The Center News: January 2018

NAM Impact
Legal Perspectives
By Linda Kelly, SVP, General Counsel and Corporate Secretary

Happy 2018 and welcome to a new year at the Manufacturers’ Center for Legal Action!  We are changing up our format a bit for this edition to provide an opportunity for our MCLA Legal Advisory Council law firm partners to provide their views on the outlook for 2018.  I will leave most of the space in this edition to them, but I do want to take a moment to recognize our outgoing Vice President and Deputy General Counsel, Quentin Riegel, for his 38 years of devoted service to the NAM and to the manufacturing sector.

This month, we welcomed two new members to the MCLA team.  Peter Toldsorf our new Vice President for Litigation and Deputy General Counsel, will be helping me oversee our litigation program, and Lindsey de la Torre has joined as Executive Director of the Manufacturers’ Accountability Project and Special Counsel to the MCLA.  Please join me in welcoming Peter & Lindsey and read more about them here

Labor & Employment: What Can Employers Expect in 2018?
By Michael J. Lotito and Maury Baskin, Littler Mendelson

In 2017, the Trump administration began to actively revisit and revise the country’s labor and employment policies. Although 2018 has barely begun, some definite trends are starting to take shape. Below we list the top labor and employment predictions for the year ahead. 

  1. Labor Law Rebalancing. The NLRB took advantage of its brief 3-2 Republican majority at the end of 2017 to reverse a series of decisions and policies implemented under the prior administration, including its position on “micro” bargaining units, common handbook policies, and joint employment. President Trump has nominated management-side labor lawyer John Ring to fill a recent vacancy. Once the Board regains its full complement of members, it is expected to revisit its representation election rule, as well as reconsider more cases to better refine the new Board’s approach to labor policy.

     
  2. Changes to Federal Overtime Rule. The DOL is taking a second look at the failed overtime rules for white collar workers. According to the DOL’s regulatory agenda, a proposed rule on this issue is expected in or around October 2018. It is anticipated that the new rule will also raise the salary threshold, but to a more modest range of around $30,000 to $35,000.

     
  3. Clarification of OSHA Rules. OSHA plans to amend its recordkeeping regulation to remove the requirement that employers electronically submit injury and illness information to the agency. In addition, OSHA is proposing to revoke the ancillary provisions of its new beryllium standard for the construction and the shipyard sectors that OSHA adopted on January 9, 2017. The burdensome silica standard was upheld by the appeals court, but discussions are ongoing about how to mitigate compliance challenges.

     
  4. Promotion of Apprenticeship Programs. The DOL is expected to soon issue a proposed rule revising labor standards for registering apprenticeship programs. The rule is expected to establish guidelines for third parties to certify their apprenticeship programs.

     
  5. Increase in Immigration Enforcement. Employers can expect a significant increase in ICE enforcement actions throughout 2018. A wave of worksite raids and inspections appear to be a combination of I-9 audits and arrests of unlawful workers and employers that knowingly hire these workers.

     
  6. Changes to Health Care.  The tax law enacted last month effectively dispensed with the Affordable Care Act’s individual mandate; and some lawmakers have promised to target the employer mandate as well. In the meantime, the DOL has set its sights on encouraging the use of Association Health Plans (AHPs), which allow individuals and employers to collectively purchase insurance.

     
  7. More State and Local Employment Laws.  States and localities continue to introduce and enact new and more expansive paid leave laws, along with new “predictive” scheduling laws, and more burdensome pay equity requirements. Many state laws are also legalizing marijuana, raising the minimum wage, imposing new pay equity requirements, and restricting background checks.

    Conclusion. Many labor and employment law challenges lie ahead; but the current trends favor reduction in the regulatory burdens on business that marked the previous administration.


Cyber/Privacy Outlook for Manufacturers

By Megan Brown and Matt Gardner, Wiley Rein, LLP

In 2018, several efforts will put a spotlight on securing the Internet of Things (IoT), including in industrial settings.  Major cyber guidance is being revised, federal agencies plan an aggressive approach, and Congress is considering obligations for hardware, software and lifecycle management.  We expect these trends to hit manufacturers, especially for products involved in critical infrastructure and federal agencies.

  1. Expectations Will Rise for Corporate Accountability
    Government officials are increasingly pressing the private sector to improve cybersecurity.  For example, DHS Assistant Secretary for the Office of Cybersecurity and Communications identified “gaps between what an entity might consider adequate security for themselves or their sector and what is in the public’s interest.”  Noting that many “critical services and functions . . . are run by the private sector,” she said DHS would “interven[e] directly with companies when necessary.”
    Notably, Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, set in motion numerous efforts, including on market transparency.  This is likely to mean more robust SEC disclosures about cyber risk and corporate governance.  

     
  2. Product and Component Certifications Will Gain Momentum
    Expect increased global interest in product and component certifications. The European Union is pursuing certification programs, and interest is percolating in the United States as well.  For example, the Commerce Department released for comment a draft report on January 5 addressing distributed and automated threats (like botnets), with proposals for labeling and certifications for industrial and consumer IoT devices.  The National Telecommunications and Information Administration (NTIA) has been working on IoT patching and will soon launch an effort on software security and a “bill of materials” to foster communication with enterprises about what goes into IoT products.  


     
  3. NIST Will Impact the Private Sector on Privacy and Security
    The National Institute of Standards and Technology (NIST) is revising its flagship cyber document, the Framework for Improving Critical Infrastructure Cybersecurity with the inclusion of ‘vulnerability disclosure programs’ and increased supply chain scrutiny, among other things.  Though its focus has been on federal IT, NIST is aggressively addressing private systems.  Its 2018 action plan includes a push into privacy engineering. The private sector should watch these efforts and engage where needed.

     
  4. IoT Devices Will Be Scrutinized
    IoT device manufacturers will face increased pressures to improve cybersecurity.  The Federal Trade Commission continues to offer guidance and enforcement actions to put companies on notice of security expectations for IoT.  Government is looking to use procurement to raise the bar across the private sector.  Some proposals would require security certifications and mandate development practices for IoT devices sold to the government.


     
  5. Congressional Oversight Will Be a Factor
    2017 saw many hearings on cyber.  Multiple bills have been introduced in Congress that could affect private companies’ cyber posture.  Expect oversight related to security, such as from the recent Meltdown and Specter chip vulnerabilities. Congress will continue being reactive to the news cycle, focusing on vulnerabilities and incidents as they occur.



     
  6. International Regulation Threatens to Complicate Trade
    Multiple activities are underway to set standards and increase regulation across the globe.  From the EU’s Directive on security of network and information systems to a new Chinese cybersecurity regime, countries are passing laws that complicate international trade.  The business community should champion open and voluntary standards instead of regulation.

    Conclusion
    2018 will be a busy year.  Even without direct regulation, manufacturers will be affected by scrutiny of supply chain security, software, IoT, patching, and technical integrity across the economy.


2018 LIABILITY FORECAST

By Phil Goldberg & Victor Schwartz, Shook, Hardy & Bacon
Shook, Hardy & Bacon works with the NAM to address product liability and civil justice issues of importance to its members.  Below, we identify four liability-related trends that could affect your legal rights where we, along with the MCLA, expect to see developments during 2018.

FEDERAL

  1. Arbitration Agreements with Class Action Waivers: Manufacturers and other employers use pre-dispute arbitration agreements with class action waivers in many contracts, including over employment matters.  In 2012, the National Labor Relations Board ruled such class actions waivers were unlawful because they conflicted with federal law that allows workers to engage in “concerted efforts” to assert their labor rights. This year, the Supreme Court will decide whether to uphold the NLRB’s ruling in Earnst & Young LLP v. Morris or continue its case law supporting comparable pre-dispute arbitration agreements under the Federal Arbitration Act.

    More Information: Ernst & Young LLP v. Morris (U.S. Supreme Court)

     
  2. False Claims Acts: Manufacturers selling products paid for by government funds are subject to the False Claims Act (FCA), which allows “whistleblowers” to subject manufacturers to major fines for knowingly submitting a false claim to the government.  Plaintiffs’ lawyers have been trying to expand the FCA’s scope to cover more types of conduct, including regulatory violations having nothing to do with fraud.  In 2016, the Supreme Court held that any such issue must be “material” to the false claim.  In 2017, the Fifth Circuit held there is no FCA violation when the government agency is aware of the allegations and indicates it was not defrauded.  Courts are expected to continue clarifying the materiality standard in 2018.

    More Information: U.S. ex rel. Campie v. Gilead Sciences (9th Circuit)


STATE

  1. Venue & Personal Jurisdiction: In 2017, the U.S. Supreme Court issued important restrictions on where a person can file a lawsuit, namely only the state where the defendant is “at home” or if the state has specific jurisdiction over a particular plaintiff’s claim.  This ruling should curb the practice of stockpiling out-of-state claims in “Judicial Hellholes.”  As plaintiffs’ lawyers and some state courts look to defeat the impact of these rulings, the business community is seeking strong venue and joinder reform to make sure out-of-state claims are filed in the appropriate states.  In 2018, Missouri is shaping up to be a key battleground for these important reforms.

    More Information: BNSF Railway Co. v. Tyrrell (U.S. Supreme Court) & Bristol-Myers Squibb v. Superior Court of California (U.S. Supreme Court)

     
  2. Products Liability Work Arounds: Plaintiffs’ attorneys have stepped up efforts to find new ways to sue manufacturers over product harms outside of traditional product liability law.  In December, the California Supreme Court allowed a manufacturer that innovated a product to be sued over its competitor’s comparable generic product.  Several lawsuits have been filed to subject manufacturers and other businesses to liability for climate change, and there are numerous lawsuits seeking to make drug manufacturers pay for opioid and heroin abuse.  Typically, these suits are motivated by “deep pocket jurisprudence,” where manufacturers are named because they are the perceived deep pocket, or “regulation through litigation,” where policy advocates use the tort system to regulate products or emissions.  2018 will provide important indicators of whether courts will be receptive to this new wave of litigation.

    More Information: People v. ConAgra Grocery Products Co. (Ca. Ct. of App.)


Corporate Governance and Shareholder Activism

By Scott Kimpel, Hunton & Williams LLP

For the first time in over two years, the Securities and Exchange Commission is back to its full complement of five commissioners. Chairman Jay Clayton is likely to continue his practice of building consensus among the commissioners and operating on a bipartisan basis. To many SEC observers, this return to the agency’s historical practice is a welcome relief from the recent past in which the agency often pursued contentious rulemakings and novel theories of enforcement on a 3-2, party-line basis.

Entering his second year of service in 2018, Chairman Clayton is likely to continue a modest rulemaking agenda. He has made reform of the public company disclosure regime a priority, and is likely to continue to advance several proposed rules on that front. Many public companies were disappointed that Chairman Clayton did not do more upon taking office to moderate the SEC’s controversial CEO pay-ratio disclosure rules, which take effect for most companies in 2018. Unlike other agencies such as the EPA and NLRB, which appear to be working in earnest to scale back a series of Obama-era policy choices, the SEC so far has not been as aggressive in unwinding rules and interpretive guidance issued under the prior administration. Still, Chairman Clayton appears to be taking a more measured approach to completing other Dodd-Frank rulemakings on executive pay. In the SEC’s most-recently-published regulatory agenda, the SEC’s efforts to complete Dodd-Frank rules involving hedging, clawbacks and “pay for performance” now reflect a “to be determined” completion date in lieu of a future date certain. Hot-button issues like political spending disclosure or the use of a universal proxy card in contested director elections have fallen off the agenda altogether.

After revealing a hack of the SEC’s EDGAR reporting system, Chairman Clayton has also moved cybersecurity to the forefront of the agency’s priorities. To date, the SEC has not brought an enforcement action against a public company over disclosures concerning cybersecurity, but it continues several nonpublic investigations on this topic, focusing especially on public disclosures made before, during and after a significant data breach. With annual reports due for most public companies in March, now is a good time for publicly held manufacturers to update risk factors and other cybersecurity disclosures in their periodic SEC reports.

Shareholder activism saw another banner year in 2017. Data compiled by Lazard show that activists deployed $62 billion in 2017—a record amount—and conducted 193 campaigns globally in 2017, more than double the total capital deployed in 2016. Activists won 100 board seats in 2017, raising their five-year total to 551. Activism around M&A transactions also advanced. Attacks on large, well-known manufacturers such as GM, Honeywell and Procter & Gamble show that no company is immune. Once the province of hedge funds and special interest groups, many mainstream institutional investors have now also embraced a more activist perspective. In his most recent letter to CEOs [LINDA—I AM Blackrock chairman Larry Fink advocated in favor of a series of ESG (Environmental-Social-Governance) issues and rhetorically asked companies, “What role do we play in the community?” With the wind at their backs, expect activists of all stripes to redouble their efforts in 2018.


IP: New Opportunities, and Dangers, from Global Supply Chains and Sales Channels

By Brian Pandya, Wiley Rein LLP

The U.S. patent laws have long operated with a presumption against extraterritoriality.  A patent only blocks infringing activity in the United States.  This provision has frustrated manufacturers seeking to stop infringers that assemble products overseas.  It also protects manufacturers’ global sales and supply channels by insulating activities outside the United States from damages for infringing U.S. patents (of course, there is still the risk of infringing patents in other countries where products are manufactured or sold).  These longstanding assumptions about which sales and manufacturing activities U.S. patents reach may soon be turned upside down. 

Later this spring the Supreme Court will hear a dispute between two oilfield service companies over profits lost from the sale and assembly of tools used to survey the ocean floor for oil and gas deposits.  WesternGeco (a subsidiary of Schlumberger) holds patents on systems that allow sonographers to laterally steer and control miles-long streamers towed behind ships when surveying the deep sea.  About ten years ago, ION Geophysical began offering surveyors competing lateral steering technology.   WesternGeco sued ION for patent infringement and established that when surveyors combined ION’s components with other surveying tools to scan the ocean floor, those activities would have infringed WesternGeco’s patents had those activities occurred in the United States. 

An arcane provision of the Patent Act, 35 U.S.C. § 271(f), provides that offshoring activity that would be infringing in the United States is still an act of infringement when substantial steps occur in the United States (here, making and selling the steering equipment).  The Federal Circuit found that WesternGeco could not recover all the profits it lost from ION’s sales because many surveyors that purchased ION’s infringing products were based in international ports and surveyed international waters, all beyond the reach of U.S. patent laws.

In WesternGeco LLC v. ION Geophysical Corp. (No. 16-1011), the Supreme Court will consider whether “lost profits arising from prohibited combinations occurring outside of the United States” are available when infringement has been proven under Section 271(f).  The practical implications of this case are substantial.  If the Supreme Court overturns the Federal Circuit, as some commentators predict, manufacturers that sell products globally will have a new tool for pursuing infringers.  Any profits a manufacturer loses from an infringing product assembled and sold overseas could be recovered if the requirements of Section 271(f) are met.  On the flip side, overseas manufacturing and global sales activities that were previously assumed to be immune from U.S. patent laws sued for infringement could now be subject to liability.  The case will be argued later this spring and decided by the early summer.

Questions or Comments?

Contact Senior Vice President & General Counsel Linda Kelly at lkelly@nam.

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