partial Withdrawal Liability Credit
A federal district court in Illinois became the first court to rule that an employer’s credit for a prior partial withdrawal should be applied at the end of the statute’s “waterfall” for calculating withdrawal liability. The case is Consumers Concrete Corp. v. Central States, S.E. and S.W. Areas Pension Fund, Nos. 23-cv-2695 & 23-cv-3005, 2025 WL 1001799 (N.D. Ill. Apr. 3, 2025).
Statutory Background
An employer’s withdrawal from a multiemployer pension plan may be “complete” if it permanently ceases to have an obligation to contribute to the plan, or “partial” if (a) the employer’s obligation ceases with respect to one (but not all) collective bargaining agreements or facilities, or (b) if there is a 70% reduction in the employer’s contribution over a three-year period. The employer’s partial withdrawal liability is a percentage of what its liability would have been if it effected a complete withdrawal from the plan (e.g., 80% of $1 million, or $800,000). If an employer assessed with partial withdrawal liability subsequently effects a complete withdrawal, it will receive a credit for the prior partial withdrawal liability, subject to certain reductions, and only be liable for the balance (e.g., $2 million minus $800,000).
Disputes often arise over the point in the calculation at which this credit is applied. The Multiemployer Pension Plan Amendments Act (MPPAA) provides that an employer’s withdrawal liability is calculated by determining the employer’s share of the fund’s unfunded vested benefits pursuant to the allocation method selected by the plan’s trustees, and then reducing that amount in four sequential steps: (i) for de minimis amounts, (ii) for partial withdrawals, (iii) to reflect the twenty-year cap on payments, and (iv) for employers whose withdrawal is the result of insolvency or a sale of substantially all assets to a third-party. Courts, including the Ninth Circuit, have held that an employer’s credit for a prior partial withdrawal should be applied at the second step of the statutory waterfall of reductions. In so holding, they have rejected as unpersuasive a 1985 PBGC opinion letter stating that the statutory waterfall did not encompass the credit at all, and that it should thus be applied only after all four reductions.
District Court’s Decision
Consumers Concrete Corporation was a contributing employer to the Central States Pension Fund. The employer partially withdrew from the plan in 2017 and was assessed $11.38 million in partial withdrawal liability. When the employer completely withdrew in 2019, the plan assessed it with $12.18 million in complete withdrawal liability, which was calculated by applying the credit for the prior partial withdrawal liability at the second step of the statutory waterfall. The employer commenced arbitration to challenge the calculation, arguing that the plan should have instead applied the credit at the end of the statutory waterfall, consistent with the PBGC’s opinion letter, which would have reduced its complete withdrawal liability from $12.18 million to $11.44 million.
The arbitrator ruled in the plan’s favor, and the District Court reversed. Based on a “holistic[]” reading of the statute, the Court concluded that the statute requires the credit to reduce an employer’s “withdrawal liability,” which the Court held is what an employer owes after the waterfall of exceptions is applied. The Court distinguished past rulings as overlooking the statutory distinction and also pointed to the PBGC opinion letter for support.
Proskauer’s Perspective
The order in which the partial withdrawal liability credit is applied can have a significant impact on the amount an employer owes in withdrawal liability upon a complete withdrawal. The few decisions to have considered the issue have held that the credit should be applied as part of the statutory waterfall of exceptions. The ruling in Consumers Concrete Corp. means that, at least in one jurisdiction, a different rule may apply. Because the issue is likely to remain an open question in most jurisdictions, employers and plans should coordinate with their legal counsel to assess the impact of these decisions on existing or forthcoming withdrawal liability assessments.
Hatch-Waxman or Not, Clinical Trials Aren’t Subject to Injunction
Analyzing the permissible scope of an injunction under the Hatch-Waxman Act, the US Court of Appeals for the Federal Circuit reversed the district court’s prohibitions on an open-label extension (OLE) of a then-running clinical trial and new clinical trials and remanded for further consideration of whether prohibiting a request for an additional indication was appropriate. Jazz Pharmaceuticals, Inc. v. Avadel CNS Pharmaceuticals LLC, Case No. 24-2274 (Fed. Cir. May 6, 2025) (Lourie, Reyna, Taranto, JJ.)
This appeal is one of several disputes between Jazz and Avadel regarding their competing sodium oxybate products. Jazz markets two such products: Xyrem, approved for treating excessive daytime sleepiness and certain cataplexy, and Xywav, which, in addition to Xyrem’s indications, also may be used for treating idiopathic hypersomnia. Avadel filed a § 505(b)(2) new drug application (NDA) to market its own product, Lumryz. During the pendency of the Lumryz application, Jazz obtained a patent and asserted that Avadel infringed it under 35 U.S.C. § 271(e)(2), part of the Hatch-Waxman Act, based on its filing of the Lumryz NDA. The patent was never Orange Book listed, so Avadel did not need to submit any patent certification.
The US Food & Drug Administration (FDA) approved Lumryz. Avadel launched the product, and Jazz amended its complaint to assert traditional § 271(a) – (c) infringement. Ultimately, Avadel and Jazz stipulated infringement, the patent was determined not invalid, and the jury awarded damages based on the post-launch infringement. After further proceedings, the district court permanently enjoined Avadel from seeking an idiopathic hypersomnia indication for Lumryz, offering an OLE phase of its then-running Lumryz idiopathic hypersomnia clinical trial, and against initiating new clinical trials. Avadel appealed, arguing that each of these restrictions was improper.
The Federal Circuit largely agreed with Avadel, reversing the first two prohibitions, and remanded the case back to the district court for further consideration of the prohibition against any new clinical trials. Turning first to the prohibition on new clinical trials, the Court held that initiating new trials for the purposes of submission to the FDA fell squarely within the Hatch-Waxman Safe Harbor for experimentation (under § 271(e)(1)) and thus could not be enjoined (per §271(e)(3)). Jazz unsuccessfully argued that Avadel had waived its Safe Harbor position, which required factual development.
Next, the Federal Circuit rejected the district court’s injunction against an OLE, concluding that the district court had not applied the Supreme Court’s four-factor eBay (2006) test for injunctions when deciding the appropriateness of such extraordinary relief. Refusing to determine whether an OLE extension qualified as safe-harbored activity in the first instance, the Court explained that only if such activity were deemed to be infringing on an appropriate record could it be enjoined.
Finally, with respect to prohibiting Avadel from seeking an idiopathic hypersomnia indication for Lumryz, the Federal Circuit concluded that the propriety of that restriction may turn on whether the infringement qualified under the Hatch-Waxman Act, reasoning that an injunction might run afoul of the § 271(e)(4) limitation on the scope of injunctive relief. Recognizing that this question turned on a significant issue not resolved by case law – whether and how the submission of an application with no corresponding Orange Book listing triggers the Hatch-Waxman Act’s applicability – the Court remanded for further development.
Practice Note: With the increased frequency of multiple rounds in innovator versus generic pharmaceutical litigation, parties are testing the boundaries of the Hatch-Waxman Act. The Jazz decision marks the most recent Federal Circuit decision elucidating the available remedies and causes of action under the Hatch-Waxman Act, leaving for another day the important question of what constitutes an infringing submission.
Up in Smoke: Statutory Trademark Damages Can Exceed Actual Damages
Addressing a jury’s statutory damages award that surpassed the plaintiffs’ actual damages, the US Court of Appeals for the Eleventh Circuit affirmed the district court’s denial of the defendant’s motion for judgment as a matter of law (JMOL), finding that the award was consistent with trademark damages law given the jury’s finding of no willfulness and was not violative of constitutional due process. Top Tobacco, L.P. v. Star Importers & Wholesalers, Inc., Case No. 24-10765 (11th Cir. Apr. 30, 2025) (Pryor, Grant, Kid, JJ.)
Top Tobacco, Republic Technologies, and Republic Tobacco (collectively, Republic) sued Star Importers & Wholesalers for trademark violations and the sale of counterfeit cigarette rolling papers. Prior to trial, the district court granted summary judgment in favor of Republic. Thus, the only issues tried to the jury were damages related, including whether Star’s conduct had been willful, whether the company’s president should be personally liable, and the appropriate damages award.
Republic sought damages under 15 U.S.C. § 1117(c) of the Lanham Act, permitting the jury to look beyond actual damages and award up to $200,000 per non-willfully infringed mark or $2 million per willfully infringed mark. The jury instructions explained to the jury that it could consider multiple factors, including lost revenue, the conduct’s willfulness, and whether the counterfeit goods were a public safety risk. The instructions also clarified that the statute permitted both compensatory and punitive rationales for the award, as long as it was not a windfall for Republic. Ultimately, the jury found that Star’s conduct had not been willful and granted the plaintiffs $123,000 per infringed mark. Star moved for JMOL, arguing the total $1.107 million award was inconsistent with the finding of no willfulness. The district court denied the motion. Star appealed.
The Eleventh Circuit affirmed the district court’s denial of the JMOL motion, concluding that:
The jury was permitted to provide an award greater than actual damages.
The jury was permitted to consider punitive and deterrence rationales despite finding the actions were not willful.
The award did not violate constitutional due process.
Applying the principles of statutory construction, the Eleventh Circuit explained that because § 1117(a) permits an award for actual damages, § 1117(c)’s purpose was explicitly to allow awards greater than the actual loss suffered. Further, the jury’s role of factfinder under the Seventh Amendment precluded the district court from overriding a verdict that fell within the statute. Finally, the Court noted that the jury instructions were a safeguard against punishing defendants without any regard for actual damages because the instructions protected against a windfall for the plaintiff. In this case, the jury had facts regarding the marks’ strength, potential dangers of the counterfeit papers’ chemicals, and the prevalence of counterfeiting in the industry. Thus, the Court found that the jury had substantial evidence for the award – which was below the statutory maximum – and that it was not a windfall for Republic.
Similarly, the Eleventh Circuit reasoned that since the jury awarded damages below the statutory maximum for non-willful infringement, the award was not unduly punitive. Star did not object to the jury instructions at trial, and even if Star had objected, the instructions were consistent with law. Statutory damages under the Lanham Act can encompass both punishment for willfulness and deterrent value for any future conduct without requiring both.
Finally, constitutional due process only outlaws damages awards that are disproportionate to the underlying action such that they are severe and oppressive. The Eleventh Circuit explained that an award within a statutory range that accounts for both private injury and public policy considerations is not disproportionate.
Complaint Need Not Allege Fraud, Misrepresentation, Or Deceit To Be “Based Upon” A Corporation’s “Fraud, Misrepresentation or Deceit”
In 2002, the California Legislature created the Victims of Corporate Fraud Compensation Fund as part of the Corporate Disclosure Act. See Victims of Corporate Fraud Fund. There are a number of conditions that must be met to receive a payout from the fund. One of these conditions is that the victim secure “a final judgment in a court of competent jurisdiction against a corporation based upon the corporation’s fraud, misrepresentation, or deceit”. Cal. Corp. Code § 2282. In a recently published decision a California Court of Appeal decided that this condition was met even though the victims had not actually alleged “fraud, misrepresentation, or deceit”.
In Alves v. Weber, 2025 WL 1379121, the plaintiffs were defrauded by a corporation that promised, but failed to provide, long-term health care and estate planning services. The plaintiffs successfully obtained a judgment from the bankruptcy court that expressly adjudged plaintiffs to be “the victims of misrepresentation that satisfies all the essential elements of the California tort of intentional misrepresentation” and awarded specific monetary damages against the corporation”. The plaintiffs then sought recompense from the Fund, but the Secretary of State denied their claims, stating:
The Applications have been denied because the Default Judgment issued by the United States Bankruptcy Court for the Eastern District of California . . . does not appear to be a qualifying judgment for corporate fraud for purposes of the [Fund]. Further, none of the three claims for relief alleged in the Complaint to Determine Non-Dischargeability of Debt (11 USC 523 & 727), upon which the Default Judgment was based, are a ‘cause of action . . . for fraud . . . ’. See California Corporations Code sections 2281(g) and 2288(b)(2).
The Court of Appeal disagreed, holding that the plaintiffs had indeed obtained a final judgment based upon the corporation’s fraud even though they had not specifically alleged fraud. In this regard, the Court noted that “[a]lthough styled as a request to determine nondischargeability of debt, petitioners’ complaint also sought ‘a judgment determining that the . . . essential elements of the California tort of intentional misrepresentation have been satisfied’”.
ANOTHER SLICE OF THE PIE: Serial TCPA Plaintiff Goes After Pizza Hut
It seems Joseph Brennan is no stranger to the drive-thru – or the courtroom. See FROM CORN DOGS TO COURTROOMS: Sonic’s Texts Might Cost More Than a Combo Meal – TCPAWorld. This time, he’s served a steaming hot complaint against Pizza Hut.
Joseph Brennan v. Pizza Hut, Inc. was originally filed in the Western District of Louisiana. Following an unopposed motion to transfer by Pizza Hut, the case was moved to the Northern District of Texas on May 13, 2025.
In his Complaint, Brennan states that he never gave Pizza Hit his phone number, never opted in to any of their rewards programs, and never had a business relationship with Pizza Hut. Yet, Brennan alleges that he received three unsolicited text messages from Pizza Hut on August 30, 2024, September 5, 2024, and September 27, 2024, despite placing his number on the National Do Not Call Registry.
Brennan also purports to represent the following class:
All persons throughout the United States (1) to whom Pizza Hut delivered, or directed to be delivered, more than one text message within a 12 month period for purposes of solicitating the sale of a Pizza Hut product, (3) where the person’s telephone number had been registered with the National Do Not Call Registry for at least thirty (30) days before Pizza Hut delivered or directed to be delivered at least two of the text messages within the 12 month period, (3) from four-years prior to the filing of the initial complaint in this action through the date notice is disseminated to a certified class, and (4) for whom Defendant claims it obtained prior express invitation or permission in the same manner as Defendant claims it obtained prior express invitation or permission from Plaintiff.
As the case heats up in Texas, we’ll be keeping a close eye on whether Brennan’s claims rise to the occasion.
PA Legislature to Consider Opening Two Year Window for Time Barred Sexual Abuse Claims
On May 6, 2025, the Pennsylvania House of Representatives’ Judiciary Committee announced its approval of two separate bills that would open a two-year window for victims of sexual abuse to file civil lawsuits for claims that are currently precluded by the statute of limitations or sovereign immunity. Both bills will now advance to the full Pennsylvania House of Representatives for further consideration.
In 2019, Pennsylvania passed legislation that extended the civil statute of limitations for childhood sexual abuse cases, giving victims until they turn 55 years old to file claims. However, the 2019 law does not apply retroactively, leaving some victims without recourse because their claims were already barred by the statute of limitations. The new bills aim to close that gap once and for all by allowing all victims of sexual abuse to file claims during a two-year window.
The two bills are House Bill 462 and House Bill 464:
House Bill 462: This bill provides a statutory two-year window during which survivors of childhood sexual abuse could file previously time-barred civil claims. It would also waive sovereign immunity retroactively under certain circumstances, allowing survivors to file claims against state and local agencies.
House Bill 464: This bill calls for an amendment to the Pennsylvania Constitution establishing a two-year window for survivors to bring forward civil claims that were previously blocked due to expired statutes of limitations. The amendment also waives sovereign immunity retroactively under certain circumstances.
The Judiciary Committee’s approval of the two bills followed a hearing where advocates and legal experts offered testimony in support of the legislation. Despite bipartisan support for these proposals over the last several years, previous efforts to pass such legislation have failed for various reasons.
When announcing the approval of the bills, Tim Briggs, Pennsylvania State Representative and Chair of the House Judiciary Committee, said “These bills are about fairness, healing and restoring the rights of people who were silenced for far too long.” “We owe survivors the chance to be heard in a court of law, no matter how much time has passed.” “The Judiciary Committee’s action is a powerful statement that justice delayed does not have to mean justice denied.” “We are finally moving toward a day when all survivors have the chance to seek accountability and healing.”
A similar law was passed in New York in 2019, after which we saw an explosion of sexual abuse cases filed in that jurisdiction. If either of the new Pennsylvania bills become law in the coming months, we expect that an enormous amount of sexual abuse lawsuits will be filed within that two-year window. It is important to start preparing now for the rush of claims that we anticipate will be filed once this legislation is passed.
Massachusetts Court Grants Motion to Dismiss “Spy Pixel” Privacy Class Action for Lack of Standing
On January 31, 2025, in Campos v. TJX Companies, Inc., No. 24-cv-11067, the District of Massachusetts granted a motion to dismiss a class action due to the plaintiff’s lack of standing. The court concluded that the named plaintiff’s claims regarding the intrusion of her privacy by “spy pixels” could not be successful because there was no injury in fact.
TJX Pixel Software and Campos’ Privacy Claims
Arlette Campos filed a putative class action against defendant TJX Companies (“TJX”) alleging that it intruded upon her privacy through promotional emails it sent to her.
Campos claimed that TJX had embedded pixel software in its promotional emails, which collect information about the email recipient, including when the email is opened and read, the recipient’s location, how long the recipient spends reading the email, and the email server the recipient uses.
Although Campos had provided TJX with her email and subscribed to their email list, she claimed that TJX collected her private information without her consent.
TJX Challenges Whether Campos Met Article III Standing Requirements
TJX filed a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, claiming that Campos lacked standing.
Article III of the Constitution requires that litigants have standing to sue. Whether a litigant has standing to sue is an inquiry of three elements: injury in fact, traceability, and redressability.
TJX challenged Campos’ standing on the basis that she did not suffer an injury in fact.
To sufficiently plead an injury in fact, a plaintiff must allege a concrete harm. Quoting from TransUnion LLC v. Ramirez, the court highlighted that “traditional tangible harms, such as physical and monetary harms, are obvious[ly] concrete.” However, based on the holding in TransUnion, the court made clear that “[i]ntangible harms can also be concrete . . . such as reputational harms, disclosure of private information, and intrusion upon seclusion.”
Thus, even though Campos did not have a traditional, tangible harm, this did not necessarily preclude a finding of concrete harm.
Court Rejects Campos’ Intrusion Upon Seclusion Claim for Her Injury
Campos pointed to the tort of intrusion upon seclusion to argue that she was injured. The Restatement Second of Torts defines intrusion upon seclusion as the intentional intrusion “upon the solitude or seclusion of another or his private affairs or concerns.”
For this claim to be actionable, the intrusion must be “highly offensive to a reasonable person,” and the matter intruded upon must be deeply private, personal, and confidential.
Based on this, the court rejected the argument that the emails would fall within the ambit of deeply personal and private information contemplated by the tort because Campos provided her email address to TJX (which the court observed as “certainly not private”), she had consented to receive promotional emails, there was “nothing particularly private about the email’s subject or other content,” and TJX authored the contents of the emails, meaning they would have been known “with or without the pixels.”
Additionally, although the court noted that opening private mail is an example of an intrusion mentioned in the Restatement, because TJX did not peer into Campos’ inbox beyond the emails it authored, there was no intrusion here.
Even for other sensitive information that the pixels collected, such as whether, when, where, and for how long Campos read the emails, the court rejected Campos’ argument that this was private and personal information meant to be protected by the tort. The court found no precedent that “reading habits” for content authored by the defendant are “the type of private, personal information that the tort was aimed at protecting under the common law.”
The court was troubled by allegations that the pixel software tracked whether the email was forwarded, which it deemed “closest to tracking ‘unrelated personal messages,’” but faulted the absence of any allegation that “pixels could track to whom the email was forwarded or the content of that forwarded message.”
Therefore, the court held that Campos failed to adequately plead this claim, and thus, failed to establish that she was injured.
Court Rejects Campos’ Analogy to Other Privacy Harms for Her Injury
Campos also argued that use of pixel technology is similar to cases arising under the Telephone Consumer Protection Act (“TCPA”), which prohibits unsolicited marketing calls and faxes, and the Video Privacy Protection Act (“VPPA”), which prohibits the sharing of video rental records. The court, however, rejected these analogies.
In TCPA cases, standing has been found where recipients did not consent to being contacted. In this case, Campos willingly subscribed to receive emails from TJX, opened and read them, and took no steps to unsubscribe. Based on this, the court held that the TCPA was inapplicable, and Campos could not meet the standing requirement by relying upon it.
Similarly, the VPPA solely contemplates the disclosure of video rental and sale records, and because Campos did not allege any such disclosure, the court held that no harm occurred that could justify applying the VPPA and it thereby could not confer standing, either.
Based on Campos’ inability to establish standing, the court granted the motion to dismiss.
Fast Forward: Article III Standing and Class Certification
In this latest class action, the named plaintiff was unable to meet Article III’s standing requirement. However, even if Campos had, she would have had to overcome another hurdle: establishing whether the vast majority of absent class members also had standing.
The Supreme Court’s holding in TransUnion stands for the proposition that every member of a class, including absent members, must establish a concrete injury under Article III to be awarded individual damages. The Supreme Court did not, however, address the issue of class certification where the class contains absent members who lack Article III standing.
The Supreme Court is poised to answer this question in Laboratory Corporation of America Holdings v. Davis, which it granted certiorari for in January 2025. Courts that have answered this question have done so differently, leading to a three-way split between circuits.
The D.C. Circuit and First Circuit permit certification of a class only if the number of uninjured members is de minimis. The Ninth Circuit permits certification even if the class includes more than a de minimis number of uninjured class members. The Eighth and Second Circuits have taken the strictest approach, rejecting certification if any members are uninjured.
Given that venue may be outcome determinative in this regard, until the Supreme Court addresses this question, defendants should scrutinize potential standing deficiencies for both class representatives and absent class members as well. The Supreme Court heard argument in Lab Corp on April 29, 2025, and should soon issue a decision that may provide important clarity to class action litigants on this question of standing.
National Science Foundation (NSF) Imposes 15% Indirect Cost Rate Cap: What to Know
On May 2, 2025, the National Science Foundation (“NSF”) issued a “Policy Notice: Implementation of Standard 15% Indirect Cost Rate” (NSF 25-034) (hereinafter “Policy Notice”) adopting a uniform 15% Indirect Cost Rate (“IDC”) for all new NSF grants and cooperative agreements awarded to Institutions of Higher Education (“IHEs”).
The Policy Notice, which became effective May 5, 2025, sets forth a new policy by which NSF will now apply a single, standard IDC “not to exceed 15%” to all future grants and cooperative agreements awarded to IHEs for allowable indirect costs. Currently, IHEs have reported IDCs ranging from 50% to 65%. The Policy Notice allows the awardee organization to “determine the appropriate rate up to this [15%] limit.”
Rationale for the New Policy
Indirect costs, also referred to as “facilities” and “administrative” costs (“F&A”), encompass costs not directly assignable to a specific project or activity but necessary to support the overall research infrastructure of the recipient organization. Historically, awardees seeking to recover indirect costs related to NSF awards have negotiated IDCs on an institution-by-institution basis. These rates were included in Negotiated Indirect Cost Rate Agreements (“NICRAs”), binding upon the institution and the agency, and applied against the Modified Total Direct Costs (“MTDC”) for the project. In contrast to the new uniform 15% rate, NICRAs represent a formally negotiated rate based on an exchange of information with NSF concerning the institution’s general costs and expenditures, including historical cost information, and regularly updated by the institution, often annually.
The Policy Notice asserts that the shift to using a single 15% IDC rate supports NSF’s commitment to efficiency, consistency, and effectiveness, and is designed to enable awardees to “focus more on scientific progress and less on administrative overhead by aligning with common federal benchmarks.” The Policy Notice also emphasizes that the adoption of a single, standard IDC “improves government efficiency by eliminating the need for individualized indirect cost negotiations.”
Regulatory Framework
As a reminder, the National Institutes of Health (“NIH”) issued a similar policy to cap indirect costs for NIH awardees at 15% on February 7, 2025 (“NIH Notice”), which has been permanently stayed per court order in the wake of three consolidated lawsuits challenging the act, though subject to a pending appeal. Shortly after, on April 11, 2025, the Department of Energy (“DOE”) announced an almost identical rate cap of 15% on recovery of indirect rate costs by IHEs awardees, discontinuing the use of negotiated indirect cost rates for DOE grants (“DOE Notice”). The DOE Notice was promptly challenged in federal court and temporarily restrained nationally by a federal judge. Notably and likely in response to the legal challenges to the prior rate capping notices, the NSF Policy Notice includes language supporting NSF’s legal authority for implementing this almost-immediate change.
First, the Policy Notice provides that it “serves as public notification of the policies, procedures and general decision-making criteria that NSF has used to justify deviation from negotiated rates for all awards in accordance with 2 CFR 200.414(c) for the class of NSF financial assistance awarded to IHEs.” Notably, § 200.414(c)(1) requires that all federal agencies accept negotiated indirect cost rates, and that an agency “may use a rate different from the negotiated rate for either a class of Federal awards or a single Federal award only when required by Federal statute or regulation, or when approved by the awarding Federal agency in accordance with paragraph (c)(3).” In turn, § 200.414(c)(3) – the analogue to 45 C.F.R. § 75.414(c)(1) in the Department of Health and Human Services regulations – requires that the agency “must implement, and make publicly available, the policies, procedures and general decision-making criteria that their programs will follow to seek and justify deviations from negotiated rates.”
The referenced regulations mirror the regulatory framework relied upon by NIH in the NIH Notice. However, where the NIH Notice was silent as to how it made its decision-making criteria public, including prior to issuance, the NSF Policy Notice leaves no room for doubt given its express statement incorporating the regulatory language, indicating the Notice serves as the required public notification of NSF’s policies, procedures, and criteria justifying deviation from negotiated rates.
Second, the Policy Notice makes clear that it takes “precedence over inconsistent policies and procedures set forth in the NSF Proposal & Award Policies & Procedures Guide [(“PAPPG”)] for all financial assistance issued after the effective date,” thus attempting to preempt legal challenges relying on the negotiated rate procedures set forth in the PAPPG.
Impact on Current and Pending NSF Grants
The Policy Notice explicitly states the new 15% rate will not apply retroactively to awards issued prior to the effective date. Further, award supplements and continuing grant increments made or awarded under an original grant in existence on or before the May 5, 2025, effective date are not subject to the new policy. Similarly, IHEs are not required to revise budgets for awards issued before May 5, 2025, or repay reimbursed indirect costs.
However, NSF awardees should still be aware of other avenues through which the federal government may alter, and even reduce, their IDCs on existing grants. Specifically, as set forth on NSF’s website, the United States Office of Management and Budget (“OMB”) has authorized all federal agencies to, at their discretion, renegotiate existing NICRAs (i.e., issue amended agreements presumably with new rates), “to reflect the new MTDC base.” NSF has publicly announced it will consider modification requests on a case-by-case basis.
Note that on its face, the new NSF IDC rate does not apply to non-IHEs but given the widespread partnership between institutes of higher education and academic medical centers/research institutions, there may be broad downstream impacts on planned research partnerships across the academic research community.
Recent Legal Challenges to the NSF Policy Notice
On May 6, 2025, the NSF Policy Notice was challenged in a lawsuit filed by the Association of American Universities (“AAU”) along with American Council on Education (“ACE”), Association of Public and Land-Grant Universities (“APLU”), Brown University, California Institute of Technology, University of California, Carnegie Mellon University, University of Chicago, University of Illinois, Massachusetts Institute of Technology, University of Michigan, University of Minnesota, University of Pennsylvania, Princeton University, AAU, et. al. v. National Science Foundation, Case #1:25-cv-11231, alleging NSF’s 15% rate cap on IDCs is unlawful because the change, among other things, violated NSF’s governing statutes, Office of Management and Budget (“OMB”) regulations, and, notably, the Administrative Procedure Act (“APA”), which has served as the basis for several pending lawsuits challenging unilateral IDC rate cuts and other administrative actions taken by NIH under the new federal administration. Specifically, the complaint alleges (1) the indirect rate change is arbitrary and capricious, (2) the rate change violates NSF’s authorizing statutes by supplanting the individually negotiated rates with a one-size-fits-all cap, and (3) NSF failed to comply with applicable OMB regulations for recovery of indirect cost rates. Plaintiffs filed a combined motion for preliminary injunction and request for expedited summary judgment based on their view that the matter can be decided on an expedited basis on the existing record. Plaintiffs have asked the court to declare the Rate Cap Policy illegal and to enter a preliminary and permanent injunction against NSF, prohibiting NSF and anyone acting on NSF’s behalf from applying the 15% rate cap in any form or otherwise modifying the existing negotiated indirect costs rates except as permitted by statute and regulation.
EBG will continue to follow developments in NSF’s IDC policy, including any updates to NSF’s grant policy documents, FAQs, or other guidance.
April 2025 Bounty Hunter Plaintiff Claims
California’s Proposition 65 (“Prop. 65”), the Safe Drinking Water and Toxic Enforcement Act of 1986, requires, among other things, sellers of products to provide a “clear and reasonable warning” if use of the product results in a knowing and intentional exposure to one of more than 900 different chemicals “known to the State of California” to cause cancer or reproductive toxicity, which are included on The Proposition 65 List. For additional background information, see the Special Focus article, California’s Proposition 65: A Regulatory Conundrum.
Because Prop. 65 permits enforcement of the law by private individuals (the so-called bounty hunter provision), this section of the statute has long been a source of significant claims and litigation in California. It has also gone a long way in helping to create a plaintiff’s bar that specializes in such lawsuits. This is because the statute allows recovery of attorney’s fees, in addition to the imposition of civil penalties as high as $2,500 per day per violation. Thus, the costs of litigation and settlement can be substantial.
The purpose of Keller and Heckman’s Prop 65 Pulse is to provide our readers with an idea of the ongoing trends in bounty hunter activity.
Practice Statement: Restructuring Plans and Schemes – What Does this Mean for the Future? (UK)
We have seen an increasing number of contested restructuring plans (RPs) over the last quarter. With a notable shift of RPs into the litigation arena, and some gentle push back from the judiciary about timetabling and use of court time the judiciary has published a draft practice statement for consultation outlining new case management requirements for those proposing a plan.
Replies to the consultation must be submitted by 13 June, and although there is no official date for publication of the finalised statement, this is expected to be sometime in July.
The practice statement requires the parties to identify areas of contention and opposition early, seemingly seeking to streamline and reduce the number of issues that the court is required to deal with at sanction. In doing that there is a significant shift in process – requiring the plan company to issue a claim form before the court hearing is arranged and requiring the explanatory statement and all appendices to be prepared before the convening hearing.
The statement follows the direction of travel we have seen in recent cases, where the court has introduced case management processes – Madagascar Oil is a recent example where the court ordered a case management conference.
The statement is relevant not only to those proposing a plan, but also those who wish to object – requiring issues to be resolved in an efficient and orderly manner. Last minute opposition is unlikely to find much favour with the court moving forward.
Ultimately what the statement hopes to achieve is a more orderly approach to proceedings, but front loading much of the work comes with its own challenges – timing and costs being two.
Although this statement if not the final version, it is unlikely to change significantly between now and final publication, and in line with the approach we have seen the courts take recently it would be remiss not to apply the principles outlined in the statement now.
More Good News for Housing Production: Mass. Appeals Court Rules Legislative Permit Extensions Stack on Top of Equitable Tolling
Last week, in an important decision for land-use and development lawyers, the Massachusetts Appeals Court ruled in Palmer Renewable Energy, LLC v. Zoning Bd. of Appeals of Springfield that permit extensions granted by the Legislature “stack” on top of equitable tolling triggered by the appeals process. The Land Court had found that permit extensions under the Great Recession-era “permit extension act,” St. 2010, c. 240, § 173, ran concurrently with the tolling period arising from litigation. The Appeals Court reversed, concluding that the four-year extension of building permits issued to Palmer Renewable Energy, LLC for its biomass-fired power plant began to run after the term of the permit as extended by “litigation tolling.” The Appeals Court also ruled that the litigation tolling started when the City Council appealed to the zoning board of appeals (ZBA) from the building commissioner’s decision to issue the permits.
The case turned on the meaning of statutory language extending the tolling period by four years “in addition to the lawful term of the approval,” and whether those four years ran concurrently with litigation tolling. Because the Legislature is presumed to be “aware of the statutory and common law that governed the matter in which it legislates,” the Appeals Court presumed the Legislature was aware that building permits may be extended by litigation tolling. The Appeals Court found that the language of the statute was unambiguous and that “lawful term” plainly included a term of approval that had been extended by litigation tolling, so the four-year extension was “in addition” to the lawful term.
The Appeals Court also took a close look at when the litigation tolling began, and found it began once the City appealed the building permits to the ZBA, rather than when the ZBA revoked the permits. Because “an appeal from the grant of a permit has been recognized as a real practical impediment” to the use of the permit, and “practical consideration[ ]s militating against a course of action under attack” underpin the purpose of litigation tolling, the Appeals Court found that the appeal at the local level was a sufficient “impediment” to the exercise of the building permits.
Finally, the Appeals Court rejected the City’s argument that M.G.L. c. 40A, § 6, which requires construction under a building permit to begin within one year of issuance, applied to invalidate the subject building permits after one year, thus requiring the project to comply with a 2013 zoning amendment mandating a special permit for the project. It also rejected the City’s argument that the state Building Code requires commencement of construction within 180 days. Both the Building Code and M.G.L. c. 40A were expressly overridden by the language of the permit extension act, which applied “[n]otwithstanding any general or special law to the contrary.”
The Appeals Court remanded the case to the Land Court for entry of a judgment instructing the ZBA to reinstate the building permits.
This decision provides important clarity as developers seek to exercise permits that have been extended due to the COVID-19 permit extension act, St. 2020, c. 53, § 17(b) (iii), and the Mass Leads Act, St. 2024, c. 238, § 280 (b)(1). Like the 2010 act, the Mass Leads Act also extends permits for two years, “in addition to the lawful term of the approval.” The decision also pours much-needed cold water on would-be appellants who seek to stop projects by delaying them through litigation.