The action

Amgen Canada Inc. (Amgen) is seeking Health Canada’s approval to market a biosimilar of Bayer Inc.’s biologic drug EYLEA® (aflibercept).  In response, Bayer Inc. and Regeneron Pharmaceuticals, Inc. (collectively Bayer) have brought a quia timet patent infringement action against Amgen under section 8.2 of the Patented Medicines (Notice of Compliance) Regulations. Bayer alleges that Amgen’s biosimilar aflibercept would directly or indirectly infringe Canadian Patent No. 2,906,768 (the 768 Patent).  Amgen denies infringement.

Testing for infringement of the 768 Patent

Claim 1 of the 768 Patent claims, “A cell culture medium, which is serum-free, comprising 0.6 ± 0.09 mM ornithine and 0.714 ± 0.11 mM putrescine.” 

To prove infringement of Claim 1 and other claims, Bayer proposed testing the concentration of ornithine in the cell cultures Amgen uses to manufacture its biosimilar aflibercept. Amgen had disclosed its cell culture process, including the composition of its cell culture medium. However, Bayer contended that infringing concentrations of ornithine may still be present in Amgen’s cell cultures because arginine, a component of Amgen’s medium, can convert to ornithine.

When Amgen refused to provide samples of its cell cultures for testing, Bayer moved for an order to compel samples under Rule 249 of the Federal Courts Rules. 

Court refuses to order samples produced

In a September 17, 2024 decision, the Court dismissed Bayer’s motion to compel samples of Amgen’s cell cultures.

The Court first noted the language of Rule 249, which required Bayer to prove that the samples were “necessary or expedient for the purpose of obtaining information or evidence in full”.  This requirement has been interpreted by the leading authority (Apotex Inc. v. Eli Lilly Canada Inc., 2013 FCA 45) as meaning that there must be “a reasonable possibility” that the proposed testing of the sample will reveal something useful for the trial judge.

The Court found that Bayer had not met its burden.  The Court identified two issues with Bayer’s proposed testing: 

• First, the Court rejected Bayer’s evidence that arginine could convert into ornithine in Amgen’s process.  Bayer led two scientific articles showing that, under certain conditions, arginine can convert into ornithine.  However, Bayer did not lead expert evidence to explain how that literature applied to Amgen’s cell cultures. By contrast, Amgen led expert evidence that the arginine-to-ornithine conversion described in Bayer’s literature could not occur in Amgen’s cell cultures (e.g., due to their temperature and pH). 
• Second, Bayer had not identified the tests it would carry out and instead relied on Amgen’s expert evidence that it was possible to measure the concentration of ornithine in a sample.  The Court found that “a notional, undescribed or theoretical test” does not establish a “reasonable possibility” of revealing something useful for the trial judge.

Finally, the Court considered the interests of Bayer, Amgen, and the trial judge.  The Court found that having to obtain samples of cell culture would affect Amgen’s manufacturing process and “may jeopardize an entire production run”.  By contrast, neither Bayer nor the trial judge was likely to benefit from Amgen producing samples, as Bayer’s “potential test” had no reasonable possibility of showing infringement of the 768 Patent.

Links

• Bayer Inc. v. Amgen Canada Inc., 2024 CanLII 117240 (FC)

You can check out our previous posts here and here.

To prove a false claim under the FCA, the government must establish three elements:

1. Falsity;
2. Knowledge; and
3. Materiality

In this blog post, we will explore the knowledge element.  Despite being a fraud statute, the FCA does not require specific intent to defraud the government to impose liability.  Instead, the FCA defines culpable “knowing,” and “knowingly” as encompassing three different states of mind: actual knowledge, deliberate ignorance of truth or falsity, and reckless disregard of truth or falsity.

The Supreme Court recently clarified these standards in United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023) as follows:

• Actual Knowledge – when a defendant actually knows its claim is false

• Deliberate Ignorance – when a defendant is aware of a substantial risk that its statements or claims are false, but intentionally avoids taking steps to confirm the statements’ truth or falsity

• Reckless Disregard – when the defendant is conscious of a substantial and unjustifiable risk that its claim is false, but submits the claim anyway

The Supreme Court also clarified in SuperValu that FCA knowledge is a subjective standard—i.e., the key question is what the defendant’s actual state of mind was at the time the claim was submitted.  In doing so, SuperValu significantly narrowed a popular defense to the FCA’s knowledge element. The defense goes that, if faced with an ambiguous law or contract clause, defendants may avoid FCA liability by proving that their actions comported with an objectively reasonable interpretation of the ambiguous law or contract clause, so long as they were not warned away from that interpretation by authoritative agency guidance. The reasoning is that if a contract clause or law is subject to multiple reasonable interpretations, it is unjust to punish a company based on the single interpretation held by the government, where the government did not make that interpretation known to the defendant prior to the alleged FCA violation. 

Prior to SuperValu, some Circuits (including the 7th Circuit where SuperValu originated) held that defendants’ subjective states of mind did not matter in these situations of ambiguous legal requirements.  In other words, even if a defendant subjectively suspected or believed that it was violating an ambiguous law or contract clause, if the defendant’s actions comported with a reasonable interpretation of the requirement, there could be no finding of knowledge, and thus no liability under the FCA. Courts did not pull this holding out of thin air—it came from a very powerful footnote in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), which interpreted the knowledge standard under the Fair Credit Reporting Act:

Respondent-plaintiffs argue that evidence of subjective bad faith must be taken into account in determining whether a company acted knowingly or recklessly for purposes of §1681n(a). To the extent that they argue that evidence of subjective bad faith can support a willfulness finding even when the company’s reading of the statute is objectively reasonable, their argument is unsound. Where, as here, the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator.

In SuperValu, the Supreme Court rejected the footnote in its Safeco decision as creating any kind of safe harbor for defendants based on “what an objectively reasonable person may have known or believed.” Instead, assuming other elements of the FCA are met, if a defendant subjectively believed that its claim was false, SuperValu holds that the defendant will be liable under the FCA. To be clear, the objectively reasonable interpretation defense is still generally available to FCA defendants, but only if they actually held the objectively reasonable interpretation at the time of the allegedly false claims. 

This holding makes sense for the first two standards of FCA knowledge —actual knowledge and deliberate ignorance.  If a company knows for certain that a claim is false, or it actively avoids learning that the claim is false, there is perhaps some affirmative culpable state of mind.  However, reckless disregard may catch some companies by surprise.  Under SuperValu, companies can be held liable under the reckless disregard standard for submitting false claims that they could have, or maybe should have, known were false.  When you take into account the myriad ways a claim can be “false” under the FCA (e.g., a claim is impliedly false if the contractor is non-compliant with any contract requirement), avoiding recklessness becomes a much heavier burden.  Essentially, the reckless disregard standard as articulated in SuperValu imposes a duty on recipients of federal funds not only to ensure they are complying with contract requirements (perhaps through audits or compliance reviews), but also to confirm their understanding of every ambiguous contract or legal requirements with their government counterparts.  Even if the company has adopted a reasonable interpretation of a statute, if a few executives in the company question whether that interpretation is correct, those questions could later be evidence of knowledge under the FCA.

Thus, an important step in avoiding FCA liability is to take seriously those contract and regulatory interpretation questions from employees or executives, consult inside or outside counsel about the appropriate interpretation of the requirements under the protection of attorney-client privilege, and make the company’s official interpretation known to employees and any government officials administering the contract at issue. 

Our next blog will examine the third FCA element – materiality.

In a closely watched and complicated case, Van Loon et al. v. Dep’t of the Treasury et al., the U.S. Court of Appeals for the Fifth Circuit ruled that the Office of Foreign Assets Control (“OFAC”) cannot sanction Tornado Cash, “an open-source, crypto-transactions software protocol that facilitates anonymous transactions by obfuscating the origins and destinations of digital asset transfers.” The opinion, which reversed the ruling of the District Court, is here.  A recording of the oral argument is here. The opinion is complex but written in a very clear style.

We previously blogged on OFAC’s designation of Tornado Cash (here) and the resulting civil suit (here). We also covered the indictment returned against the alleged developers of Tornado Cash, Roman Storm and Roman Semenov, who were charged with conspiring to commit money laundering, operating an unlicensed money transmitting business, and violating sanctions under the International Emergency Economic Powers Act, or IEEPA (here). The DOJ subsequently obtained a superseding indictment against Storm only (here); Storm’s trial currently is scheduled for April 2025). When the initial indictment was unsealed, Treasury simultaneously sanctioned Semenov, who remains outside the U.S., by adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. 

These actions are a reminder that, putting aside the complex issues presented by the Fifth Circuit decision regarding OFAC’s (in)ability to sanction a technology, law enforcement and regulators still can pursue people for related alleged conduct. And, invariably, people are involved in a technology.

The second paragraph of the opinion nicely summarizes the decision, so we quote it here:

The six plaintiffs-appellants are users of Tornado Cash. They argue that Tornado Cash’s inclusion on the SDN list exceeded OFAC’s statutory authority. The district court disagreed, granting summary judgment to the Department and finding Tornado Cash subject to OFAC’s sanctioning authority. Van Loon and the other plaintiffs appealed, making the same principal argument here—that Tornado Cash’s open-source, self-executing software is not sanctionable under the Act (as opposed to the rogue persons and entities who abuse it). OFAC’s concerns with illicit foreign actors laundering funds are undeniably legitimate. Perhaps Congress will update IEEPA, enacted during the Carter Administration, to target modern technologies like crypto-mixing software. Until then, we hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.

The Court’s Primer on Cryptocurrency, Blockchain and Mixers

The Court begins its opinion with a clearly-written primer on cryptocurrency and blockchain. Most pertinent to the analysis here is its description of smart contracts, which the opinion describes as coming in two forms: “mutable” – a contract “managed by some party or group and may be changed” – and “immutable” – which “cannot be altered or removed from the blockchain.” The opinion continues: “Importantly, a mutable contract may be altered to become immutable. But that is an irreversible step; once a smart contract becomes immutable, no one can reclaim control over it.” This distinction is important, because the Fifth Circuit’s opinion pertains to immutable smart contracts. The opinion leaves the door open to a different result if mutable smart contracts are at issue.

Tornado Cash uses smart contracts, which increase anonymity by “mixing” – i.e., collecting, pooling and shuffling the cryptocurrencies deposited by multiple users. The opinion contains this helpful graphic, which illustrates how a mixer makes the tracing of cryptocurrency very difficult, and invites the reader to “imagine this complexity amplified with thousands of users. The result: a highly obfuscated blockchain that is much hard to trace and consequently renders the transactors far more anonymized.”

Although the withdrawing account must pay a “gas fee” to the Ethereum network, which could create a link between the user’s deposit and withdrawal accounts, this link is itself obscured by the optional use of relayers. These are mutable smart contracts operated by third parties, who pay the gas fees from their own accounts and deduct the cost of those fees, and their own fees, from the withdrawal accounts.

The Court noted that the developers of Tornado Cash eliminated their control over the pool smart contracts in 2020 by making them irreversibly immutable. “Consequently, the pool smart contracts became self-executing and could no longer be altered, removed or controlled.” The developers then created a decentralized autonomous organization (“DAO”) which can vote to implement new projects and change certain optional Tornado Cash features, but which cannot vote on or make any changes to the immutable smart contracts.

Finally, the Court observed that although there are lawful uses of mixers (such as maintaining anonymity concerning net worth, spending habits and donations to charitable causes, or thwarting criminals who might use blockchain information to commit a phishing scheme), mixers “are also ‘go-to’ tool[s] for cybercriminals[,]’” including North Korean hackers.

The Analysis

The Court explained that OFAC’s “designations identified Tornado Cash as an entity organized by and under its DAO, and in doing so blocked ‘all real, personal, and other property and interests in property’ of the designated Tornado Cash entity subject to U.S. jurisdiction.” The plaintiffs, all individual users of Tornado Cash, claimed “that OFAC lacked the authority to designate Tornado Cash as an SDN because (1) Tornado Cash is not a foreign ‘national’ or ‘person,’ (2) the immutable pool smart contracts are not ‘property,’ and (3) Tornado Cash cannot have a property ‘interest’ in the immutable smart contracts.” The Court indicated that it was considering the matter without the deference afforded previously to agencies under the Chevron doctrine, in light of the Supreme Court’s recent decision in Loper Bright rejecting that doctrine, but that its ruling would be the same under any standard. Ultimately, the Court sought to determine the “best” reading of the statute at issue.

The heart of the Court’s analysis was that the immutable smart contracts at issue did not constitute “property,” subject to OFAC designation, because they are not capable of being owned. The Court reasoned that, even under OFAC’s own definition of “property,” which includes “contracts of any nature,” and “services of any nature,” the immutable smart contracts still did not qualify as property.  In part, this is because they are different than patents and copyrights because Tornado Cash does not profit from them. “Second, patents and copyrights are ownable, just like everything else in OFAC’s regulatory definition.” Although OFAC’s definition of property includes “contracts of any nature whatsoever,” the immutable smart contracts are not, actually, contracts. This is because, according to the Fifth Circuit, contracts require an agreement between two or more parties. In contrast, immutable smart contracts involve only one party, because one “side” involves only “just software code.” Mutable smart contracts, however, could facilitate a contract between the operator and a third party.  Referencing “blockchain case law relied upon by the district court,” the Court stated that it was “not to the contrary,” because those cases did not involve clearly immutable smart cases.

Briefly, the Court also rejected the government’s argument that the immutable smart contracts qualify as “services,” because although they provide services, they are not “services” themselves.  Further, Tornado Cash does not actually own the services provided by the immutable smart contracts. “Similarly, Tornado Cash as an ‘entity’ does not own the immutable smart contracts, separate and apart from any rights or benefits of the services performed by the immutable smart contracts.”

Ultimately, the Fifth Circuit focused on the explicit text of the IEEPA and the limited role of the judiciary: “We readily recognize the real-world downsides of certain uncontrollable technology falling outside of OFAC’s sanctioning authority. . . . . Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane.”

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

As we previously reported, the State’s 2025 fiscal year budget expanded the New York State Paid Sick Leave Law to include a requirement for employers to provide up to 20 hours of paid leave during any 52-week period for employees to attend prenatal appointments or obtain health care services during or related to their pregnancy.  Paid Prenatal Leave does not accrue and is available to employees immediately upon a covered need for same.  Paid Prenatal Leave may be taken in 1 hour increments.

The newly issued guidance provides some additional details around the new benefit.  Some key points from the guidance are as follows:

Employer and Employee Coverage

The guidance emphasizes that Paid Prenatal Leave is available to all private sector employees regardless of employer size and without regard to full-time/part-time or overtime exempt/non-exempt status.

Employees may begin using Paid Prenatal Leave at any time and do not need to have worked for their employer for a minimum amount of time before accessing the benefit.

Using Paid Prenatal Leave

The guidance provides that Paid Prenatal Leave covers health care services received by an employee during their pregnancy or related to such pregnancy, including physical examinations, medical procedures, monitoring and testing, and discussions with a health care provider related to the pregnancy.  This includes fertility treatment or care appointments (including in vitro fertilization) and end-of-pregnancy care appointments.

However, Paid Prenatal Leave may not be used:

• by an employee other than the employee directly receiving prenatal health care services (e.g., the benefit does not cover spouses or partners of the pregnant person); or
• for post-natal or postpartum appointments.

The 20 hours of Paid Prenatal Leave are available once in a 52-week period, measured forward from the date an employee first uses Paid Prenatal Leave time.  In the event of multiple pregnancies in a single 52-week period, only a total of 20 hours of Paid Prenatal Leave time may be taken across all pregnancies. 

Interplay of Paid Prenatal Leave and Other Leave Benefits

An open question following enactment of the Paid Prenatal Leave Law was whether employers that already provide paid time off beyond what is statutorily required under the New York State Paid Sick Leave Law (i.e., either 40 or 56 hours of sick leave depending on employer size) are required to provide an additional bank of 20 hours for prenatal care purposes.  To that end, the guidance states that Paid Prenatal Leave is “in addition to existing leave policies and the NYS Sick Leave Law” and “provides a separate benefit from other leave policies and laws.”  Therefore “[e]mployees are entitled to 20 hours of Paid Prenatal Leave in addition to any other available leave options.”

The guidance also emphasizes that while prenatal health care and appointments may also be a covered reason for leave under the New York State Paid Sick Leave Law or other existing employer leave policies, an employer cannot require an employee to choose one leave type over another or require an employee to exhaust one type of leave before using Paid Prenatal Leave.

Requiring Medical Documentation Not Permitted

The guidance states that employers cannot ask employees to disclose confidential information about their health conditions in order to use Paid Prenatal Leave, nor can employers require employees to submit medical records or documents in connection with their use of the benefit. 

Employees should request Paid Prenatal Leave “like any other time off by using existing notification/request procedures within their workplaces.”  The guidance also states that the NYDOL “encourages employees to give employers advanced notice of leave requests and encourages employers to communicate how to request leave to their employees.”

*          *          *

New York employers are advised to review their leave policies to ensure that eligible employees have access to the new Paid Prenatal Leave benefit beginning on January 1. 

Quick Hits

• The Occupational Information Network (O*NET), developed under the sponsorship of the U.S. Department of Labor’s Employment and Training Administration (ETA) through a grant to the North Carolina Department of Commerce, contains hundreds of standardized and occupation-specific descriptors for almost 1,000 occupations covering the entire U.S. economy.
• Occupational expert analysts assign each occupation in the O*NET-SOC [standard occupational classification] taxonomy to one of five Job Zones to categorize occupations based on their associated levels of education, experience, and training.
• The DOL’s Office of Foreign Labor Certification (OFLC) relies on the O*NET database to administer the PERM labor certification program and Labor Condition Application (LCA) program.

The DOL’s O*NET program was updated on August 26, 2024, and again on November 19, 2024. The August 2024 update covered 101 occupations; the November 2024 update covered an additional 21 occupations.

Some highlights from each O*NET update that may impact stakeholders are listed below for reference:

As noted in the Job Zone chart below, occupations for which the Job Zone was reduced from 4 to 3 can impact PERM and H-1B cases:

H-1B Implications

The H-1B, H-1B1, and E-3 nonimmigrant classifications are reserved for individuals performing services in a specialty occupation that requires the attainment of a bachelor’s degree or higher degree as a minimum requirement for entry into the occupation.

Utilizing or continuing to utilize an occupational category that was downgraded to Job Zone 3 may invite higher scrutiny from U.S. Citizenship and Immigration Services (USCIS) or U.S. consulates since a bachelor’s degree is not normally required for these occupations.

PERM Labor Certification Implications

On prevailing wage requests, occupations that were downgraded to Job Zone 4 or 3 may result in higher prevailing wage assessments by the National Prevailing Wage Center if minimum education and experience requirements are not considered normal to the occupation.

Likewise, since a bachelor’s degree is equivalent to two years of specific vocational preparation (SVP), Job Zone 3 occupations that require anything beyond a bachelor’s degree trigger a “business necessity” justification on a PERM application and may increase the likelihood of an audit request. However, with respect to the number of advertisements required for a PERM application, it is the DOL’s Appendix A list of professional occupations that controls, not the Job Zone or O*NET level.

It is worth noting that the DOL confirmed during the American Immigration Lawyers Association (AILA) 2024 Spring CLE Conference and Webcast that the version of O*NET in effect at the time a prevailing wage determination is issued controls when determining how to respond to item G.9 on Form ETA-9089, which asks whether the job requirements exceed the SVP level assigned to the occupation as shown in the O*NET Job Zones.

Key Takeaways

Individuals likely to be most impacted by these updates are H-1B, H-1B1, and E-3 visa holders whose prior petitions or applications were supported by an LCA utilizing an SOC code that was recently downgraded to a Job Zone 3 occupation. Despite its deference policy, USCIS is not required to defer to previously favorable eligibility determinations in certain instances, such as when there has been a material change in circumstances or eligibility, or when new material information adversely impacts eligibility. This, in turn, might result in a higher risk of a Request for Evidence or a denial from USCIS.

Ogletree Deakins’ Immigration Practice Group will continue to monitor developments and will publish updates on the Immigration blog as additional information becomes available.

Follow and Subscribe

LinkedIn | Instagram | Webinars | Podcasts

Here is the full article via PDF – https://www.restaurantbusinessonline.com/search/content?searchterm=marler

The blog serves as an introductory overview on employment agreements. An employment agreement is a legally binding document that outlines the terms and conditions of the working relationship between an employer and an employee. It is crucial for both parties as it sets clear expectations and provides a framework for resolving disputes. Common provisions in an employment agreement typically include job description, compensation, benefits, work schedule, confidentiality, non-compete clauses, and termination procedures. Each of these provisions serves to protect the rights and interests of both the employer and employee while ensuring mutual understanding and agreement on key aspects of the employment relationship.

Job Description and Duties is one of the first key provisions. This section outlines the role, responsibilities, and expectations of the employee within the company. It may include specific duties, reporting relationships, and performance expectations. A well-defined job description helps prevent misunderstandings and ensures both parties are aligned regarding the employee’s role within the organization.

Compensation and Benefits is another critical provision. It details the employee’s salary, wage rate, and any bonus or incentive structures. This provision should also address the frequency and method of payment (e.g., weekly, bi-weekly, monthly, or via direct deposit). In addition to base compensation, many employment agreements include information about benefits, such as health insurance, retirement plans, paid time off (PTO), sick leave, and other perks like gym memberships or company stock options. Clear terms around compensation and benefits help employees understand what they can expect financially and ensure compliance with wage laws. This is also the section where reference to additional compensation such as stock options may be found. 

Work Schedule and Location provisions typically specify the employee’s working hours, including whether they are expected to work full-time, part-time, or on an as-needed basis. It may also cover shift patterns, overtime rules, and the location of work, whether it’s on-site at the employer’s facility or remote. These provisions can also include flexibility regarding working hours or hybrid work arrangements, especially relevant in today’s work environment.

Another key provision is the Confidentiality and Non-Disclosure Agreement (NDA). Many employment contracts require employees to keep certain business information confidential, even after their employment ends. This is especially true for positions that involve access to proprietary data, trade secrets, or other sensitive information. The confidentiality clause ensures that the employer’s intellectual property, business plans, and customer information are protected. Employees may also be required to return any proprietary materials upon termination of employment.

Non-compete Clauses may also be included, particularly in industries where specialized knowledge or skills are highly valued. A non-compete provision restricts the employee from working for competing businesses or starting a similar business for a certain period of time after leaving the employer. The terms of non-compete clauses typically vary by jurisdiction but must be reasonable in scope, geography, and duration to be enforceable. This provision is intended to protect the employer’s competitive position and intellectual property. Unlike California for example, Texas is still a jurisdiction that enforces non-compete provisions. 

The Term and Termination section outlines how the employment relationship can be ended. It defines the conditions under which either party can terminate the agreement, with or without cause. This section also addresses notice periods, severance pay (if applicable), and any post-employment obligations such as non-compete or confidentiality agreements. Some agreements may also include a probationary period during which either party can terminate the contract with little notice or without cause. Understanding termination rights is crucial for both the employee and employer, as it provides clarity in the event of performance issues or other conflicts.

Other provisions may include Dispute Resolution mechanisms, which can specify the process for resolving disputes, often requiring mediation or arbitration before pursuing litigation. Intellectual Property Rights clauses can be included, particularly for employees who create work products such as software, inventions, or written materials as part of their job duties. Additionally, some contracts include Employment at Will provisions, which clarify that the employee can be terminated for any lawful reason, unless otherwise stated in the agreement.

Finally, Governing Law and Jurisdiction provisions indicate the legal jurisdiction that governs the contract, should disputes arise. This ensures that both parties are clear on which laws apply and where any legal matters will be addressed.

In summary, an employment agreement is a comprehensive document that ensures both the employer and employee are clear on their rights, responsibilities, and expectations. It protects both parties and fosters a more transparent and functional working relationship. Key provisions, including job duties, compensation, benefits, confidentiality, non-compete clauses, and termination procedures, help safeguard each side’s interests and provide a structure for resolving conflicts should they arise.

#EmploymentAgreements #NonCompetes #RestrictiveCovenants

Growth in litigation meant that 2024 saw legal developments in several areas including standing to sue and web video suits. Increased attention on cybersecurity and privacy incidents unsurprisingly corresponded with active SEC enforcement and derivative suits related to inadequate data security.

Standing Developments

Tracking the increase in litigation, the case law regarding who can bring suit in the wake of a data breach has continued to develop in notable ways.

Standing remains a hurdle many plaintiffs cannot clear because they have not experienced an injury-in-fact. Illustratively, a federal appellate court on the East Coast held this year that disclosure of information to a vendor in possible violation of federal debt collection rules was not enough to give the plaintiff standing. Barclift v. Keystone Credit Servs., 93 F.4th 136, 146 (3rd Cir. 2024). The Third Circuit concluded, in particular, that the plaintiff had not suffered the “humiliation” that normally attends the public-disclosure-of-private-facts cause of action because her debt was communicated to an intermediary for collection, rather than published to the public. Barclift, 93 F.4th at 146. On the West Coast, the absence of a policy required by statute—for example, the absence of a publicly available biometric information retention policy—did not confer standing on a plaintiff who was not uniquely harmed. Zellmer v. Meta Platforms, Inc., 104 F.4th 1117, 1127 (9th Cir. 2024). The Ninth Circuit instead concluded that the duty to have a publicly available policy was owed to the public in general and a mere allegation that the policy was absent, without an additional allegation of particularized harm, was insufficient. Zellmer, 104 F.4th at 1127.

In certain other contexts where there is at least some allegation of present, tangible injury, courts have expressed willingness to reconsider standing, but these are limited and often fact specific. For example, where plaintiffs alleged minimal tangible losses that had already occurred, the Seventh Circuit pushed back on the idea that vanishingly small losses are not a sufficient injury. Alcarez v. Akorn, Inc., 99 F.4th 368, 374 (7th Cir. 2024). We will be monitoring the effect such pushback has on data breach cases going forward.

Web Video Suits

Predictably, most private plaintiffs allege violations of statutes that entitle successful plaintiffs to statutory damages and, often, payment of their attorneys’ fees—the Video Privacy Protection Act, or VPPA, is a prime example. Passed in 1988 in the wake of the revelation of Robert Bork’s video rental history during Supreme Court confirmation hearings, the VPPA has found new application in the internet era.

In general, entities risk liability when they disclose identifying information regarding which of their customers watch which of their videos. Often that occurs when videos are linked to targeted ads. It is all too easy to unwittingly run afoul of video privacy rules: A company need not be in the business of providing audiovisual products to be at risk. Hosting tracked video and offering subscription-based “goods or services” may be sufficient basis for a suit even when the two are not linked from a business perspective. Salazar v. Nat’l Basketball Ass’n, No. 23-1147 (2d Cir. Oct. 15, 2024); Aldana v. GameStop, Inc., No. 22-CV-7063-LTS (S.D.N.Y. Feb. 21, 2024). Recently, the Second Circuit held that a newsletter recipient is a “subscriber of goods and services” for purposes of the VPPA even when the newsletter and the tracked video content were entirely separate. Salazar, No. 23-1147 (2d Cir. Oct. 15, 2024). Businesses should also be wary of relying on consumer consent in the tracked video context. At early stages of litigation, it is not an ironclad defense provided there are factual disputes over the nature and legal effect of the consent. Pileggi v. Wash. Newspaper Publ’g Co., Civil Action 23-345 (BAH), at *14 (D.D.C. Jan. 29, 2024).

Data Security at Public Companies

The SEC continued to shape the litigation landscape on cybersecurity issues in 2024. In June, it updated its guidance on reporting cybersecurity incidents. Among other updates, the SEC clarified that a registrant must file an Item 1.05 Form 8-K within four business days of determining a cybersecurity incident is material; delay is only permitted if the Attorney General notifies the registrant in writing that disclosure would jeopardize public safety or national security before the four business days are up. The resulting increase in cybersecurity disclosures has already led to multiple court cases. Then, in October 2024, the SEC brought charges against four companies for allegedly making materially misleading cybersecurity disclosures. In one instance, an entity allegedly reported cybersecurity risks in “hypothetical” terms despite knowing that confidential information had already been exfiltrated. In another, the SEC alleged that an entity “minimized the compromise and omitted material facts known to [] personnel” in its reporting. Continued attention to properly framing cybersecurity risks in disclosures will be important throughout the rest of 2024 and into 2025. As the Acting Chief of the SEC’s Crypto Assets and Cyber Unit put it: “Downplaying the extent of a material cybersecurity breach is a bad strategy.”

Derivative suits related to questionable data practices have also percolated through the courts this year. In Harper v. Sievert, for instance, shareholders challenged the implementation of an allegedly insecure data structure at a telecommunications company. Harper v. Sievert, C. A. 2022-0819-SG (Del. Ch. May 31, 2024). The Delaware Chancery Court found that the telecoms company’s board did not disloyally disregard data security risks, in turn rendering the failure of the shareholder to submit a litigation demand fatal to the suit. Id. at 21. That disposition underscores that boards may avoid derivative liability by monitoring the business-specific risks and benefits of data structure options. Id. at *21. Failure to do so invites litigation, especially if a business touts its expertise in securing data, avoiding data breach is “mission critical,” or the data storage decision was made by a controlling corporate parent. Ont. Provincial Council of Carpenters’ Pension Tr. Fund v. Walton, 294 A.3d 65, 85-86 (Del. Ch. 2023). In each of those situations, a suit alleging failure to properly oversee data security risks is more likely to survive a motion to dismiss. Id.

Looking Forward to 2025

Looking back, 2024 made clear that privacy and cybersecurity litigation is not going away. Private plaintiffs continue to pursue novel class action strategies, sometimes reviving statutes meant to apply outside the digital context. And the SEC and shareholders pay more attention to privacy and cybersecurity incidents than ever. The data privacy and cybersecurity team will continue to track these areas throughout 2025.  We also will continue tracking the litigation risk posed by new state-level legislation. Up until now, the sweeping expansion in state-level comprehensive privacy rules have not affected the volume of privacy litigation as significantly as other laws, primarily because only California’s rules provide private plaintiffs the right to sue for violations (and then only in limited circumstances). That may change in 2025. Active privacy bills in Massachusetts and Michigan could provide private parties the right to sue for violations. That would mark a sea change in the litigation risk non-compliant businesses face. Should those bills pass, retaining privacy counsel and considering data protection proactively will be more important than ever.

I was thinking about this because of this article, coincidentally also today, in the Guardian which shows that homeowners premium increases in various parts of the United States align consistently with the extent of that particular part of the country’s increased risk of loss from climate related events. Now I am not saying that this is due to AI or its use by the insurance industry – but the relationship between the two almost certainly is not an accident and by definition must be the result of ever more focused and skilled underwriting that is allowing homeowners insurers to link premiums to the specific risks of specific regions of the country, rather than simply spreading risks and premium increases randomly across large swaths of the United States. And those specific regional risks, it goes almost without saying although the article does so, are climate driven.

AI driven or not, this type of sophisticated underwriting is about having and applying a high level understanding of the data – something that AI tools should, eventually, only improve.

An Insider’s Perspective on the Incoming Administration

With the return of Donald Trump to the White House, Meyer discusses the composition and potential direction of the new Cabinet, emphasizing a selection process heavily influenced by loyalty and alignment with Trump’s political and governing philosophies. Notable appointments, such as Pam Bondi for Attorney General and Kristi Noem for the Department of Homeland Security, signal a continuation of Trump’s first administration’s strategies, with a strong focus on immigration, national security, and economic policies.

Impact on Business and National Security

Meyer highlights several key areas where businesses can expect significant changes, touching upon the Justice Department’s expected shift in focus and the increased emphasis on immigration enforcement. The discussion also covers the Treasury Department’s nomination of Scott Bessent, suggesting a relatively stabilizing effect on economic policies.

Further, the episode delves into the anticipated approach to national security, with Meyer predicting varying stances toward countries like China, Russia, and Iran. For French investors and international businesses, these shifts underscore the importance of staying informed and agile in a rapidly evolving political landscape.

The Role of Congress and Regulatory Bodies

Meyer also sheds light on the expected dynamics within a Republican-controlled Congress, forecasting increased scrutiny of the private sector and a continuation of the trend toward deregulation. Additionally, he discusses the Committee on Foreign Investment in the United States (CFIUS), predicting tighter reviews for foreign investments, particularly from China.

Preparing for Change

For businesses operating in or with the United States, understanding and adapting to the forthcoming changes is crucial. Meyer’s insights from the French Insider podcast offer a roadmap for navigating the complexities of the new administration’s policies and their implications for international commerce and security.

As the landscape shifts, Sheppard Mullin remains committed to providing our clients with the guidance and support needed to thrive in this new era. Stay tuned for more episodes of the French Insider, where we will continue to explore critical topics and trends affecting businesses in the U.S.

This blog post is crafted based on the insights shared in the French Insider podcast Episode 36, featuring Jonathan Meyer of Sheppard Mullin. The discussion provides a comprehensive analysis of the expected directions and policies of the next Trump administration and their impact on businesses and national security. For detailed information and to listen to the full episode, please visit our French Insider episode page here.

The defendants’ motion to dismiss made two overarching arguments. First, defendants’ argued that plaintiffs have not plausibly alleged that the ingredients are artificial, and second, even if they had, plaintiffs have not plausibly alleged that the ingredients function as preservatives in the products.

The Court’s Order

The Court rejected both arguments.

First, the Court found that plaintiffs sufficiently alleged that the defendants’ products used an artificial source for the citric acid based on allegations referencing scientific studies and industry data indicating that over 90% of citric acid used globally is manufactured through fermentation processes involving Aspergillus niger, a type of black mold. According to the plaintiffs, this process is widely used because it is more economical than extracting citric acid naturally from citrus fruits. Plaintiffs also cited FDA guidance that classifies citric acid as a preservative and pointed to instances where the FDA issued warning letters to companies for mislabeling products as “natural” despite containing citric acid used as a preservative. The Court found that this data supported the conclusion that the citric acid allegations go beyond simple allegations of common industry practice and are sufficient to state a claim that is more than merely speculative.

For sodium phosphates, the plaintiffs included details about the synthetic production process, which typically involves acid-base reactions between phosphoric acid and sodium carbonate. Plaintiffs further alleged that sodium phosphates do not naturally exist in their pure form and are specifically manufactured for use in food products. Plaintiffs cited scientific articles describing these processes and the preservatives’ widespread application in foods, including cheese products. The Court found these sources, along with related allegations in the complaint, sufficient to plausibly suggest that the sodium phosphates were artificially produced.

The Court also rejected the defendants’ argument that, even if the ingredients are artificial, plaintiffs did not adequately allege that the ingredients function as preservatives in the products. In making this determination, the Court relied on articles plaintiffs cited that describe both ingredients’ role in preserving food, as well as FDA guidance that describes citric acid as a preservative. The Court held that these allegations were enough to withstand a motion to dismiss.

Comparison With Similar Cases

In reaching its decision, the Court distinguished two similar cases, Hu v. Herr Foods, Inc., 251 F. Supp. 3d 813 (E.D. Pa. 2017), and Ivie v. Kraft Foods Global, Inc., 961 F. Supp. 2d 1033 (N.D. Cal. 2013), both of which involved claims related to the use of artificial ingredients in food labeling.

In Hu v. Herr Foods, Inc., the plaintiff alleged that the “No Preservatives Added” label on certain food products was misleading because the products contained citric acid. However, the Court dismissed the complaint because the plaintiff did not allege sufficient facts to plausibly claim that citric acid functioned as a preservative in the specific product at issue. The Hu Court found that the plaintiff’s allegations required a speculative chain of assumptions about the function of citric acid in the product, which was too attenuated to survive a motion to dismiss (Hu, 251 F. Supp. 3d at 821–822).

In contrast, the Hayes Court found the plaintiffs’ allegations were more detailed and specific. The Hayes plaintiffs cited FDA guidance recognizing citric acid as a preservative and scientific articles explaining the mechanism by which citric acid acts as a preservative in food. The plaintiffs also included evidence about the synthetic production of citric acid and its prevalence in food manufacturing, distinguishing it from natural citric acid. The Court concluded that the support cited in Hayes made the claims more plausible than those in Hu.

In Ivie v. Kraft Foods Global, Inc., the plaintiffs alleged that certain ingredients were misleadingly labeled as “natural flavors” when they were, in fact, artificial. The Court dismissed the claims because the plaintiffs failed to make factual allegations establishing that the ingredients in question functioned as flavors in the product. The Ivie plaintiffs offered only a conclusory assertion that the ingredients simulated or reinforced flavor without providing scientific evidence or specific factual support (Ivie, 961 F. Supp. 2d at 1041–1042).

In contrast, the Hayes plaintiffs described how the artificial citric acid and sodium phosphates used in the defendants’ products acted as preservatives. They included citations to academic studies and FDA materials explaining these ingredients’ chemical properties and preservative functions. The plaintiffs also provided information about the production processes for citric acid and sodium phosphates, showing their synthetic origins.

The Court in Hayes emphasized that the plaintiffs’ allegations went beyond mere speculation, unlike the claims in Hu and Ivie. By including detailed factual allegations, scientific evidence, and references to FDA guidance, the Hayes plaintiffs demonstrated a plausible basis for their claims. Consequently, the Court found that the reasoning behind the dismissals in Hu and Ivie did not apply.

Conclusion

The opinion in Hayes v. Kraft Heinz Company underscores the growing litigation risks of making product label claims. It serves as a cautionary tale for food companies, highlighting the increased sophistication of plaintiff’s attorneys’ abilities to draw on scientific data and regulatory information to support otherwise speculative claims. The Court’s decision to allow the case to proceed demonstrates that complaints including references to scientific studies, FDA guidance, and data on industry practices can allow these types of labeling lawsuits to edge over the plausibility line and survive the motion to dismiss stage.

Given the prevalence of these types of lawsuits and courts’ willingness to entertain them, food companies should not only carefully evaluate their labeling, marketing, and ingredient sourcing to ensure regulatory compliance but also for the increasing litigation risks.   

Quick Hits

• The DOL recently proposed dropping the subminimum wage rule under federal law.
• Since 1938, federal law has allowed some employers to pay subminimum wages to workers with certain developmental, physical, and mental disabilities.
• The public can submit comments on the proposed rule until January 17, 2025.

The Fair Labor Standards Act (FLSA) has permitted employers to apply for DOL-issued certificates to pay subminimum wages to certain workers with disabilities, but only where such certificates are necessary to prevent limitations in job opportunities. Section 14(c) of the FLSA defines workers with disabilities as those whose “earning or productive capacity is impaired by a physical or mental disability,” including developmental disabilities, blindness, mental illness, cerebral palsy, alcoholism, and drug addiction.

The DOL has proposed stopping the issuance of new Section 14(c) certificates on the effective date of the final rule. Existing Section 14(c) certificate holders could continue to operate under Section 14(c) certificate authority for up to three years after the effective date of the final rule. The certificates issued to employers generally are valid for one or two years.

The DOL argued that employment opportunities for workers with disabilities have vastly expanded in recent decades because of legal, social, and technological developments, making subminimum wages no longer necessary.

The vast majority of certificate holders are “community rehabilitation programs,” meaning “not-for-profit agencies that provide rehabilitation and employment for people with disabilities,” according to the DOL.

In determining whether a certificate should be approved, the DOL examines four criteria:

• the nature and extent of the disabilities as they relate to the individual’s productivity,
• the productivity of workers with disabilities compared to the norm established for workers without disabilities,
• the wage rates to be paid to workers with disabilities, and
• the prevailing wages of experienced local employees who are not disabled and are engaged in comparable work.

In 1989, the U.S. Congress amended the FLSA to require that subminimum wages be related to the individual’s productivity.

The current federal minimum wage is $7.25 per hour, but many states have set a higher state minimum wage. At least sixteen states have banned subminimum wages for workers with disabilities under state law.

Next Steps

The DOL will accept public comments on the proposed rule until January 17, 2025. President-elect Donald Trump will be inaugurated three days later, and his administration could decide to finalize this rule or not. If finalized, the rule could raise labor costs for some employers.

Employers may wish to review their pay policies in order to stay compliant with state and federal minimum wage and overtime rules. Employers also may wish to gather accurate data on how many employees receive subminimum wages and where those individuals work.

Ogletree Deakins will continue to monitor developments and will provide updates on the Multistate Compliance and Wage and Hour blogs as new information becomes available.

Charles E. McDonald, III is a shareholder in Ogletree Deakins’ Greenville office, and co-chair of the firm’s Wage and Hour Practice Group.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

Follow and Subscribe

LinkedIn | Instagram | Webinars | Podcasts

COYHO is estimated to create 80,000 new homes over a 15 year period. While these changes to the Zoning Resolution are essential, many Council members believed the text changes did not go far enough to address the City’s housing crisis, and issued their own plan in the beginning of November 2024, called the City for All. The City for All attempts to fill in the gaps that cannot be accomplished through changes to zoning, with the goals of creating deeper affordability, increased levels of affordable homeownership and housing preservation efforts, community infrastructure investments, stronger tenant protections, better utilization of housing vouchers, and increased funding for housing agencies. City for All was instrumental to the passage of COYHO, securing a commitment of $5 billion in public funding — with $4 billion coming from the City and $1 billion coming from the State — to support the City housing crisis. Specifically, City for All sets aside $2 billion towards sewers, flood protection, streets and open space investments, $2 billion towards housing related-capital funds, and $1 billion to tenant protections and flood monitoring, over a ten year period.

COYHO is discussed in more detail in our previous blog post, which summarizes the major components of, and modifications made by the City Council to, the COYHO text.

We regularly hear from clients in a panic because of automated SEO reports. These reports may position your firm as seriously lacking, with data to back up the claims.

In reality, automated SEO reports often aren’t accurate and they’re better seen as sales tools than actionable insights. SEO is much more nuanced than that.

Here’s what you need to know, including what is an automated SEO report and what it can and can’t tell you about your website’s search engine positioning.

What is an automated SEO report?

An automated SEO report includes data generated by SEO tools like SEMrush, Ahrefs, and Moz. 

• Data is aggregated from various sources.
• Report often relies on proprietary algorithms and estimation methods.
• Each tool may claim different metrics, based on its unique algorithm.

SEO reports can help reveal some issues, but they’re often used as sales tools. Claims may be inaccurate or out of context. Automated reports can be a red flag when vetting SEO agencies.

How to Spot an Automated SEO Report

Identifying whether an SEO report is automated or crafted through human analysis can be challenging. Here are some indicators that suggest a report may be automated:

• Dashboard-Like Appearance: Automated reports often resemble the interface of SEO software, featuring dashboard-style layouts with charts and graphs.
• Software Branding: These reports may include the logo or name of the software used to generate them, indicating their automated origin.
• Generalized Statements: Automated reports might make broad claims without providing context or specific examples tailored to your website’s unique situation.

The limitations of SEO reports

Data and metrics from SEO reports cannot tell the whole story of your site’s search engine success.

Metrics will vary between tools: From backlink data to keyword difficulty, SEO tools are guaranteed to return different data due to differences in their data indexing processes. Discrepancies can be large.

Third-party metrics ≠ Google: Metrics like Domain Authority (DA) or Keyword Rankings are estimates created by third-party tools. These are not used by Google for ranking. 

Ultimately, Google’s algorithms and proprietary data are not accessible to third-party SEO tools, making direct insights unavailable. Moz, for instance, has clarified that DA is a predictive metric and not a measure used by search engines directly. 

This means that dramatic changes in these third-party metrics don’t necessarily reflect changes in how search engines view your site. 

Third-party metrics are not direct indicators of search engine rankings. Third-party tools can’t access Google data.

Finally, these automated SEO reports are generalized. In other words, they may overlook specific industry requirements, especially for specialized fields like legal and YMYL content. It’s important to remember that these reports attempt to quantify best practices, but best practices are inherently unique to the needs of each website (and its audience). Consequently, these reports often fail to be useful for anything other than raising a flag on a potential issue that an experienced SEO professional should explore. 

What to do if you’re shown an SEO report

While potentially useful, do not use insights from third-party SEO metrics as the sole motivation for any optimization decisions.

1. Ask questions.
2. Get more sources of data.
3. Take a big-picture view.

Please, do not leap into any quick fixes based on an automated SEO report!

First, if you are shown a report that indicates trouble in a certain area, go look for more data. Start with your Google Search Console and Google Analytics dashboards to cut right to the source. Try to corroborate any suggestions from an SEO report with patterns of data from your own site.

Then, work to formulate a more holistic SEO plan to confront any issues. SEO can take time. Focus on what you know (and what experts say) about how search engines work. Let this knowledge inform your strategy. 

“Focus on value not numbers.” – John Mueller, Google’s Search Advocate

John Mueller of Google has frequently stated that quick-fix optimizations based on tool-generated metrics tend to fail to produce sustained SEO success. Don’t chase third-party metrics, even when they seemingly help point you to a better SEO strategy overall.

Website owners should focus on quality content and an excellent user experience. 

Review and next steps

Before you take any action based on an automated SEO report, use Google’s tools to gain accurate, actionable insights into your website’s performance. 

Don’t rely solely on the interpretations of third-party SEO tools. Automated tools have inherent limitations in providing comprehensive and nuanced guidance to lawyers looking to improve their online presence.

Get customized advice for your site with direct-from-the-source data from the SEO experts at Omnizant.

The post Beware of Reports from SEO Tools appeared first on Omnizant LLC.

On Tuesday, November 26, 2024, the Federal Trade Commission (“FTC”) released a staff report examining the duration of software support commitments by manufacturers of 184 connected devices, ranging from “smart” phones to health monitors to home appliances. The report found that nearly 89% of manufacturer web pages failed to disclose how long these products would receive software updates, even though some products cease to function without continued manufacturer support. The report concluded that “depending on the facts” a failure to inform prospective purchasers of the duration of the warranty on certain products could violate the Magnuson Moss Warranty Act (“MMWA”) or Section 5 of the FTC Act, suggesting a potential future enforcement push by the agency.

FTC’s Examination of “Smart” Devices

The FTC staff report comes after a September 2024 study by Consumer Reports evaluated the policies of 21 appliance brands and found that only three disclosed how long they will guarantee updates to their appliances’ software and applications.  The FTC compiled a list of 184 connected devices from different manufacturers used for personal or family purposes; motor vehicles were specifically excluded from the list.  FTC staff then used the manufacturer’s product webpage only—disregarding warranty and other documentation—to try to find information about software support duration or end date, reasoning that the average consumer was unlikely to do a broader search for information.  Using that methodology, only 11% of product web pages provided information about how long the product would receive software updates. Follow up Google searches yielded information about product support duration or end date for about 33% of the products.

The FTC staff report concluded that “[m]anufacturers’ failure to disclose the duration of their software support commitments warrants further consideration by policymakers and law enforcers.” According to the FTC staff, and “depending on the facts,” the failure to inform prospective purchasers about the duration of software updates for products sold with written warranties could violate the MMWA. The FTC staff also warned that the failure to provide software updates could be a deceptive practice in violation of Section 5 of the FTC Act, and noted that when evaluating a manufacturer’s failure to provide software updates or disclose limits on the duration of product support, “it is appropriate to consider the scope of injury caused by the failure, whether this injury is reasonably avoidable by consumers, and whether there may be any offsetting benefits arising from the failure to provide software updates or disclosures about the duration of software support.”

Telematics And The Automotive Industry

The FTC’s study comes at a time when motor vehicles increasingly rely on computer software updates to operate.  Manufacturers have faced legal challenges related to over the air (“OTA”) software updates, while some states have enacted regulations that require OEMs to compensate dealers for helping customers whose vehicles are subjected to an OTA update and to make certain disclosures to potential buyers concerning the OTA update capabilities of new vehicles.  Concerns about continued support for vehicle telematics systems were heightened in 2022 when certain cellular telephone service providers announced plans to shut down 3G networks still used to support the installed telematics systems of some vehicles. OEMs were able to provide workarounds for vehicle owners, but infrastructure support is a critical consideration in deploying new products.

Likewise, the recent right to repair movement has put a spotlight on vehicle telematics systems that allow vehicle generated data to be transmitted wirelessly to OEMs and their dealers.  Recent legislation in Massachusetts and Maine would require this information to be made available to vehicle owners and independent repair facilities; similar federal legislation has been proposed.  OEMs have faced uncertainty with respect to these laws while they await a decision from a federal judge following a bench trial in June 2021 on challenges to the constitutionality of the Massachusetts right to repair law and while a working group convened by the Maine Attorney General’s Office makes recommendations about enforcement of that state’s law, set to take effect in early 2025.

There are 69 confirmed patients from 10 states, according to the Food and Drug Administration. The outbreak announcement has details consistent with those reported by the St. Louis County health department about an outbreak there that has reportedly sickened 115 people who attended two school banquets, two veterans events and a funeral that were all catered by the same company. That outbreak was first reported on Nov. 14.

According to the FDA outbreak announcement on Dec. 5, the broader outbreak involves iceberg and romaine lettuce served at catered events, restaurants and a school. The 69 patients have all been infected with the same strain of the pathogen. The FDA has not reported what states the patients live in.

The FDA’s traceback investigation has found that a blend of iceberg and romaine lettuce from a common supplier is the source of the outbreak. The implicated lettuce appears to be past its shelf life and no longer in the supply chain, according to the FDA.

St. Louis media reported on Dec. 4 that lettuce supplied by Taylor Farms was the probable source of the contaminated lettuce.

“At this time, there does not appear to be any ongoing risk to public health and there is no recommendation for consumers to avoid iceberg or romaine lettuce,” according to the FDA’s outbreak announcement.

Additional details will be reported as they become available.

About E. coli infections
Anyone who has eaten a blend of romaine and iceberg lettuce and developed symptoms of E. coli infection should seek medical attention and tell their doctor about their possible exposure to the bacteria. Specific tests are required to diagnose the infections, which can mimic other illnesses.

The symptoms of E. coli infections vary for each person but often include severe stomach cramps and diarrhea, which is often bloody. Some patients may also have a fever. Most patients recover within five to seven days. Others can develop severe or life-threatening symptoms and complications, according to the Centers for Disease Control and Prevention (CDC).

About 5 to 10 percent of those diagnosed with E. coli infections develop a potentially life-threatening kidney failure complication, known as a hemolytic uremic syndrome (HUS). Symptoms of HUS include fever, abdominal pain, feeling very tired, decreased frequency of urination, small unexplained bruises or bleeding, and pallor. 

Many people with HUS recover within a few weeks, but some suffer permanent injuries or death. This condition can occur among people of any age but is most common in children younger than five years old because of their immature immune systems, older adults because of deteriorating immune systems, and people with compromised immune systems such as cancer patients. 

People who experience HUS symptoms should immediately seek emergency medical care. People with HUS will likely be hospitalized because the condition can cause other serious and ongoing problems such as hypertension, chronic kidney disease, brain damage, and neurologic problems.

(To sign up for a free subscription to Food Safety News,click here)

Under the revision to Arizona Supreme Court Rule 53, clients of the lawyer, judges who learned of the conduct through their judicial role, and others with “direct and specific first-hand knowledge of the conduct described in the charge” have standing and can still file grievances and be considered a “complainant,” who gets the whole panoply of accompanying rights (which in Arizona includes notification of investigation status and the ability to object to proposed agreements between the lawyer and the State Bar, Arizona’s disciplinary authority).

Others, however, would only be able to file grievances, and the Bar would have discretion as to whether to pursue an inquiry or dismiss it. People who are not “complainants” would have no further involvement with the grievance and no rights conferred by Rule.

According to a Arizona Daily Star/Tuscon.com article, this change was originally adopted in August ahead of this years election, but was made permanent this week, in response to a (small) flurry of election-related complaints that have come from strangers to the transactions (primarily Democrats) that appeared to be filed (primarily against Republicans who were involved in the 2020 election) for political reasons.

I am not familiar enough with Arizona to know whether this was a direct response to an organized effort like the 65 Project (which I have written about before), rage-posting-inspired Astroturf, or if it was just the result of complaints by the target(s) of the efforts, or a combination. From what I understand, some other states already have written or unwritten rules along these lines.

At this point, I am withholding judgment, in large part because I am not actually sure how I feel about these sorts of standing rules. As a respondent’s counsel, I should like rules like this. And, as an election lawyer who, particularly if a butterfly had flapped its wings in a different direction a month ago, might be on the receiving end of a politically motivated grievance for insisting that lawfully cast ballots be counted, limiting the ability of strangers to make my life miserable certainly has some appeal.

But there is some ambivalence here and I am not sure why. Maybe I am trying a little too hard to parse out what “direct and specific first-hand knowledge” means through my anyone-can-file-a-grievance-against-anyone-for-any reason Wisconsin lens.    

But anyway, if you are a random person who is mad about a lawyer you read about, a few years back I wrote a handy “Guide to Grievances Against Public Figures” which still holds today, at least in Wisconsin.

The Corporate Transparency Act (the CTA), a law enacted by Congress requiring certain business entities to disclose beneficial ownership information (a BOI Report) to FinCEN, went into effect on January 1, 2024, and obligates reporting companies formed before January 1, 2024, to file BOI Reports on or before January 1, 2025.

The Challenge

On May 28, 2024, six plaintiffs filed a lawsuit in the U.S. District Court for the Eastern District of Texas (the “Court”) seeking declaratory judgement that the CTA is unconstitutional. The following week, plaintiffs moved to enjoin enforcement of the CTA and the final rule implementing the CTA (the “Reporting Rule”) on the basis that the CTA is unconstitutional both on its face and as applied under the First, Fourth, Ninth and Tenth Amendments of the US Constitution.

The Opinion

On December 3, 2024, the Court granted a nationwide injunction of the CTA and the Reporting Rule, finding that “it is in the public’s best interest to prevent the Government from enforcing the CTA and Reporting Rule.” Thus, the government is enjoined from enforcing the CTA and the Reporting Rule, and the compliance deadline for implementing regulations is stayed under the Administrative Procedure Act.

What Does This Mean?

Reporting companies are NOT required to file BOI Reports with FinCEN—for now.

The Jurisdiction of the Court

If the government chooses to appeal this injunction, the U.S. Court of Appeals for the Fifth Circuit will hear the appeal. The Fifth Circuit adjudicated a nationwide injunction in the 2015 case of Texas v. U.S. In Texas, the Fifth Circuit noted that “the Constitution vests the District Court with ‘the judicial Power of the United States.’ That power is not limited to the district wherein the court sits but extends across the country. It is not beyond the power of a court, in appropriate circumstances, to issue a nationwide injunction.” 809 F.3d 134, 188.

The Reasoning

While the injunction is only preliminary, the court determined that “[d]ue to the fast-approaching deadline for reporting companies to file BOI Reports, the Court cannot render a meaningful decision on the merits before Plaintiffs suffer the very harm they seek to avoid.” Although the Court has yet to adjudicate the constitutionality of the CTA, it found that the Plaintiffs “met their burden to show a substantial likelihood of success on the merits.”

In sum, the injunction of the CTA is only preliminary. While this most recent opinion thoroughly deconstructed the constitutionality of the CTA, the Court has yet to issue a final decision on the law. Further, the government will likely appeal this decision to the Fifth Circuit, where it may be overturned.

Next Steps

The future of the CTA is unclear but, for now, CTA obligations are on pause. However, although enforcement of the CTA is halted, the injunction may be overturned on appeal, and if overturned, owners may need to act quickly to comply. Notwithstanding the injunction, reporting companies may still choose to file a BOI Report at the present time.

Sign up to receive Rivkin Rounds at www.RivkinRounds.com.

In addition, the incident has not been fully mitigated and the number of victims is “evolving.”

As a result of the massive hacking incident, CISA, the Federal Bureau of Investigation, National Security Agency, and their partners in Australia, New Zealand, and Canada issued a bulletin on December 4, 2024, stating that the PRC-affiliated hackers “compromised networks of major global telecommunications providers to conduct a broad and significant cyber espionage campaign.” The bulletin “highlight[s] the threat and provide[s] network engineers and defenders of communications infrastructure with best practices to strengthen their visibility and harden their network devices against successful exploitation carried out by PRC-affiliated and other malicious cyber actors.”

The bulletin is a substantive and worthwhile read to help mitigate against attacks and  “encourage[s] telecommunications and other critical infrastructure organizations to apply the best practices in this guide.”

In November 2024, the Federal Bureau of Investigation (FBI) and the U.S. Cybersecurity and Infrastructure Security Agency (CISA) issued a joint statement to update the public on its investigation into the previously reported PRC-affiliated hacks on multiple telecommunications companies’ networks. The FBI and CISA reported that these hacks appeared to focus on cell phone activity of individuals involved in political or government activity and copies of law enforcement informational requests subject to court orders. However, at the time of the update, these U.S. agencies and members of Congress have underscored the broad and significant nature of this breach. At least one elected official stated that the hacks potentially expose unencrypted cell phone conversations with someone in America to the hackers.

In particular, the Guide recommends adopting actions that quickly identify anomalous behavior, vulnerabilities, and threats and respond to a cyber incident. It also guides telecoms and businesses to reduce existing vulnerabilities, improve secure configuration habits, and limit potential entry points. One of the Guide’s recommended best practices attracting media attention is ensuring that mobile phone messaging and call traffic is fully end-to-end encrypted to the maximum extent possible. Without fully end-to-end encrypted messaging and calls, the content of calls and messages always has the potential to be intercepted. Android to Android messaging and iPhone to iPhone messaging is fully end-to-end encrypted but messaging from an Android to an iPhone is not currently end-to-end encrypted. Google and Apple recommend using a fully encrypted messaging app to better protect the content of messages from hackers.

The FBI and CISA are continuing to investigate the hacks and will update the public as the investigation permits. In the interim, telecom providers and companies are encouraged to adopt the Guide’s best practices and to report any suspicious activity to their local FBI field office or the FBI’s Internet Crime Complaint Center. Cyber incidents may also be reported to CISA.

Why Lifetime Appointments?

The Constitution provides life tenure to federal judges (today, judges of the Supreme Court, courts of appeals, and district and international trade courts). The framers did so, in Alexander Hamilton’s words, “to secure a steady, upright, and impartial administration of justice”—in other words, to ease judges’ worries that an unpopular decision could mean removal from office and to maintain their independence from partisan politics.

Critiques of Lifetime Appointments

When the framers established life terms, tenure on the Court was much briefer than it is now. Prior to the 1950s, justices spent an average of 11 to 15 years on the Court. But the average tenure of justices who have left the Court since 1970 is around 25 years. This means that there are now fewer vacancies to fill.

Lifetime appointment sets the U.S. apart from other democracies: 49 out of 50 U.S. states, and every other major democracy in the world, have term limits, elections, or mandatory retirement ages for top judges. Critics of lifetime appointments for Supreme Court justices point to the need to balance accountability with judicial independence, the greater likelihood of age-related disabilities as justices serve into their 80s, and the potential benefit of regularizing the confirmation process.

Through the Supreme Court’s history, public figures from various branches of government have called for an end to lifetime appointments on the U.S. Supreme Court. Both political parties have suggested changes to the high court in response to decisions from the bench deemed unfavorable or when administrations change. Retention elections or term limits are among several alternatives proposed.

Term Limits

Fixed, 18-year terms have become the most frequently proposed alternative to justices’ life tenure. Proponents assert that, by making it likely that presidents of both parties will be able to appoint justices, 18-year terms would better insulate the confirmation process from partisan gamesmanship and promote a more diverse court that better reflects the public view. Retired Justice Breyer has expressed support for this proposal, stating “I do think that if there were a long term—I don’t know, 18, 20 years, something like that, and it was fixed—I would say that was fine. In fact, it’d make my life a lot simpler, to tell you the truth.” Two members of IAALS’ O’Connor Advisory Committee likewise support term limits. In addition, about two-thirds of Americans support this proposed solution.

Though Supreme Court life terms have received most of the attention, some are proposing 18-year term limits for other life-tenured federal judges. Prior to his time on the Supreme Court, Chief Justice Roberts wrote that “setting a term of, say, fifteen years would ensure that federal judges would not lose all touch with reality through decades of ivory tower existence. It would also provide a more regular and greater degree of turnover among the judges. Both developments would, in my view, be healthy ones.”

Questions Surrounding Term Limits

While one goal of term limits is to reduce Supreme Court politicization, some analysts predict “knowing which two justices will be replaced by the next president would only raise the stakes of the election and shift the attendant hyper-partisanship and acrimonious political rhetoric from “one arena—the confirmation process—to another—the permanent campaign.” In addition, there is concern that a constantly-changing court might make sudden and radical changes in doctrine (though it could be argued based on recent Supreme Court rulings that life tenure does not prevent this).

One other looming question is how to create such term limits. Advocates of term limits argue this process will not require constitutional amendment, but can be done statutorily.

Moving Forward

Significant Supreme Court reforms typically do not happen absent a crisis, which makes it difficult to predict the likelihood of implementing 18-year term limits. Nevertheless, examining and refining policy options for improving the judiciary can lay the groundwork for future reforms when the time is right.

On December 3, 2024, the FTC announced that it entered into a proposed order with Gravy Analytics and its subsidiary Venntel “for unlawfully selling location data tracking consumers to sensitive sites” and that the order “bans the use or sale of data associated with military sites, churches, labor unions and other sensitive locations.” Other locations noted include “religious organizations, correctional facilities, schools or childcare facilities, services supporting people based on racial and ethnic backgrounds, services sheltering homeless, domestic abuse, refugee or immigrant populations, and military installations.”

According to the press release, the proposed order requires Gravy Analytics and Venntel to implement a sensitive data location program, and they are prohibited from “selling, disclosing, or using sensitive location data in any product or service.” The FTC alleged in a complaint that Gravy Analytics “unfairly sold sensitive characteristics, like health or medical decisions, political activities and religious viewpoints, derived from consumers’ location data.”

The FTC alleged that Gravy Analytics “used geofencing, which creates a virtual geographical boundary, to identify and sell lists of consumers who attended certain events related to medical conditions and places of worship and sold additional lists that associate individual consumers to other sensitive characteristics.”

The proposed order requires the companies to delete all historic location data, unless the company obtains consent from consumers, or the data is “deidentified or rendered non-sensitive.”

The FTC noted that “this is [its] fourth action taken this year challenging the sale of sensitive location data, and it’s past time for the industry to get serious about protecting Americans’ privacy.”  Message heard.

According to the proposed consent order, IntelliVision must cease publicizing misrepresentations of its facial recognition software’s accuracy and efficacy, as well as its claims that the software was created with all different genders, ethnicities, and skin tones in mind. The FTC’s complaint, alleges that IntelliVision did not have any supportive evidence of its claim that the software had “one of the highest accuracy rates on the market and performs with zero gender or racial bias.” Additionally, the complaint alleges that IntelliVision claimed that it trained its AI-powered software on millions of images when, instead, it trained the software on the facial images of roughly 100,000 unique individuals and then created variations of those same images.

Lastly, the FTC alleges that IntelliVision did not have evidence to substantiate its advertising claim that the software’s anti-spoofing technology does not allow the system to be “tricked” by a photo or video image.

The Director of the FTC’s Bureau of Consumer Protection, Samuel Levine, warned businesses, “Companies shouldn’t be touting bias-free artificial intelligence systems unless they can back those claims up. Those who develop and use AI systems are not exempt from basic deceptive advertising principles.”

This is only the second case where the FTC alleged that AI facial recognition technology had been misrepresented. In December 2023, the FTC entered a consent order with Rite Aid for its failure to implement reasonable procedures related to using AI facial recognition in its stores and to prevent harm to consumers.

The proposed regulations would also require data brokers that sell consumer data to obtain consent through explicit disclosures to consumers. Further, the proposed regulations would explicitly prohibit the use of covered data for marketing purposes.

In the press release, CFPB Director Rohit Chopra said, “By selling our most sensitive personal data without our knowledge or consent, data brokers can profit by enabling scamming, stalking, and spying. The CFPB’s proposed rule will curtail these practices that threaten our personal safety and undermine America’s national security.”

We’ll watch this rule closely to see how far it gets. The final decision on this rule will be up to the new head of the CFPB based on President-elect Donald Trump’s pick for that role. While the incoming administration is expected to lessen regulatory restraints on businesses, the proposed rule is supported by law enforcement, national security officials, and lawmakers from both parties, which may increase the chances for the survival of this CFPB regulation. Public comments close on March 3, 2025.

Launched in July 2024, Death Clock is an application that uses artificial intelligence (AI) to predict when its users will die. Death Clock trained its AI model using over 1,200 life expectancy studies. It then uses the answers from a questionnaire about the user’s physical health, like diet and exercise, to calculate each user’s date of death. While users of the free version will only receive this date, users of the paid version will receive lifestyle recommendations to help them live longer.

Although the AI model includes a large amount of data, the data collected from individual users is currently limited. The current questionnaire is brief and does not delve extensively into family history or lifestyle habits. Including this additional data is likely necessary to receive more accurate results from the model. Improving the model’s accuracy is key for the economic calculations of different organizations, like the government and insurance companies. For example, people can better determine if they have saved enough for retirement.

However, the increase in data collection comes at a risk — namely, user privacy and discrimination. Collecting more data for analysis and inclusion in the model exposes the data to a greater likelihood of being leaked if proper security and storage procedures are not followed. Additionally, implicit biases in the model may produce harmful outcomes (e.g., higher insurance premiums) for certain consumer groups. Therefore, it is crucial that models are developed with a diverse group of stakeholders and are used in a fair, unbiased, and privacy-conscious way.

The Federal Trade Commission (FTC) recently filed a complaint against Mobilewalla, Inc., alleging that it violated Section 5 of the FTC Act by selling consumers’ sensitive location information and targeting consumers based on sensitive characteristics without their consent. It further alleged that Mobilewalla conducted an unfair practice by collecting consumer information from real-time bidding (RTB) exchanges and indefinitely retained consumer location information.

According to the complaint, Mobilewalla is a data broker “that collects and aggregates huge quantities of consumer information, including precise location information tied to individual consumers that reveals sensitive information about those consumers. Mobilewalla touts its ability, among other things, to ‘create a comprehensive, cross channel view of the customer, understanding online and offline behavior.'” Mobilewalla collects this data from data suppliers, and consumers have no idea that their location information is being collected.

In addition, Mobilewalla has “collected large swaths of consumers’ personal information, including location data from multiple sources such as real-time bidding exchanges and data brokers. These sources may themselves obtain consumer data from other data suppliers, the mobile or online advertising marketplace, or mobile applications.” Most of the data is collected from RTB exchanges:  I had never even heard of an RTB exchange until I read the complaint. The complaint explains:

            The primary purpose of RTB exchanges is to enable instantaneous delivery of advertisements and other content to consumers’ mobile devices, such as when scrolling through a webpage or using an app. An app or website implements a software development kit, cookie, or similar technology that collects the consumer’s personal information from their device and passes it along to the RTB exchange in the form of a bid request. In an auction that occurs in a fraction of a second and without consumers’ involvement, advertisers participating in the RTB exchange bid to place advertisements based on the consumer information contained in the bid request. Advertisers can see and collect the consumer information contained in the bid request (even when they do not have a winning bid) and successfully place the advertisement.

The FTC alleges that Mobilewalla collected and retained information contained in a bid request in an RTB exchange even when it did not win the bid, including the consumer’s device mobile advertising identifier (MAID) and precise geolocation information if location-based services were turned on. Mobilewalla then used this information and paired it with other purchased consumer data (e.g., telephone numbers) to build profiles of individual consumers. Mobilewalla then sells access to this data, including raw location data, which is not anonymized. The FTC alleges that MAIDs can be used “to identify a mobile device’s user or owner.”

The FTC’s concern about this practice is that “Mobilewalla’s location data associated with MAIDs can be used to track consumers to sensitive locations, including medical facilities, places of religious worship, places that offer services to the LGBTQ+ community, domestic abuse shelters, and welfare and homeless shelters. It can also be used to infer sensitive information about those consumers.” In addition, “Mobilewalla’s collection and sale of consumers’ precise geolocation data to its clients to identify and target consumers based on sensitive characteristics causes or is likely to cause substantial injury in the form of stigma, discrimination, physical violence, emotional distress, and other harms.”

Similarly, the FTC recently issued a decision and consent order against Gravy Analytics, Inc. and Venntel, Inc. following an investigation of their collection and sale of precise consumer location and sensitive data. Take a look at the complaint if you want to learn more about how your precise location and other data can be collected when the location-based services feature is enabled on your device, and consider only keeping it on when you are using an app that requires it.

19 U.S.C. § 1307 prohibits the importation of any product “mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor.” Forced labor is defined to include any “work or service which is exacted from any person under the menace of any penalty for its non-performance and for which the worker does not offer himself voluntarily.” To enforce this prohibition, CBP can issue withhold release orders or forced labor findings, among others, and require the seizure of the products covered by those orders/findings.

CBP’s investigation was initiated upon a petition filed by the Aluminum Extruder Council and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union. According to a press release, during its investigation CBP identified issues concerning multiple International Labour Organization forced labor indicators, including withholding of wages and restriction of movement, in Kingtom’s facilities. As a result, CBP concluded that there is sufficient information to support its finding that Kingtom is using forced labor in the Dominican Republic to produce aluminum extrusions and profile products and derivatives, and that such products are being imported into the United States. These products are “used widely to build transportation and construction products, furniture, electronics, and more.”

Unlike withhold release orders, reexporting the goods will not be an option for products covered by this forced labor finding. According to CBP’s notice, the finding covers “aluminum extrusions and profile products and derivatives produced or manufactured wholly or in part with aluminum and articles thereof classified under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 7604.21.0010, 7604.29.1010, 7604.29.3060, 7604.29.5050, 7604.29.5090, 7608.20.0090, 7610.90.0080 and any other relevant subheadings under Chapter 76, which are produced or manufactured wholly or in part by” Kingtom.

Ancel Glink’s Podcast, Quorum Forum, has released a new episode: Quorum Forum 89: New Year, New Legislation, and Recent Decisions. 

In this episode, the holiday season is here, and the Quorum Forum podcast
team is ready to celebrate! To ring in the New Year, we will be reviewing case
law and legislation that our local government listeners should be aware of as
we head into 2025. 

     

Related Stories

• The Top 10 Municipal Minute Posts of 2024
• Quorum Forum Podcast Ep. 88 – Election Special
• Court Rejects Police Officer First Amendment Lawsuit Relating to their Personal Social Media Activities

 

We thought this was going to be about sticks.

We ain’t gonna pretend we understand cryptocurrency or blockchain. I’m just a caveman. Your world frightens and confuses me!

And there’s a lot there to confuse us in the U.S. Court of Appeals’ recent opinion in Van Loon v. Dep’t of the Treasury, No. 23-50669 (Nov. 26, 2024), where one of the questions was the meaning of the term “property” as used in the International Emergency Economic Powers Act. Under that statute, the President may “block … any property in which any foreign country or national thereof has any interest.”

The Treasury Department blocked “Tornado Cash” which, as far as we can tell, is a computery way to anonymously transfer asserts digitally, and “obfuscat[e] the origins and destinations” of the transfer. Slip op. at 2. The Department’s regulations define “property” broadly, and it blacklisted Tornado Cash “for its role in laundering virtual currency for malicious cyber actors — for example, a North Korea-linked hacking group that used Tornado Cash to launder the proceeds of cybercrimes.” Id.

The plaintiffs are users of Tornado Cash who objected to the Department’s blacklisting. as beyond the authority of statute. This isn’t property they argued, and therefore isn’t subject to blacklisting notwithstanding the Department’s regulations. The statute, they argued, does not define the term “property,” and the issue was whether “immutable smart contracts” (lines of privacy-enhancing software that are part of Tornado Cash) qualify. 

The court was not daunted by the lack of statutory definition, concluding that “property has a plain meaning: It is capable of being owned.” Slip op. at 20. Applying an original public meaning approach, the court first held that the 1977 dictionary (the statute was adopted that year) defined property as being “everything which is or may be the subject of ownership[.]” Id. There’s also a dominion aspect (One-L flashback to Pierson!). Slip op. at 21 (“Sure, ‘[o]wnership does not always mean absolute dominion,’ but it at least requires some dominion.”). 

This guy.

The opinion also touches on Blackstone and his Commentaries and the right to exclude. Applying those principles to the smart contracts, the court held they are not property:

The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts. In fact, because these immutable smart contracts are unchangeable and unremovable, they remain available for anyone to use and “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets,” even under the sanctions regime. Simply put, regardless of OFAC’s designation of Tornado Cash, the immutable smart contracts continue operating. And furthermore, because the software continues to operate regardless of the sanctions, and the blockchain technology “allows peer-to-peer transfers . . . without requiring the recipient to consent to transfer,” some users may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent.

Sure, some smart contracts are capable of being owned in the sense that Tornado Cash developers can create new smart contracts and disconnect old mutable contracts. In theory, should Tornado Cash developers choose to comply with sanctions on mutable smart contracts, those developers could disconnect those mutable smart contracts to make them inaccessible and unusable by anyone on the Ethereum blockchain. But they cannot discard, change, disconnect, or control smart contracts that are immutable—like the ones currently listed on OFAC’s SDN list and at issue in this appeal. Even with the sanctions in place, “those immutable smart contracts remain accessible to anyone with an internet connection.”

Slip op. at 22-23.

In short, these things are not capable of being owned.

The court also concluded that the Department’s regulatory definition of property doesn’t cover the immutable smart contracts, even though the Department’s definition includes “contracts of any nature.” Slip op. at 27. But despite their nomenclature, “the immutable smart contracts are not contracts.” Slip op. at 28. Why? Because these are not bilaterally, but are one-party only: “[i]mmutable smart contracts have only one party in play.” Id.

As we said at the beginning: we’re not going to pretend we understand this stuff fully.

We conclude with our sense that this looks a lot like a square-peg-in-a-round-hole situation. Blockchain and immutable smart contracts (that are not really contracts) don’t easily fit into any traditional or historical conceptions of property, and although we follow the court’s thinking and its conclusion, things as amorphous as these are seem an ill-fit at best for the old bundle of sticks metaphor.

Van Loon v. Dep’t of the Treasury, No. 23-50669 (5th Cir. Nov. 26, 2024)

            

Related Stories

• Another Semester Of Dirt Law In The Books
• Iowa: Statute Permitting Precondemnation Surveyor Entry Is “pre-existing limitation on … title”
• NYT Word Of The Day: “Eminent Domain”

 

Continue reading the full GT Alert.