Project Opponents of Empire Wind Strike Back
As recently reported, on May 19, 2025, the U.S. Department of the Interior reversed the stop work order it issued on April 16, 2025, thereby allowing the $5 billion, 2 GW, Empire Wind project to proceed. On June 3, 2025, a coalition of Empire Wind opponents sued the Trump administration in federal court in New Jersey, claiming the reversal of the stop work order was unjustified. The plaintiffs assert that the bases for the original stop work order were clearly articulated in the administration’s January 20, 2025, executive order, which halted all offshore wind development pending an investigation and review of all related federal permits by the Secretary of the Interior. The plaintiffs claim that the May 19 reinstatement order, allowing Empire Wind to proceed, was issued without explanation or factual basis, in contravention of the Administrative Procedures Act (APA). Specifically, they allege that the reinstatement order makes no reference to the results of the “investigation” required by the original stop work order.
In light of the administration’s sudden reversal of a stated policy position, it comes as no surprise that proponents of the original policy are aggrieved. When the reversal comes with no justification or reasoned basis, as plaintiffs allege, the court will need to decide whether it runs afoul of procedures mandated by the APA.
No Fair Use Defense Results in Default Judgment
The US Court of Appeals for the Second Circuit reversed a district court’s dismissal of a copyright infringement claim alleging copying of a photograph, finding that the defendant’s use of the photograph did not constitute fair use and that the district court erred in its substantive fair use analysis. Jana Romanova v. Amilus Inc., Case No. 23-828 (2d Cir. May 23, 2025) (Jacobs, Leval, Sullivan, JJ.) (Sullivan, J., concurring).
Jana Romanova, a professional photographer, sued Amilus for willful copyright infringement, alleging that the company unlawfully published her photograph, originally licensed to National Geographic, without authorization on its subscription-based website. Amilus failed to appear or respond in the district court proceedings, and Romanova sought entry of default judgment.
Instead of granting the motion, the district court sua sponte raised the affirmative defense of fair use. After considering Romanova’s show cause order response, the district court dismissed the complaint with prejudice, finding that the fair use defense was “clearly established on the face of the complaint.” Romanova appealed on substantive and procedural grounds.
Romanova argued that the district court erred in finding a basis for the fair use defense within the four corners of the complaint and erred by sua sponte raising a substantive, non-jurisdictional affirmative defense on behalf of a defendant that failed to appear or respond.
Citing the Supreme Court decisions in Campbell v. Acuff-Rose Music (1994) and Warhol v. Goldsmith (2023), the Second Circuit reversed. The Court explained that “the district court’s analysis depended on a misunderstanding of the fair use doctrine and of how the facts of the case relate to the doctrine. We see no basis in the facts alleged in the complaint for a finding of fair use.”
The Second Circuit explained that the district court misapplied the first fair use factor (“the purpose and character of the use”). The Court noted that a transformative use must do more than merely assert a different message; it must communicate a new meaning or purpose through the act of copying itself. Here, Amilus’ use of Romanova’s photograph did not alter or comment on the original work but merely republished it in a commercial context.
The Second Circuit also found no basis for the district court’s finding of justification for the copying, a factor that typically depends on the nature of the message communicated through the copying, such as parody or satire, and was mandated by the Supreme Court in Warhol. The Court rejected the notion that Amilus’ editorial framing – claiming to highlight a trend in pet photography – could justify the unauthorized use.
On the procedural issue, the majority noted that an “overly rigid refusal to consider an affirmative defense sua sponte can make a lawsuit an instrument of abuse. A defendant’s default does not necessarily mean that the defendant has insouciantly snubbed the legal process.” In this case, the Second Circuit explained that it “cannot fault the district court for considering a defense which it believed (albeit mistakenly) was valid and important. While district courts should indeed be cautious before sua sponte invoking affirmative defenses on behalf of defaulting defendants, they should also be cautious about not considering such defenses.”
In his concurrence, Judge Sullivan disagreed on the procedural issue. He took the position that the district court’s sua sponte invocation of an unasserted affirmative defense was itself reversible error. Since fair use is an affirmative defense, Judge Sullivan noted that the party asserting the defense bears the burden of proof. He warned that judicial overreach via sua sponte assertions could undermine the adversarial process, particularly in default settings.
Practice Note: The ruling underscores the Second Circuit’s continued alignment with the Supreme Court’s narrowing of the fair use doctrine in Andy Warhol Foundation v. Goldsmith, particularly with respect to commercial uses that do not involve commentary, criticism, or other transformative purposes. The Court’s opinion includes a comprehensive survey of fair use jurisprudence, making it a valuable reference for copyright practitioners.
X-Ray Vision: Court Sees Through Implicit Claim Construction
The US Court of Appeals for the Federal Circuit reversed the Patent Trial & Appeal Board’s final determination that challenged patent claims were not unpatentable, finding that the Board’s decision relied on an erroneous implicit claim construction. Sigray, Inc. v. Carl Zeiss X-Ray Microscopy, Inc., Case No. 23-2211 (Fed. Cir. May 23, 2025) (Dyk, Prost, JJ.; Goldberg, Chief Distr. J., sitting by designation).
Zeiss owns a patent related to X-ray imaging systems that incorporate projection magnification. Sigray filed a petition requesting inter partes review (IPR) of all claims in the patent. After institution, the Board issued its final written decision, which declined to hold any of the challenged claims unpatentable. Sigray appealed.
On appeal, Sigray argued that the claims were unpatentable based on a single prior art reference, Jorgensen. The Jorgensen reference “describes a system that uses an X-ray source to generate an X-ray beam, which then passes through a sample before being received by a detector.” Sigray argued that Jorgensen anticipated or rendered the challenged claims obvious. The parties agreed that Jorgensen explicitly disclosed all the limitations of the independent claim except for one reading “a magnification of the projection X ray stage . . . between 1 and 10 times.”
The parties’ arguments centered on whether the magnification limitation was inherently disclosed in Jorgensen. The Board concluded that “viewing the record as a whole, . . . [Sigray] has not shown persuasively that Jorgensen inherently discloses projection magnification within the claimed range. Sigray argued, and the Federal Circuit agreed, that the Board’s findings incorrectly relied on a flawed understanding of the claimed range. In Sigray’s view, “the Board implicitly and incorrectly construed the limitation ‘between 1 and 10’ to exclude unspecified, small divergence resulting in projection magnifications only slightly greater than 1.” This was illustrated by the Board’s determination that Sigray “failed to show that the . . . X-ray beam in Jorgensen diverges enough to result in projection magnification between 1 and 10 times.”
The Federal Circuit found that the Board’s use of the term “enough” indicated that the evidence it relied on supported a finding of some divergence in the X-ray beams. Because the beams were not completely parallel, the Court reasoned that some magnification necessarily resulted, and that even a miniscule amount (as disclosed in the prior art) fell within the claimed magnification range of 1 to 10. Since the Board made only one evidence-supported finding relevant to anticipation, the Court reversed on the independent claim and two dependent claims without remand. However, the Court remanded the case to the Board to determine whether the three remaining challenged claims, which recited further material limitations, would have been obvious.
Will the California Supreme Court Put the Heads Back on Headless PAGA Suits?
Since our last coverage of “headless PAGA lawsuits”—i.e., lawsuits in which a plaintiff disavows his individual PAGA claim and opts to pursue the claim only on behalf of others—significant developments have further complicated the Private Attorneys General Act (“PAGA”) landscape. In Leeper v. Shipt, Inc., 107 Cal.App.5th 1001 (2024), the California Court of Appeal (Second District) rejected the so-called “headless” PAGA theory and held that every PAGA action must include both an individual and a non-individual claim even if the plaintiff disavows their own claim, thereby preventing plaintiffs from using this strategy to avoid arbitration. A conflicting decision was issued by another appellate court (the Fourth District) in Rodriguez v. Packers Sanitation Servs. LTD., LLC, 109 Cal.App.5th 69 (2025), reh’g denied (Mar. 19, 2025). This disagreement between the two appellate decisions has led to considerable uncertainty for litigants facing pre-June 2024 PAGA lawsuits, with the California Supreme Court now stepping in to provide much needed guidance.
The Heart of the Dispute: PAGA “Individual” vs. “Non-Individual” Claims
The fundamental issue that the California Supreme Court will address in Leeper is whether a court can compel arbitration of individual PAGA claims (based on the pre-June 2024 version of the PAGA statute) when a plaintiff claims to assert only “non-individual” (i.e., representative-only) claims. Central to this question is whether Leeper or Rodriquez is controlling.
In Leeper v. Shipt, Inc., the appellate court held that every PAGA action necessarily includes both individual and non-individual components, with the individual component being arbitrable. The court in Leeper premised its decision on a plain reading of the PAGA statute, which expressly requires a plaintiff to bring their PAGA action “on behalf of himself or herself and other current or former employees.”[1] Once the individual claim is compelled to arbitration, per Leeper,the representative component is stayed pending the outcome of arbitration.
In Rodriguez v. Packers Sanitation Services LTD. LLC, the court conducted a very limited analysis of the issue. Rodriguez held that courts must look to the face of the complaint and if the lawsuit lacks individual PAGA allegations, the court is unable to order arbitration of claims not pled. While the court explicitly declined to answer whether a plaintiff may bring a PAGA action with only “non-individual” PAGA claims, it did note that a pleading lacking individual PAGA claims may be defective and subject to a motion to strike—suggesting, as Leeper held, that in order to bring a lawsuit seeking PAGA penalties, the named plaintiff must pursue both individual and non-individual claims. Rodriguez appears to be suggesting that defendants faced with a headless PAGA suit file simultaneous motions to compel arbitration and to strike defective pleadings.
The Current State: Deep Division and California Supreme Court Review[2]
The conflicting conclusions in Leeper and Rodriguez have deeply divided both the employment bar and the California appellate courts. Reflecting the significance of this division, on April 16, 2025, the California Supreme Court took the unusual step of ordering review of Leeper on its own motion.[3] The California Supreme Court noted that while Leeper remains under review, it may be cited for its persuasive value and to establish the existence of a conflict in authority, thereby allowing trial courts to exercise discretion in choosing between conflicting decisions. Subsequently, on May 14, 2025, the California Supreme Court granted review of Rodriguez, with further action deferred pending consideration and disposition of the related issues in Leeper.[4] As a result, Rodriguez currently has no binding or precedential effect and, like Leeper, may be cited only for its persuasive value and to establish the existence of a conflict in authority.[5]
Several appeals involving the headless PAGA issue raised in Leeper and Rodriguez are pending throughout the state and awaiting final word from the California Supreme Court.
Key Takeaways
For now, neither Leeper nor Rodriguez is binding authority, but both may be used as persuasive precedent or to demonstrate there is a conflict between the appellate courts on this issue. Plaintiffs who filed their notice with the Labor & Workforce Development Agency (“LWDA”) before June 19, 2024, and are attempting to bring a “headless” PAGA action in order to avoid arbitration, may theoretically invite motions to compel arbitration, motions to strike defective pleadings, or both, depending on which authority they cite to—potentially increasing complexity and costs of litigation for employers.
The ultimate resolution will come from the California Supreme Court, which is set to clarify whether all PAGA actions must necessarily include an individual component subject to arbitration. It remains to be seen whether in ruling on Leeper and Rodriquez, the Supreme Court will limit its findings to PAGA lawsuits based on a pre-June 2024 LWDA notice, or issue a broader decision that also addresses the post-June 2024 PAGA reforms (as previously reported in this blog post).
Given the continued uncertainty around PAGA litigation and arbitration agreements, employers should regularly review their employment arbitration agreements as we wait for the California Supreme Court to provide guidance on this issue.
FOOTNOTES
[1] Cal. Lab. Code § 2699(a) (emphasis added).
[2] All actions taken by the California Supreme Court on Leeper (S289305) and Rodriguez (S290182) can be monitored via the California Supreme Court Search Engine.
[3] Leeper v. Shipt, 566 P.3d 234 (Cal., 2025).
[4] Rodriguez v. Packers Sanitation Servs. Ltd., No. S290182, 2025 WL 1404550 (Cal. May 14, 2025).
[5] See Cal. Rules of Court, rules 8.1105, 8.1115, and Comment on rule 8.1115(e)(3).
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This Week in 340B: May 27 – June 2, 2025
Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Other; Contract Pharmacy; HRSA Audit Process; GPO Prohibition
In a case against the Health Resources and Services Administration’s (HRSA) challenging its certification of a group of entities as 340B-eligible, the government filed a reply in support of its partial motion to dismiss.
In a case by a covered entity challenging the government’s decision to allow a manufacturer’s audit, the government filed a motion to dismiss.
In a case by a covered entity against the government, the court granted the covered entity motion for leave to file a response to the intervenors’ amicus brief.
A drug manufacturer filed a complaint challenging a Hawaii state law governing contract pharmacy arrangements.
In a case challenging HRSA’s policy limiting the circumstances in which covered entities can use their group purchasing arrangements to purchase non-340B drugs, the plaintiff filed a combined reply in support of its motion for summary judgment and opposition to defendant’s cross motion for summary judgment.
In three cases challenging state laws in Tennessee, South Dakota, and Nebraska governing contract pharmacy arrangements:
Tennessee: The defendant filed a response in opposition re motion for preliminary injunction.
South Dakota: The plaintiff filed a memorandum in opposition to defendant’s motion to dismiss.
Nebraska: The defendant filed a reply to plaintiff’s brief in opposition to defendant’s motion to dismiss.
What Every Multinational Company Should Know About … The Recent Court Decisions Striking Down the IEEPA Tariffs
This year, U.S. trade policy has undergone a dramatic shift, driven by a series of presidential proclamations that have raised tariff rates sharply. Some tariffs (such as the global and reciprocal tariffs, and the special tariffs relating to fentanyl and unauthorized immigration) have been issued under the International Emergency Economic Powers Act (IEEPA), and others have been issued using Section 232 (the sectoral tariffs on steel, aluminum, and passenger vehicles and light-duty trucks). Recently, the validity of the entire tariff structure has been thrown into doubt, when first the Court of International Trade and then a D.C. district court issued determinations finding that IEEPA could not be a basis either for longstanding broad-based tariffs or the imposition of tariffs as a means of creating negotiating leverage.
In light of this decision, we have received numerous requests for further information regarding the impact of these decisions. As an aid to the importing community, this article provides an overview of: (1) the current status of existing and proposed tariffs, in light of these two decisions; (2) the impact of these two determinations; and (3) coping mechanisms for importers to manage and mitigate exposure in the current environment.
The Current Tariff Landscape
To appreciate the impact of the recent court decisions, it is helpful to provide some context regarding the current structure of U.S. tariffs. The table below outlines the six main “buckets” of tariffs currently shaping the trade environment:
Bucket
Description
Current Status
1
Normal (Chapters 1–97): Standard duties (generally 0%–7%) under the HTS.
Permanent (0%–7%).
2
Global 10% Tariffs: Broad, across-the-board duties on all non-exempt goods. Issued under IEEPA.
Still in place; likely permanent.
3
Reciprocal 50% Tariffs: Suspended pending negotiations; could ultimately decline, but terms uncertain. Issued under IEEPA.
Paused for country-by-country negotiations.
4
China (up to 170%): Includes 25% Section 301 duties (7 years in place) plus additional levies on critical sectors. All tariffs other than the original Section 301 duties under IEEPA.
Permanent for Section 301; IEEPA tariffs still in place; global and reciprocal tariffs suspended for 90 days.
5
Sectoral 232 Tariffs (25%): Steel & aluminum (permanent); autos (suspended for USMCA-origin goods); future sectors under review. None are issued under IEEPA.
Potential expansion of steel and aluminum derivates; ongoing investigations for copper, lumber, semiconductors, civilian aircraft, pharmaceutical, and certain minerals.
6
Canada & Mexico Goods: Subject to global and reciprocal tariffs of 10% and 25%, as well as 25% tariffs relating to fentanyl and unauthorized immigration (all issued under IEEPA). All tariffs suspended for goods meeting updated Rules of Origin (75% North American content, 40% labor rule).
Remains suspended; subject to USMCA review.
Litigation Challenging the Use of IEEPA As Authority to Impose Tariffs
On May 28, 2025, the U.S. Court of International Trade (CIT) and the D.C. Circuit issued parallel rulings holding that IEEPA does not confer “unbounded” authority to impose tariffs; nor does it authorize the use of tariffs to create leverage in broader trade negotiations. As a result, several IEEPA-based measures were enjoined. A U.S. District Court judge issued a similar ruling the next day. The CIT directed that the tariffs be eliminated within ten days, prompting the Trump administration to file an immediate appeal and an emergency motion seeking a stay of the CIT directive, which the Court of Appeals for the Federal Circuit (CAFC) granted. The CAFC also established an aggressive briefing schedule, with the last brief due June 9, 2025. The Trump administration has indicated that it will take the issue to the Supreme Court if necessary (and we expect the same is true of the parties challenging the tariffs).
Tariffs Impacted by the CIT Decision
The CIT’s decision invalidated key tariffs imposed under IEEPA. Specifically, the ruling struck down:
The fentanyl-related tariffs targeting Canada and Mexico (25%) as well as China (20%).
The 10% global tariffs applied across a wide range of non-exempt imports.
The reciprocal tariffs of up to 50%, which have been suspended for China but remain in place for other trading partners.
Soon after the CIT’s decision, on May 29, 2025, the U.S. Court of Appeals for the Federal Circuit granted a temporary stay of the CIT ruling, leaving the IEEPA-based tariffs in place until the Federal Circuit hears arguments and rules on the merits.
Notably, not all Trump tariffs were affected. Section 301 tariffs on China and Section 232 tariffs on autos/auto parts and on steel and aluminum remain intact, as they are grounded in separate statutory authorities.
The Likely Future of Tariffs
Rather than await final judicial outcomes, the administration has pursued or indicated that it will pursue multiple “Plan B” approaches including aggressively seeking stays of CIT rulings and expediting appeals through the Federal Circuit. These include the following:
The CIT decision has been appealed to the Court of Appeals for the Federal Circuit, which, as noted above, issued May 29 a temporary stay of that decision pending further proceedings. As a result, the IEEPA-based tariffs remain in effect for now. This includes the reciprocal tariffs, which are currently set at 10% but could rise to as much as 50% by July 9, along with the fentanyl-related tariffs, which range from 10% to 25%, depending on the product and its country of origin. We expect that the administration will continue appealing the decision, potentially all the way up to the Supreme Court.
The CIT noted that there is a provision within the IEEPA that is intended to deal with trade imbalances, which authorizes short-term (150-day) special tariffs. The administration could trigger this authority to buy it time to take action under other trade statutes, which generally require the administration proceed through a series of steps (notice and comment, etc.) before imposing tariffs.
The administration can launch new 270‐day investigations under Section 301, which is a statutory authority that the first Trump administration used to impose the Section 301 China tariffs. This use of the statute was upheld by the CIT (and currently is on appeal at the CAFC).
The administration could expand its use of Section 232 tariffs beyond steel, aluminum, and automobiles to include additional products. The administration already has launched Section 232 investigations relating to critical minerals, semiconductors, pharmaceuticals, civilian aircraft, and pharmaceuticals. The use of Section 232 to impose steel and aluminum tariffs already was upheld by the CIT and the CAFC in the first Trump administration.
The administration can continue engaging trading partners directly to secure country-specific agreements. With the tariffs still in place, and the outcome of the IEEPA litigation uncertain, trading partners have considerable incentive to strike deals with the Trump trade team, especially since there are alternatives ways to support the tariffs.
The administration could push for Congress to endorse higher tariffs. We view this option as unlikely, given opposition in Congress to the increased tariffs.
Key Takeaways: Coping Strategies in the Current Environment
Even as some levies are struck down, others — backed by statute and negotiation progress — remain firmly in place or are likely to be renewed. At this point, we envision that all tariffs, regardless of the governing authority, will remain in place for the foreseeable future (i.e., at least 90 days). For more information on where we predict the likely landing spot on the Trump tariffs will be, see our article, “What Every Multinational Company Should Know About … The Likely Landing Spot for the Trump Tariffs.”
Moreover, to thrive in this uncertain environment, companies must embed robust customs-compliance practices, actively audit supply chains, and maintain rapid-response capabilities for CBP and USTR proceedings. As tariff regimes continue to evolve through litigation, negotiation, and statute, organizations that invest in proactive import governance will be best positioned to mitigate costs, avoid enforcement penalties, and preserve their competitive edge in global markets. For detailed advice on coping strategies, please see the latest update of “evergreen” our article, “What Every Multinational Company Should Know About … The Current Trump Tariff Proposals (June 2025 Update)”, and our white paper on Managing Tariff Risks During a Trade War.
New York Court of Appeals Reaffirms the Internal Affairs Doctrine for Foreign Corporations
In Ezrasons, Inc. v. Rudd, 2025 NY Slip Op. 03008, 2025 N.Y. LEXIS 717 (N.Y. May 20, 2025), the New York Court of Appeals reaffirmed the fundamental and controlling nature of the internal affairs doctrine as it relates to the choice of law regarding corporate governance disputes. Specifically, the Court held that in enacting Sections 626(a) and 1319(a)(2) of New York’s Business Corporation Law (“BCL”), the New York legislature did not clearly manifest an intent to displace the long-settled doctrine as it applies to shareholder derivative standing with respect to corporations formed under the laws of another jurisdiction. This decision provides further assurance to foreign corporations that New York courts will enforce the substantive law of the place of incorporation for litigation involving the corporation’s internal affairs.
Plaintiff Ezrasons, Inc., a purported beneficial owner of shares in Barclays PLC (“Barclays”), a bank holding company incorporated under the laws of England and Wales and headquartered in London, commenced a shareholder derivative action on behalf of Barclays. Plaintiff alleged that current and former Barclays directors and officers, aided and abetted by New York-based affiliate, Barclays Capital Inc. (“BCI”), breached their fiduciary duties owed to Barclays under English law. BCI and certain individual defendants moved to dismiss, arguing that under English law plaintiff lacked standing to maintain the action as it was not a registered member of Barclays. Under English law, only members registered as shareholders on the company’s books may commence litigation, not mere beneficial owners. In response, plaintiff argued that sections 626(a) and 1319(a)(2) of New York’s BCL granted it standing to bring the case under New York law irrespective of English law. Both the New York Supreme Court for the County of New York and the Appellate Division, First Judicial Department decided in favor of defendants, holding that sections 626(a) and 1319(a)(2) neither displaced the internal affairs doctrine nor precluded the application of English standing law against plaintiff. See Ezrazons, Inc. v. Rudd, 217 A.D.3d 406 (1st Dep’t 2023).
The Court of Appeals affirmed. The Court, citing its recent holding in Eccles v. Shamrock Capital Advisors, LLC, 42 N.Y.3d 321 (2024), reaffirmed that the internal affairs doctrine acts as a choice-of-law rule mandating that “with rare exception, the substantive law of the place of incorporation applies to disputes involving the internal affairs of a corporation.” In examining the long history of the internal affairs doctrine, the Court cited cases going as far back as 1866 to support a finding that the place of incorporation supplies the substantive law when it comes to examining the internal management of a foreign corporation. The Court in examining the internal affairs doctrine underscored its importance for both predictability in corporate affairs and deference to stakeholders’ jurisdictional expectations.
The Court, however, did acknowledge that because the internal affairs doctrine is a judicially created rule, it could be overridden by statute. For a statute to nullify a judicial rule, there must be clear and specific legislative intent and the language must be unambiguous. These requirements must be especially apparent when attempting to overrule a long-observed rule such as the internal affairs doctrine.
Neither sections of the BCL implicated in this case show clear legislative intent to overturn this doctrine. Section 626(a) states that “an action may be brought in the right of a domestic or foreign corporation to procure a judgment in its favor, by a holder of shares or of voting trust certificates of the corporation or of a beneficial interest in such shares or certificates.” The Court held that while this provides a legislative intent to establish a baseline New York standing rule, it does not indicate that section 626(a) serves as both a standing rule and a choice-of-law directive. Section 1319(a)(2) states that various sections within the BCL, including section 626(a) “to the extent provided therein, shall apply to a foreign corporation doing business in this state, its directors, officers and shareholders.” The Court likewise found no clear directive in section 1319(a)(2) that any section of the BCL would control where a conflict exists between New York law and foreign substantive law.
Writing in dissent, Chief Judge Wilson noted the fact that at the time sections 626(a) and 1391(a)(2) were drafted, a common law choice-of-law doctrine did not exist. At that time, the internal affairs doctrine was still regarded as a jurisdictional matter. Thus, the legislature would not have known to draft around the internal affairs doctrine at all, let alone in a specific and unambiguous way.
This decision from New York’s highest court provides even greater assurance to foreign corporations doing business in New York that the substantive law of their place of incorporation will control such key issues as shareholder plaintiff standing to pursue remedies against officers and directors purportedly on their behalf.
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Federal District Court Upholds Authority of HHS to Pre-Approve 340B Rebate Programs; HRSA Submits Proposed 340B Rebate Guidance
A federal judge in D.C. recently ruled in favor of the U.S. Health Resources and Services Administration (“HRSA”), an administrative agency under the U.S. Department of Health and Human Services (“HHS”), by finding that drug manufacturers must obtain pre-approval from HRSA before implementing rebate models under the 340B Program. Specifically, U.S. District Judge Friedrich (“Friedrich”) found that HHS and HRSA did not exceed their authority when they required Eli Lilly & Co., Bristol Myers Squibb Co., Sanofi-Aventis U.S. LLC, Novartis Pharmaceuticals Corp. (“Novartis”) and Kalderos Inc., a health care tech company (together, the “Companies”) to seek pre-approval of the rebate plans they offered.[i]
Cases Impacted by the Decision
The five separate lawsuits on which Friedrich ruled involve claims from the Companies that HHS illegally blocked their efforts to implement rebate models instead of offering up-front drug price discounts to 340B covered entities. Friedrich held that the 340B statute “contemplates that the Secretary may ‘have as a condition’ or ‘stipulate’ how any rebate or discount is accounted for in the price ultimately paid by [340B] covered entities. That plain text provides authorization for [HRSA] to regulate the implementation of price reductions.” Friedrich further found that HHS and HRSA did not act arbitrarily and capriciously by requiring the Companies to get their rebate plans pre-approved before implementing them.
Origin of the 340B Rebate Disputes
Last year, Johnson & Johnson Health Care Systems Inc. (“J&J”) proposed that hospitals should pay full price for two popular J&J medications, and then file a claim for a rebate in order to receive the discounts to which the hospitals are entitled under the federal 340B program. Following objections from HRSA officials and hospitals, J&J reportedly ceased “implementation of its 340B rebate proposal” and last November, J&J sued HHS and HRSA.[ii] Manufacturers have taken the stance that a rebate model is permitted by the 340B statute and that the rebate model provides better control and protection against duplicate discounts. [iii] Advocates opposing the rebate model argue that the 340B statute does not permit a retroactive discount and that the rebate model would create significant financial and operational hurdles for safety net hospitals and other entities participating in the 340B Program. [iv]
What’s Next?
While the ruling is considered a temporary win for 340B covered entities, Friedrich did not conclude that rebate models are prohibited under the 340B statute. At the time of the ruling, HRSA had only formally rejected Sanofi-Aventis’s rebate model, while the others remain pending a final decision from HRSA. As to Sanofi, Friedrich ruled that HRSA had not provided adequate justification for its denial of the rebate model and ordered HRSA to reconsider Sanofi’s proposal. On June 1, 2025, HHS and HRSA submitted their proposed 340B Rebate Guidance to the Office of Management and Budget for regulatory review, It is unclear when the review will be finalized and made available to the public. Once the guidance is released, 340B covered entities should determine how it may affect their operations and consider consulting with their 340B attorneys on navigating any new requirements or implications.
FOOTNOTES
[i] Eli Lilly & Co. et. Al. v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03220); Bristol Myers Squibb Co. v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03337); Sanofi-Aventis U.S. LLC v. Robert F. Kennedy Jr. et al., (Case No. 24-cv-03496); Novartis Pharmaceuticals Corp. v. Robert F. Kennedy Jr. et al., (Case No. No. 25-cv-00117); and Kalderos Inc. v. Robert F. Kennedy Jr. et al., (Case No. 21-cv-02608).
[ii] See American Hospital Association, J&J sues government over 340B proposal; AHA says J&J’s legal arguments ‘completely meritless’ (Nov. 13, 2024).
[iii] Craig Clough, Feds Get Early Win In Drugmakers’ Suit Over 340B Rebates (May 19, 2025).
[iv] Amicus Curiae Brief of American Hospital Association, National Association of Children’s Hospitals, Inc., d/b/a Children’s Hospital Association, Association of American Medical Colleges, and America’s Essential Hospitals in Support of Defendants, Eli Lilly & Co. v. Kennedy, Nos. 24-cv-3220, 24-cv-3337, 25-cv-0117 (DLF) (D.D.C. filed Mar. 4, 2025), ECF No. 31-1.
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SB 690 – THE CIPA AMENDMENT WE HAVE ALL BEEN WAITING FOR – UNANIMOUSLY PASSES SENATE! The Bill Could Allow Online Tracking Technologies If Used For A “Commercial Business Purpose”
In a decisive 32-0 vote on June 03, 2025, the California State Senate cleared SB 690, signaling its support for an amendment that would drastically alter the state’s wiretapping statue. The Senate had until June 6, 2025 to approve SB 690 and refer it to the California State Assembly.
As we reported earlier this week (https://cipaworld.com/2025/06/02/cookie-cutter-solution-senate-bill-690s-commercial-business-purpose-exemption-could-crumble-cipa-lawsuits/), SB 690 seeks to exempt the use of website tracking technologies – such as pixels, cookies, and session replays – from the California Invasion of Privacy Act (“CIPA”) if these technologies are deployed for a “commercial business purpose.”
Proponents of SB 690 have emphasized the need to curb aggressive and often frivolous CIPA lawsuits arising out of the use of website tracking tools in recent years. Given the unanimous vote, there appears to be bipartisan momentum to reform one of the most heavily litigated state privacy statutes. However, as SB 690 moves to the Assembly, the debate is likely to sharpen around efforts to harmonise CIPA with California’s data privacy law – the California Consumer Privacy Act (“CCPA”). Critics have already pointed out that the CCPA does not let consumers file lawsuits for most privacy violations, leading to concerns that SB 690 may weaken meaningful protection.
What’s clear is that SB 690 is on a fast track to reshape California’s privacy litigation and enforcement landscape.
FTC Revives Orange Book Listing Challenges
On May 21, 2025, the Federal Trade Commission (FTC) issued its third round of warning letters – and its first under the Trump administration – against pharmaceutical manufacturers for allegedly improper listing of patents in the Food and Drug Administration’s (FDA) Orange Book. The FTC made clear that its prerogative under President Trump’s leadership is to seek “transparent, competitive, and fair healthcare markets.”
The FTC issued renewed warning letters to drugmakers that did not delist previously challenged Orange Book listings, disputing more than 200 patents across 17 brand-name pharmaceuticals. The patents relate to device components of combination drug-device products treating asthma, diabetes, and chronic obstructive pulmonary disease (COPD). The FTC alleges the device patents constitute improper listings that allow brand-name manufacturers to delay – or even prohibit – generic competition. These patents were previously the subject of warning letters the FTC issued in November 2023 and April 2024 to more than a dozen pharmaceutical manufacturers. Although some manufacturers delisted patents in response to the initial warning letters, others chose to continue listing the targeted patents in the Orange Book.
In Depth
BACKGROUND
The FTC issued a policy statement in 2023 under Chair Lina Khan declaring that “improper” pharmaceutical patent listings in the Orange Book may constitute an unfair method of competition in violation of Section 5 of the FTC Act. The patents are listed for the purpose of putting generic rivals on notice to deter patent infringement. The FDA, however, takes only a ministerial role as to listing patents and does not assess whether patents are properly listed in the Orange Book. Following the 2023 policy statement, the FTC issued a series of warning letters to manufacturers.
In the FTC’s recent warning letters, the agency cites the December 2024 US Court of Appeals for the Federal Circuit decision in Teva Branded Pharm. Prods. R&D, Inc. v. Amneal Pharms. of N.Y., LLC as support for their assertion that the previously identified patents are improperly listed. The Federal Circuit affirmed a lower court’s order requiring Teva to delist five patents associated with its ProAir® HFA inhaler, a drug-device combination product, from the Orange Book. The court found Teva had improperly listed its ProAir HFA inhaler patents in the Orange Book for primarily two reasons:
First, Teva had misinterpreted the requirements set forth in the listing statute by arguing that the term “drug” encompasses any component of an article that treats a disease, and therefore its patents claiming the device components would also “claim the drug.” The Federal Circuit rejected this argument, holding that determining whether a patent is properly listed “requires what amounts to a finding of patent infringement,” and the mere fact that a product could infringe a patent does not mean the patent “claims” the underlying drug.
Second, Teva argued that a patent can be listed when it claims any part of the product other than the active ingredient, and therefore its patents that claim the device component are valid. The Federal Circuit rejected this argument, holding that in order for a patent to claim the “drug” and be listed in the Orange Book, the patent must claim at least the active ingredient of the approved product, as the active ingredient provides the primary mode of action of the drug.
The Federal Circuit subsequently denied Teva’s request for an en banc rehearing in March 2025. Notwithstanding Teva’s petition seeking Supreme Court review, Teva must now delist the five patents.
WHAT’S NEXT
On the day following the Federal Circuit’s opinion, the FTC issued a press release applauding the Federal Circuit’s holding and reiterating its position that, due to the 30-month statutory stay triggered by listing patents in the Orange Book, improper listings can negatively affect competitive conditions permitting generic entry of competing drug products. The press release, however, was issued in the waning days of Chair Khan’s tenure with a Democratic majority at the FTC, and practitioners and industry stakeholders alike questioned whether the FTC’s policy on Orange Book listings would continue under a Republican-led FTC. The recent warning letters suggest that, under current Chair Andrew Ferguson, the FTC appears to be sticking to the prior administration’s policy and remains focused on enhancing competition between brand-name and generic pharmaceuticals to lower healthcare costs.
The Federal Circuit’s decision vindicated the FTC’s position against improper listings in the Orange Book and likely empowered the agency to undertake the most recent enforcement efforts despite the change in administration. The agency’s continued scrutiny of patent listings in the Orange Book indicates it is possible the FTC may pursue enforcement actions concerning its Orange Book challenges in the future. Therefore, brand-name manufacturers are advised to carefully review their current listings, paying particular attention to the underlying claim of the patent, as patents that do not claim the active ingredient in the drug may be considered improperly listed. Brand-name manufacturers are encouraged to proactively seek counsel when conducting such reviews to ensure compliance.
Government Contracts White-Collar Alert: Supreme Court Clarifies Wire Fraud Statute
The U.S. Supreme Court recently delivered a significant ruling in Stamatios Kousisis, et al. v. United States, affirming that a defendant can be convicted of federal fraud for inducing a transaction through materially false pretenses, even absent an intent to cause economic harm. This unanimous decision clarifies the scope of the federal wire fraud statute and carries substantial implications for white-collar criminal prosecutions against government contractors.
Background of the Case
Stamatios Kousisis and his company, Alpha Painting and Construction Co., secured contracts from the Pennsylvania Department of Transportation (PennDOT) for bridge painting projects. These contracts mandated that a portion of the work be subcontracted to Disadvantaged Business Enterprises (DBEs), as per federal regulations tied to the Infrastructure Investment and Jobs Act. Kousisis and Alpha claimed compliance by funneling payments through Markias Inc., a certified DBE, which merely acted as a pass-through entity. In reality, non-DBE suppliers performed the work, and Markias added a markup to the invoices.
The government charged Kousisis and Alpha with wire fraud and conspiracy, arguing that they fraudulently induced PennDOT to award the contracts under false pretenses. The defendants contended that since the work was completed and PennDOT suffered no financial loss, there was no fraud.
The Supreme Court’s Decision
Justice Amy Coney Barrett authored the majority opinion, holding that under federal fraud statutes, it is sufficient to prove that a defendant used materially false pretenses to induce a transaction, regardless of whether the victim suffered economic harm. The Court emphasized that the focus is on the defendant’s intent and the materiality of the misrepresentation, not solely on economic loss to the victim. This aligns with the Court’s reasoning in Ciminelli v. United States (2023), which clarified that fraud statutes protect property interests and that deprivation of such interests can occur through deceptive means, even without direct financial harm.
Concurring Opinions
Justice Clarence Thomas concurred, expressing skepticism about whether the misrepresentations were material, given that DBE requirements may not pertain directly to the core contractual obligations. Justice Sonia Sotomayor concurred in the judgment, highlighting that PennDOT explicitly stated noncompliance with DBE provisions constituted a material breach, potentially jeopardizing federal funding. Justice Neil Gorsuch concurred in part, cautioning against broad interpretations of fraud that could criminalize conduct traditionally addressed through civil remedies.
Implications for Government Contractors and White-Collar Prosecutions
This ruling reinforces the government’s ability to prosecute fraudulent inducement cases under federal fraud statutes, even when no economic harm is evident. It underscores the importance of materiality in assessing fraudulent conduct and may influence how courts evaluate similar cases involving misrepresentations that affect contractual decisions. The decision also signals the Court’s willingness to uphold certain applications of fraud statutes, distinguishing between deceptive practices that undermine contractual integrity and those that result in tangible financial loss.
Conclusion
The Supreme Court’s decision in Kousisis v. United States affirms that materially false representations used to induce contractual agreements can constitute federal fraud, even absent economic harm to the victim. This clarification of the wire fraud statute’s scope is pivotal for legal practitioners, government contractors, and entities engaged in federally funded projects, emphasizing the legal risks associated with deceptive practices in contractual dealings.
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$222M Jury Verdict Against Walmart in Trade Secret Case Reflects Growing Trend
Monetary awards in trade secrets cases continue to grab headlines in 2025. A reported in this recent blog post, a Boston jury awarded a medical device company $452M for theft of trade secrets by a competitor, later reduced to $59.4 in exchange for a permanent injunction. Last month, an Arkansas jury found Walmart liable for trade secret misappropriation and awarded $222M to the plaintiff, Zest Labs, a provider of technology solutions for tracking food freshness. And then there is the $2.036 billion jury award in favor of Appian Software against Pegasystems that was vacated by the Virginia Court of Appeals in 2024 but was granted review by the Virginia Supreme Court just a few months ago. These awards are part of a growing trend of very large monetary awards in trade secrets cases.
Getting trade secrets cases to trial and winning on the merits is arguably easier than in patent cases. One of the main reasons for this belief is that patent infringement cases involve case-dispositive legal issues that courts decide pre-trial: the meaning and scope of the claims and whether claims are sufficiently definite. Many patent cases never get past this Markman stage. While courts in trade secrets cases often must decide whether the asserted trade secret is sufficiently identified to present to a jury, the plaintiff is frequently given several opportunities to fix its articulation of the secret before trial. By contrast, patent claims cannot be fixed during litigation. Moreover, given their fact intensive character, trade secrets cases often have an easier road to trial than patent cases, and strong narratives often emerge from these cases that involve related claims for breach of contractual secrecy obligations and civil conspiracy. A Stout 2024 report pegs trial win rates for plaintiffs bringing trade secret claims in federal court at 84% since 2017, with juries awarding some form of monetary damages in 78% of the cases.
Monetary and non-monetary remedies available for trade secret misappropriation, in both state and federal courts, are robust and relatively easy to access in comparison to patent cases. Patent jurisprudence on remedies often throttles damages recovery in ways that trade secrets law does not, and injunctive relief against post-trial infringement is significantly constrained because courts often regard harm as compensable by the availability of an ongoing royalty. Unlike in utility patent cases, disgorgement of ill-gotten gains is available in trade secret cases and often these alleged gains far exceed any provable economic loss. As with patent cases, proving damages in trade secrets cases depends heavily on expert testimony, but the controlling law in patent cases is far more developed and restrictive than in the trade secrets context when it comes to screening expert damages theories.
Similarly, although both patent and trade secrets law reserve an award of attorneys’ fees to the trial court’s discretion in exceptional cases, the practical threshold for such awards may be lower for successful plaintiffs in trade secrets cases. Last month, a federal court in California awarded attorneys’ fees to the plaintiff who proved misappropriation of only one of twenty-eight asserted trade secrets and only recovered 1.1% of the damages it originally sought. In granting the fees motion, the court held that winning “any significant issue … which achieves some benefit in bringing suit” is sufficient to justify a full recovery of attorneys’ fees.
Trade secret owners’ run of success in courtrooms across the country seems likely to continue. These cases are more likely to go to trial because of their fact-specific nature, and the enhanced remedies available to trade secret holders often justifies rolling the dice. This trend behooves those potentially facing trade secret misappropriation risk to carefully manage that risk through contracts with trade secret owners and to thoughtfully and proactively defend claims asserted against them while realistically evaluating the litigation risk they face.