The agency failed its first test of pushing its ban through the courts when U.S. District Judge Ada Brown ruled to bar the ban from taking effect. Judge Brown concluded that the FTC did not have the authority to impose such a ban. “The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action,” Brown wrote in her order. “(The rule) is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”

Judge Brown adds on that even if the FTC did have the power to impose a ban on all noncompete agreements, it did not specify what exactly the purpose is behind it. In other words, it did not justify what the ban was at all necessary.“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious,” Brown wrote.

The FTC was clearly disappointed with Judge Brown’s conclusion and in a statement to ABC news, announced that they are seriously considering a potential appeal of the decision.

“We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages,” FTC spokesperson Victoria Graham said.

The FTC has long held that noncompetes hurt employees. “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina Khan in a statement when the proposed rule was first introduced. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.” Now, the FTC is faced with an even larger obstacle than before with Judge Brown’s ultimate ruling.

The Future of the Noncompete Ban is Unclear

So far, there have been three cases that dealt with the FTC’s ban of noncompete agreements including Judge Brown’s case. One of the cases, taking place in a Florida district court sided with Judge Brown’s ruling while the other one, taking place in a Pennsylvania district court supported the FTC rule. Many anticipate that such an inconsistent ruling on the ban will ultimately lead the issue to the Supreme Court to decide.

However, in order to make its way to the Supreme Court, the FTC’s appeal will need to be heard by the Fifth Circuit, a court notorious for its friendliness to businesses. As a result, it seems more than likely that such a Fifth Circuit ruling will not be in favor of the ban. “Most anticipate that the lower court’s ruling will be upheld by the Fifth Circuit but predicting the outcome in the Third and Eleventh circuits, assuming the [Pennsylvania] and [Florida] cases are appealed, is less predictable. This means we still could see the issue presented to the Supreme Court,” said Amanda Sonneborn, a partner in King & Spalding’s global human capital and compliance practice.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

The post The Battle over the Ban of Noncompetes Continues as FTC Receives Unfavorable Ruling appeared first on Compliance Chief 360.

In his final ruling, Judge Amit Mehta held that as a result of suppressing competition by paying billions of dollars to operators of web browsers and phone manufacturers to be their default search engine, Google has become a monopolist and “it has acted as one to maintain its monopoly.”

Judge Mehta emphasized that Google’s illegal practices has resulted in anticompetitive behavior. The tech giant’s exclusive deals with Apple and other large mobile companies that resulted in the preloading of Google’s search engine as the exclusive and default engine displays the company’s illegal practices. These contracts drove Google’s online advertising business as it transformed its search engine into the most convenient platform to access.

“This victory against Google is an historic win for the American people,” said Attorney General Merrick Garland. “No company — no matter how large or influential — is above the law. The Justice Department will continue to vigorously enforce our antitrust laws.” “This landmark decision holds Google accountable. It paves the path for innovation for generations to come and protects access to information for all Americans,” said Assistant Attorney General Kanter. “This victory is a reflection on the tireless efforts of the dedicated public servants at the Antitrust Division and our state law enforcement partners whose work made today’s decision possible.”

In response to the final ruling as well as Attorney Garland’s statement Google’s head of global affairs Kent Walker released his own statement that that displays the company’s dissatisfaction with the ruling. “This decision recognizes that Google offers the best search engine but concludes that we shouldn’t be allowed to make it easily available,” he said in a written statement that quoted complimentary passages from Mehta’s decision. “As this process continues, we will remain focused on making products that people find helpful and easy to use.”

What Does This Mean For the Future of Tech

Since Judge Mehta has yet to impose any penalties since Google has yet to appeal, the implication of this ruling is not completely clear. According to many, the most likely penalty imposed on Google will be a court order to terminate its existing contracts with Apple and other mobile companies. Ultimately, this case paves the way for AI-powered search engines to enter the industry and take control of what Google has to relinquish.

This case also teaches a valuable lesson to big tech companies to be cautious when drafting a contract that entails a sense of exclusivity. “If you’ve got a dominant product, you’ve got to be very careful to make sure that your licensing and contract agreements are open, because making them exclusive can be dangerous,” said University of Pennsylvania Carey Law School antitrust scholar, Herbet Hovenkamp. No longer can companies form contracts that aim to transform a product into a default platform for all users.

Although this decision will play a significant role in Google’s future business practices, it will have an even larger role for the tech industry as a whole. For now on, companies will have to be very careful when engaging in business agreements with third parties to use its products or else they will face a similar result to Google. This case is only the start of big tech antitrust lawsuits as companies such as Apple, Amazon and Meta face their own respective antitrust allegations.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

The post Google Loses Antitrust Case For Having Dominant Search Engine appeared first on Compliance Chief 360.

The lawsuit accused Meta of using its users biometric data that is contained in photos and videos on Facebook without receiving permission to do so. As a result of this activity Facebook exploited the personal information of users and non-users alike to grow its empire and reap historic windfall profits.

“Companies that operate in Texas must be held accountable for their actions, particularly when it puts the privacy of Texans at risk. We’re grateful to have had the opportunity to work with the Office of the Attorney General, and we appreciate how the court handled this lawsuit,” attorneys Sam Baxter and Jennifer Truelove said in a written statement.

Texas Alleged that Meta Violated its Data Privacy Laws

AG Paxton alleged Meta of violating Texas’s Capture or Use of Biometric Identifier Act and the Deceptive Trade Practices Act (CUBI). The claimed violation rose out of Meta’s “Tag Suggestions” feature on Facebook that consisted of an automated photo tagging feature when users upload photos or videos. Facebook introduced the facial recognition technology in 2010 which provided users with an easier way of tagging their friends. In 2021, the company announced that it would cease to use the technology after settling a case in which it was sued for violating Illinois’ ​​biometric privacy law.

“It was the first time the State of Texas sought to enforce its biometric-privacy law since enactment, requiring our team to develop novel litigation approaches and analyze important questions of first impression,” Zina Bash, representative attorney for Texas, said in a written statement. “And it was the first time a single state has ever achieved a settlement of this magnitude — which is even more rewarding because of the record time in which we obtained it. When we filed the case in 2022, we knew the state wanted to move quickly, and our team was relentless in litigating the case.”

In February 2022, Paxton filed a lawsuit in Texas state court against Facebook’s parent company, accusing it of violating the CUBI act by failing to obtain consent from Facebook users before collecting their data. The state also claimed that Meta unlawfully disclosed this data to third parties and failed to delete the data within the time frame specified by CUBI.

A Meta spokesperson said the company was “pleased to resolve this matter and look forward to exploring future opportunities to deepen our business investments in Texas, including potentially developing data centers.”  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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In its lawsuit, SoundExchange claims that SiriusXM manipulated regulations to avoid paying higher royalties to artists and copyright holders. The renowned royalty agency claims that SiriusXM “accomplished this by ascribing excessive and unjustified value to the webcasting component of its bundled packages and then removing that value from the satellite radio royalty pool.” It now demands that Sirius is required to give over the unpaid royalties under the Copyright Act for the use of sound recordings on its satellite streaming platform.

This Act mandates that satellite radio services pay royalties amounting to 15.5% of their gross revenue. In contrast, royalties for streaming services are determined differently: subscription-based streaming services pay $0.0030 per performance, while non-subscription streaming services pay $0.0024 per performance.

SoundExchange adds that that SiriusXM improperly manipulated the federal regulations to create an artificially low calculation of “revenue” on which it pays creator royalties. It claims that SiriusXM “accomplished this by ascribing excessive and unjustified value to the webcasting component of its bundled packages and then removing that value from the satellite radio royalty pool.”

“It is extremely unfortunate that we must bring this action on behalf of creators against SiriusXM,” said Michael Huppe, President and CEO of SoundExchange. “In recent years we have viewed SiriusXM as a willingly lawful and compliant company that shares our desire for a robust streaming marketplace. But SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes. It is only because our repeated efforts to resolve this dispute have failed that we are forced to litigate on behalf of artists and rights owners upon whose hard work SiriusXM has built its business.”

Court transfers the Case to New York

The Virginia court decided to move the case to New York since the allegations mainly arise out of events and decisions made in New York. Specifically, the allegations are based on conduct that occurred at Sirius’s New York headquarters, where the company developed and applied its royalty apportionment methodology. The court also took into account the convenience of both companies and potential witnesses and found that it weighs in favor of transferring the case.

Today, royalty payments from SiriusXM represent over 80% the statutory royalties that SoundExchange distributes to record labels and performers. SoundExchange now demands that it be paid the unpaid royalties, late fees and an injunction preventing Sirius XM from continuing to use inappropriate revenue calculations on its satellite radio payments going forward.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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In 2021, Boeing agreed to a deferred prosecution agreement (DPA) which required the company to pay around $244 million in criminal penalties, $1.77 billion in compensation to its airline customer and $500 million to establish a crash victims’ beneficiary fund to compensate the families of those who were killed in the 2018 and 2019 crashes.

In the agreement, Boeing took responsibility for hiding vital information regarding the condition of the 737 Max jets. Boeing specifically held itself accountable for its failure to provide information regarding features that affected the plane’s flight control system. Since then, investigators have determined that the system consisted of faulty sensor readings that could automatically push the plane to nosedive.

DoJ Determines that Boeing Failed to Meet the DPA Conditions

Inherent in a DPA is the government’s agreement to bring charges but not proceed with them while the company being “charged” agrees to take upon itself certain requirements or conditions. Boeing’s DPA required the company to “to design, implement, and enforce a compliance and ethics program to prevent and detect violations of the U.S. fraud laws throughout its operations.”

This DPA underwent intense scrutiny when the families of victims of the crashed flights went to court to challenge the agreement. The families requested that the court compel the DoJ to revise the agreement so that Boeing would no longer be immune from criminal prosecution, but the court declined to do so.

The end of the DPA’s term occurred earlier this year which then turned into a six-month evaluation period in which the government would assess whether Boeing has adhered to the agreement’s terms. The DoJ concluded that Boeing has failed to uphold these requirements and notified the judge of its decision

The families were once again disappointed with the decision of their case when the DoJ decided to accept the plea deal. Erin Applebaum, a partner at Kreindler & Kreindler LLP, which is representing 34 families who lost loved ones on Ethiopian Airlines Flight 302, said in a statement that they are “extremely disappointed that DOJ is moving forward with this wholly inadequate plea deal despite the families’ strong opposition to its terms. “While we’re encouraged that Boeing will not be able to choose its own monitor, the deal is still nothing more than a slap on the wrist and will do nothing to effectuate meaningful change within the company,” Applebaum said in the statement.”

Although this plea deal concludes the controversy surrounding the two crashes, it does not provide immunity for other incidents such as the one that involved a panel that blew off during an Alaska Airlines flight.

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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When the SEC seeks to punish those who commit civil crimes, such penalties are enforced exclusively in fines. The Court reasoned that since “relief is legal in nature when it is designed to punish or deter the wrongdoer rather than solely to ‘restore the status quo,’ such fines can only be enforced in courts of law.”

The SEC argued that the “public rights” exception to the Seventh Amendment applied, allowing Congress to grant the right to adjudicate a case to an agency without a jury. To fall under this exception depended on whether the SEC was enforcing “public rights” belonging to the government or seeking remedies similar to those sought by private parties. Ultimately, the Court decided that securities fraud did not trigger the exception and as a result meant that Congress could not delegate adjudication rights to the SEC.

Before this ruling took place, the SEC was able to initiate enforcement actions before administrative law judges, who rendered a final decision regarding the case at hand. Now, if the SEC seeks civil penalties like fraud, it must do so in a federal court. “Now the entire federal government is forced to play by the same litigation rules as everyone else—in real courts before real judges, just as our Founders intended,” S. Michael McColloch, Jarksey’s attorney, said.

Implications of the Court’s Ruling

Although this decision is a significant one, it is not unexpected. Due to its anticipation of a ruling similar to this one, the SEC, in recent years, has begun to pursue enforcement actions in federal court as opposed to internal forums. “The SEC anticipated this outcome, so I don’t think the ruling marks a seismic shift,” said Allison Kernisky, a securities litigator at Holland & Knight.

Nevertheless, this decision may potentially affect its overall success rate in securities fraud cases. Historically, the SEC has had a much higher success rate in in-house administrative proceedings, winning 90 percent of those cases compared to 69 percent in federal court. This decision is also likely to lead to an increase in the number of contested cases, rather than those settled before a complaint is filed.

The consequences from this decision will require the SEC to address the approximately 200 open administrative proceedings as well as reassess their use of in-house tribunals. Its reconsideration may result in a sense of hesitancy to use such proceedings for any enforcement actions that seeks civil penalties however, only time will tell.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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In Chief Justice John Roberts’s opinion overruling the 40-year-old precedent, the Court strongly emphasized that courts should be the ones to “decide legal questions by applying their own judgment” and “it thus remains the responsibility of the court to decide whether the law means what the agency says.” The ruling essentially strips federal agencies such as the Securities and Exchange Commission from interpreting any ambiguities in a federal law and as a result abandons a doctrine that long been known as a cornerstone of administrative law.

Many in the legal industry believe that this ruling will result in a substantial increase in litigation challenging federal regulations. According to Douglas Hallward-Driemeier, head of the appellate and Supreme Court practice at Ropes & Gray, “litigants who were previously deterred from challenging federal government policies because of their poor odds under the Chevron doctrine will now be emboldened by the leveling of the playing field.”

Within his majority opinion, Chief Justice Roberts provided support for his conclusion. “Even when an ambiguity happens to implicate a technical matter, it does not follow that Congress has taken the power to authoritatively interpret the statute from the courts and given it to the agency,” Roberts said. “Courts, after all, do not decide such questions blindly,” but rely on the briefs and facts that the parties provide, including the records and reports of the expert agencies involved.

Although the end of the Chevron doctrine marks a significant transfer of power from agencies to the judicial system, it does not entirely prevent courts from deferring to an agency’s interpretation of an ambiguous law. The Court’s ruling merely states that courts are no longer required to assume that legal ambiguities require them to defer to the agency’s interpretation.

Agencies’ interpretations of laws will continue to receive a level of persuasiveness based on the influence of the agencies’ views. Factors influencing this persuasiveness may include how soon after the statute’s enactment the agency adopted the interpretation and the consistency with which the agency has maintained that interpretation over time.

Implications of the Court’s Abandonment of Chevron

 In abandoning the Chevron doctrine, the Court has seemingly ruled in favor of those who are often dissatisfied with agency decision: businesses and property owners. Meg Tahyar, head of the financial institutions and fintech team at Davis Polk & Wardwell, believes that such a ruling will put a substantial amount of pressure on federal agencies. According to Tahyar, agencies will “feel more pressure to shore up the reasoning they provide for the policy decisions they make. They won’t dare to be as creative and search through old statutes to fit new and novel problems.”

This significant Supreme Court decision hands a significant amount of power to judges who are now free to interpret many laws as they see fit. This Court decision effectively introduces a sense of uncertainty into all types of regulations including labor, technology, the environment and healthcare; an uncertainty that large corporations and businesses hope to take advantage of. Essentially, the real effect of this ruling will likely emerge over years of litigation, as courts, agencies, and Congress navigate its practical consequences.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

The post Supreme Court Strikes Down Chevron Doctrine, Weakening Federal Regulation appeared first on Compliance Chief 360.

Trevor Murray, a former research analyst at UBS, sued the firm in 2012 claiming that he was fired after informing his supervisor that two leaders of the UBS trading desk were engaging in what he believed to be unethical and illegal efforts to skew his independent reporting. He originally won $903,000 in 2017 after a district court ruled in his favor however, that ruling was later overturned in 2022 by the Second Circuit court finding that fired whistleblowers suing under SOX must show that their employer acted with retaliatory intent when firing them.

Murray brough this claim under the Sarbanes-Oxley Act (SOX) which prohibits “publicly traded companies from retaliating against employees who report what they reasonably believe to be in- stances of criminal fraud or securities law violations.” The Act specifically provides that employers may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of” protected whistleblowing activity.

As a result of the Court’s decision, the justices ultimately rejected the argument that a sperate finding of retaliatory intent is required for whistleblower protection under SOX. The Court has exhibited that in the context of whistleblower protection under SOX, plaintiffs merely need to demonstrate that their protected activity was a determining factor in their employer’s decision to fire them. After establishing this, the burden of proof shifts to the employers to prove that they would have taken the same action even in the absence of the employee’s protected activity.

The Court supported its decision by examining the purpose of the Whistleblower Protection. “The contributing-factor burden-shifting frame- work is meant to be plaintiff-friendly,” Justice Sotomayor said in her written opinion for the Court. “Showing that an employer acted with retaliatory animus is one way of proving that the protected activity was a contributing factor in the adverse employment action, but it is not the only way.”

“This is a huge victory for whistleblowers all across the country, not only corporate whistleblowers seeking relief under Sarbanes-Oxley, but all those seeking damages for retaliation under the dozen government and nongovernment whistleblower-protection laws structured in exactly the same way,” said Murray’s attorney Robert Herbst.

What Does This Mean for Companies Going Forward?

Now that the Supreme Court has showed that retaliatory intent is not necessary in employee whistleblower claims under SOX, the employer is no longer given the upper hand. The Court has inherently lowered the standard for all employees now that employers cannot simply provide some non-retaliatory reason for the action they took.

Due to this impactful decision, companies will now be forced to review their compliance and whistleblower protections. as they must be cautious in their treatment of employees who engage in whistleblowing activities. In essence, the ruling demonstrates that companies must prioritize dedicating additional time and resources to ensure that employees are not subjected to discrimination for engaging in whistleblower activities.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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The shareholder proposals specifically urge Exxon to diminish carbon emissions and broaden the range of emissions it monitors. “Investors face economy-wide risks from climate change,” Natasha Lamb, co-founder and chief investment officer at Arjuna Capital, said. “We have a fundamental right and duty to voice concern over climate risk, its impacts on the global economy, and shareholder value.”

According to Exxon, the proposals are “driven by an extreme agenda” and that the only reason why these activist organizations became shareholders was exclusively to campaign for change that is “calculated to diminish the company’s existing business.”

In its complaint, the energy giant said the Exxon shareholder proposals, “do not seek to improve [the company’s] economic performance or create shareholder value,” rather they are “trying to shrink the very company in which they are investing by constraining and micromanaging [its] ordinary business operation.”

Although Exxon has already demonstrated its efforts in reducing its greenhouse gas emissions, which includes those emissions that result directly from its business operations, the company has not implemented a plan to reduce emissions that result from the use of its products.

Exxon Sidesteps Traditional Proposal-Exclusion Procedure

When companies are faced with shareholder proposals that they would like to exclude from a proxy statement, they ordinarily file a “Rule 14a-8 no action request” with the SEC. A company can usually succeed in such a request if it can show that the proposal “relates to the company’s ordinary business operations.”

Although Exxon has asserted such a contention, the company did not do so with the SEC; instead, the oil giant sidestepped the agency and filed its lawsuit in a Texas federal court. The company addressed its decision to do so in its complaint: “The plain language of Rule 14a-8 supports excluding the 2024 Proposal, but current guidance by SEC staff about how to apply the rule can be at odds with the rule itself.”

In recent years, the SEC has raised the bar for companies seeking to challenge activist proposals by adopting a stricter standard. During this year, American Express and many other companies were denied in their requests to exclude certain shareholder proposals regarding environmental impacts, abortion, discrimination, and civil rights. Because of the SEC’s stringent view of “Rule 14a-8 no action requests,” Exxon opted for an unconventional approach in filing its lawsuit with the District Court in Northern Texas.

Although Exxon’s strategic sidestep may be unorthodox, it is not the first time that such a move has been used. Apache Corp. pushed the SEC to the side when it filed a similar lawsuit in the Southern District of Texas to strike activist shareholder proposals it saw as improper. The company prevailed in its lawsuit and set the stage for others to take the legal avenue.

From 2011 to 2014, three more companies followed suit and filed lawsuits in U.S. District Courts. All three companies prevailed in their lawsuits and were permitted to exclude certain shareholder proposals. However, in 2014, three more similar lawsuits were filed but were later dismissed for lack of jurisdiction.

Exxon hopes for a favorable ruling before March 19, anticipating two crucial deadlines in the upcoming spring. The company must submit its proxy statement by April 11, in preparation for its annual shareholder meeting scheduled for May 29.  

PHOTO BY HARRISON KEELEY, USED UNDER CREATIVE COMMONS LICENSE: CC BY 4.0

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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In 2019, Humana brought a lawsuit against Walgreens arguing that the company had overcharged its customers by inflating medication prices for over ten years. Humana alleged that the pharmacy chain made that lower pricing available without accounting for it in its customary prices, which led to higher claims payouts. In 2021, an arbitrator awarded Humana a $642 million settlement which Walgreens contested, describing the ruling as a “miscarriage of justice.” The companies have now settled on a $360 million payout, $150 million of which was paid off last month.

Humana specifically claimed that Walgreens provided substantial discounts on its drugs to customers through its Pharmacy Savings Club but didn’t include those sales in its regular prices reported to insurers, causing an increase in claims. Walgreens has explicitly denied these claims and argues that their deals with Humana only require them to report regular retail prices, not the special rates for club members. The pharmaceutical company claims that the arbitrator deciding the case didn’t understand their agreements correctly and was partially biased due to his financial ties with Humana’s legal team.

While securing this settlement with Humana, Walgreens continues to face legal actions, including a lawsuit from Blue Cross Blue Shield alleging the inflation of prescription drug claims. The pharmaceutical giant has completed a large number of expensive legal settlements over the past years, including some that result from Walgreens’ involvement in the opioid epidemic.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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