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SUMMER 2019 VOLUME 1 6 / NUMBER 2 TODAYSGENER ALCOUNSEL.COM

DON’T TRIP OVER YOUR . . . Rules of Thumb for the Press Release PR Consultants and the Privilege

Global Work Rules: Suitable Seating for Employees in California • Wage Parity in the USA • #MeToo in China • Termination of Aging Workers in Spain • Pension Reform in Italy

• Litigation immunity and sham litigation • Practical steps for data security • What GCs should ask tax directors • GDPR one year later

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TODAY’S GENER AL COUNSEL SUMMER 20 19

Editor’s Desk

Data security regulation in this country has reached the point where federal standards, even strict ones, would be easier to deal with than the hundreds of state and local statutes that exist now. Sarah F. Hutchins and Alli Davidson discuss the importance of tracking state statutes and applicable case law on data issues impacting your industry, as you conduct regular self-audits of your data practices – something they highly recommend. Kathleen Pakenham writes about another kind of risk: the chief legal officer becoming disconnected from decisions regarding taxation. She provides a list of questions that counsel should be asking the tax department and warns against legal being left out of the loop with respect to tax disputes. Accountants, she says, are ill-equipped to assess the potential for litigation. The public relations area poses risks as well. Greg Kramer, Ryan Cox and Matthew Fry consider the ins and outs of getting positive attention in the marketplace while avoiding negative attention from regulators and plaintiffs’ lawyers. Then there is the key question of whether the attorney-client privilege protects company lawyers’ communications with outside PR firms. In his column, Todd Presnell outlines strategies to maximize the chances that lawyer-consultant communications never enter a court of law. Another article in this issue, by Dutch practitioner Els de Wind, assumes familiarity with trade unions, a type of organization that many younger readers may not be familiar with. In the EU the influence of unions is so extensive that, according to de Wind, it’s likely that some courts might view the agreements that they reach with employers as law. No such probability exists in the U.S., but de Wind cautions general counsel of multinational corporations to keep it in mind when dealing with their overseas employees. Jeffrey Mokotoff and Valerie Ferrier provide an overview of other developments in international employment law, including a codified response to the #MeToo Movement in China, and new regulations concerning pensions and retirement in Spain, Italy and Belgium.

Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Contents 1

|

Editor’s Desk

8 | Executive Summaries

COLUMNS

44 | Workplace Issues Fair Pay Audits Can Help in the Event of Litigation Find out if you can legally support pay differences. By Denise M. Visconti and Aaron D. Crews

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46 | The Antitrust Litigator Litigation Immunity and Sham Litigation Supreme Court protects patent holders. By Jeffery M. Cross 48 | Privilege Place In-House Counsel, PR Consultants and the Privilege Some front-end strategies for protection. By Todd Presnell 64 | Back Page Front Burner GC’s Several Roles Require Disparate Skill Sets Business counselor, legal eagle and manager. By Rees W. Morrison

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FEATURES

50 | Delivering Client Value With Technology Find solutions with inter-departmental uses. By Luke Kopmeyer 52 | The Most Saturated Legal Market in the World New boutique firms, lower fees. By Tamar Sacerdoti 56 | Supreme Court Changing Where You Can Be Sued Lower courts are heeding the directive. By Mark Kressel and Jacob McIntosh 60 | Best Practices for Streamlining M&A Moving from spread sheets to cloud-based playbooks. By Nick Perdikis


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SUMMER 2019 TODAY’S GENER AL COUNSEL

Contents

L ABOR & EMPLOYMENT

14 | International Labor Standards in the Global Economy Conduct code might morph into law. By Els de Wind 16 | Sit or Stand Is the Question for California Employers Plaintiffs attorneys have taken note. By Tim M. Freudenberger and Amy S. Williams 18 | Developments in International Employment Law #MeToo spurring changes worldwide. By Jeffrey D. Mokotoff and Valerie K. Ferrier

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20 | Transgender Protections in the Workplace Supreme Court will rule in 2020. By Trevor J. Hardy and Stephanie E. Harley

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CYBERSECURIT Y

COMPLIANCE

24 | Data and Business Litigation Federal regulation is coming, state regulations are here. By Sarah F. Hutchins and Alli Davidson

34 | What General Counsel Should Ask Tax Directors Accountants aren’t reliable advisors about litigation risk. By Kathleen Pakenham

E-DISCOVERY

20

28 | In-House Counsel Control of Technology and Review Early case assessments help GCs do more with less. By Thomas Gricks INTELLEC TUAL PROPERT Y

30 | Responding to Surge in Fraudulent USPTO Specimens Patent office is working to solve the problem. By Tamar Niv Bessinger and Jessica Vosgerchian

36 | A Few Rules of Thumb About Press Releases Be confident, not definitive. By Greg Kramer, Ryan Cox and Matthew Fry 38 | GDPR One Year Later Grace period is ending. By Todd Daubert and Peter Stockburger 40 | Third-Party Workplace Compliance Investigations A buffer between employees and their supervisors. By Kate Thompson and Charles Diamond


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EDITOR-IN-CHIEF Robert Nienhouse MANAGING EDITOR David Rubenstein

EXECUTIVE EDITOR Bruce Rubenstein

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CONTRIBUTING EDITORS AND WRITERS

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Tamar Niv Bessinger Ryan Cox Aaron D. Crews Jeffery M. Cross Todd Daubert Alli Davidson Els de Wind Charles Diamond Valerie K. Ferrier Tim M. Freudenberger Matthew Fry Thomas Gricks Trevor J. Hardy Stephanie E. Harley Sarah F. Hutchins

Greg Kramer Luke Kopmeyer Mark Kressel Jacob McIntosh Jeffrey D. Mokotoff Rees W. Morrison Kathleen Pakenham Nick Perdikis Todd Presnell Tamar Sacerdoti Peter Stockburger Kate Thompson Denise M. Visconti Jessica Vosgerchian Amy S. Williams

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Executive Summaries L ABOR & EMPLOYMENT

8

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International Labor Standards in the Global Economy

Sit or Stand Is the Question for California Employers

Developments in International Employment Law

By Els de Wind Van Doorne N.V.

By Tim M. Freudenberger and Amy S. Williams Carothers DiSante & Freudenberger LLP

By Jeffrey D. Mokotoff and Valerie K. Ferrier FordHarrison

Over the years, trade unions have been exercising pressure on multinationals to sign international framework agreements (IFAs), which are negotiated between a global union’s federation and a corporation to apply to the company’s global operations, often including their supply chain. For trade unions, IFAs are a way of promoting recognition of their organization and worker rights at a global level. The question arises, can an IFA or code of conduct be enforced in a court of law? And what law would the court apply? If a country has ratified an International Labor Organization (ILO) convention, it must make sure that its national law conforms to the terms of that convention. But a court could decide that a reference to an ILO convention or specific international labor standard (ILS) is so unambiguous and clear that it has become part of the IFA and must be considered a contractual obligation of the company. It may be true that IFAs and some other corporate instruments are not designed to be legally enforceable, but multinationals should be aware what commitments they enter into when signing one. They should carefully consider what the consequences are, or might be, of references to ILO conventions, ILS, the ILO Fundamental Principles at Work, and other similar bodies of rules. It might also be worthwhile to verify that the IFA or any such instrument does not conflict with the national law of the country or countries in which it is doing business.

California requires employers to provide “suitable seats” for employees to use at any workstation where the “nature of the work” performed there “reasonably permits the use of a seat.” Cashiers, greeters, bank tellers and even security guards have filed lawsuits claiming that their employer failed to provide them with suitable seats. Customer service, however, is a crucial aspect of operating any business and requires meeting customer expectations of service. Can an employer meet those expectations if its employees are seated? California employers are faced with a difficult decision. Whether the nature of the work reasonably permits the use of seats requires examination of the tasks assigned to employees and whether it is feasible to work while seated; the relationship between standing and sitting tasks, and whether sitting, or transitioning between sitting and standing would interfere with job performance; an employer’s business judgment concerning customer service and other standards; and physical layout of a workspace. A seat is required when the work reasonably permits it, and when a suitable one is available. The employer bears the burden of showing compliance is infeasible because no suitable seating exists. While California may be the most visible in its pursuit of employers regarding suitable seating, Florida, Massachusetts and New Jersey all have some version of a suitable seating law. With settlements providing windfalls to plaintiffs’ attorneys and state funds alike, we can expect more states to follow suit.

This article provides an overview of key employment law developments in the U.S., China and Europe. The U.S. Department of Labor recently issued its proposed wage overtime regulations to replace the current regulations, which have remained unchanged since 2004. The DOL also proposed regular increases to the minimum annual salary threshold every four years, which will be determined after additional public notice-and-comment periods for each subsequent increase. The proposed regulation may have a significant impact on employers, as it is purported to make more than one million additional U.S. workers eligible for overtime. In February 2019, in response to the #MeToo Movement, the Chinese government issued a notice on standardizing the recruitment process and promoting the employment of women. Pursuant to this notice, gender discrimination is now absolutely prohibited during the recruitment process. Employers who have already published a recruitment notice including any discriminatory language may be faced with punishment including penalties ranging from $1,490 to $7,450, and may also be added to the credit blacklist. Belgium has transposed the EU “Single Permit” Directive under which foreign employees will only be required to obtain a single authorization to work and reside in a member state. Collective bargaining agreements in Spain can now include clauses allowing for termination of an employment contract once the worker has reached the legal retirement age established in Social Security regulations.


TODAY’S GENER AL COUNSEL SUMMER 2019

Executive Summaries CYBERSECURIT Y

E-DISCOVERY

PAGE 20

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Transgender Protections in the Workplace

Data and Business Litigation

In-House Counsel Control of Technology and Review

By Trevor J. Hardy and Stephanie E. Harley Ulmer & Berne LLP

Over the last 20 years, an influx of cases addressing transgender employment protections have made their way through federal district and appellate courts. Several appellate courts recognize that discrimination based on gender identity or gender transition violates Title VII of the Civil Rights Act of 1964 (CRA), which protects individuals from discrimination in employment; Title IX of the CRA, which protects individuals from discrimination in education; or the Equal Protection Clause of the United States Constitution. In April 2019, the United States Supreme Court accepted three cases related to employment protections for LGBTQ individuals. A decision on these cases is expected in 2020. There is no way to know what the Court will do, and whether protections under Title VII or other laws will extend to transgender individuals. In the interim, employers are left to examine the law in their judicial circuit, state and locality. Regardless of additional rulings, fostering a welcoming environment minimizes the risk of litigation to determine whether the jurisdiction in which an employer operates recognizes protections for transgender employees. The law on protections for transgender employees will remain unsettled for at least one more year. Regardless of how the United States Supreme Court rules, employers can foster a workplace culture that emphasizes the benefits of diversity, whether it is based on race, ethnicity, gender, sexual orientation, veteran status or other traits that ultimately lead to success for individual employees and for companies as a whole.

By Sarah F. Hutchins and Alli Davidson Parker Poe

Data can provide competitive advantages, help streamline business functions, serve as a key resource to document processes and prove positions in legal disputes. On the other hand, data exposure is becoming a frequent source of civil lawsuits as companies face claims of negligence, breach of contract or other legal causes of action after a breach. There are practical steps that companies can take before a breach or a lawsuit to better protect their intellectual property and put themselves in a stronger position when the need for litigation arises. Federal attempts at data security standards have yet to coalesce, but there are federal regulations impacting certain industries or types of information. U.S.-based companies that store and use Europeans’ personal data are subject to the GDPR. Also, every state in this country has its own data breach and/or protection laws. Businesses need to review how they grant access to data. Only give employees access to information and the ability to do things with technology that they need to do their job. Regular self-audits of data practices are fundamental, as is awareness of how data standards continue to evolve through legislation and litigation. It is imperative to track federal and state statutes, as well as applicable case law, on data issues impacting your industry. Each court ruling is a piece of the puzzle that can help businesses determine their overall risk profile and update their practices where necessary.

By Thomas Gricks Catalyst

In-house litigation counsel are faced with the dilemma of how to do more with less, and at a lower cost. Some are managing these dual objectives by strategically leveraging technology and review resources before and during the discovery phase of litigation. The process often begins with inhouse counsel driving an early case assessment (ECA) to scope litigation alternatives. Then, through a careful and considered approach to document review, typically the most expensive component of discovery, counsel can minimize expense. An ECA is devoted to quickly locating the critical evidence that will support positions that may ultimately be taken in litigation. Acquiring that knowledge early will reveal evidentiary gaps and drive decisions. If further litigation is inevitable, a carefully crafted document review strategy will minimize discovery costs. One of the primary components of any efficient document review will be a technology-assisted review (TAR) process. The TAR 1.0 protocol focuses on reviewing a relatively small set of documents to train the system to classify the remainder of the documents as responsive or not responsive. The TAR 2.0 protocol relies on continuous active learning, and uses every coding decision to train the algorithm. Leveraging technology and review resources throughout the entire litigation process will enhance efficiency and minimize cost. ECA drives case management strategies. Active review management will facilitate control of the most costly component of discovery. In-house counsel are using these techniques to control their litigation spend and improve efficiency.

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Executive Summaries INTELLEC TUAL PROPERT Y

10

COMPLIANCE

PAGE 30

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Responding to Surge in Fraudulent USPTO Specimens

What General Counsel Should Ask Tax Directors

A Few Rules of Thumb About Press Releases

By Tamar Niv Bessinger and Jessica Vosgerchian Fross Zelnick Lehrman & Zissu

By Kathleen Pakenham Cooley LLP

By Greg Kramer, Ryan Cox and Matthew Fry Haynes and Boone

The USPTO has recently seen a surge in fraudulent trademark applications relying on digitally altered specimens of use. Rather than providing an image of the genuine goods bearing the trademark, applicants use graphics software to digitally place an image of the trademark on an image of the goods. The sudden and significant increase in seemingly fraudulent trademark applications by Chinese applicants is likely motivated by government subsidies offered in certain regions of China. Most fake specimens exhibit telltale traits that make them easy to identify. The USPTO has been proactive in rejecting applications based on altered specimens, and third parties can take action to prevent fraudulent applications and registrations or to remove fraudulent registrations. A dedicated email address to receive reports of suspected false specimens from concerned third parties has been set up: TMSpecimen Protest@uspto.gov Another method for challenging a specimen of a published application is initiating an opposition before the TTAB. Anyone who believes they would be damaged by the registration of a mark has standing to file an opposition or cancellation as long as they have a real interest in the proceedings and a reasonable basis for the belief of damage. Whether through the new email notice system or traditional TTAB actions, there are effective strategies for a concerned third party to alert the USPTO of fraudulent applications based on altered specimens that impact their business interests or trademark rights.

Since tax departments report up through the finance rather than legal function in most companies, it is easy for chief legal officers to be disconnected from one of the most legally complex and risky parts of an enterprise. Couple that with the fact that most tax directors are accountants, not lawyers, and you have the all-toocommon situation in which the chief legal officer is unaware of tax disputes until it may be too late. This can be avoided, however, if you know the right questions to ask and understand where in-house counsel can be most helpful to the tax department. Tax departments are staffed with accountants with ties to accounting firms. There is a natural affinity towards dealing with accountants as advisors, but an accounting firm may not be the best choice to objectively advise the company on tax litigation risk, particularly where the accounting firm advised on the underlying tax position or prepared the tax return. IRS audits can be mini-litigations that demand counsel experienced in tax disputes. Tax arguments can hinge on legal concepts with which the legal generalist will be familiar — statutes of limitation, contract law, valuation principles, securities law, insurance law and employment law. All too frequently, we see tax departments relying on outdated decisions or cases from the wrong judicial circuit. Regular communication, asking the right questions and internal education are keys to bridging the gap between the legal and tax functions.

Like public reports filed with the SEC, press releases can draw the attention of regulators and the plaintiffs’ bar. Treat social media posts with the same caution as SEC filings and formal press releases, as regulators, plaintiffs’ lawyers and investors are paying attention. This is a particular vulnerability for public companies. Unlike formal communications such as press releases, the personal social media account of a public company officer may not always be subject to company disclosure controls and procedures. It is important to portray confidence to the market, although it is advisable to avoid being definitive. If the events described in press releases fail to occur, an issuer is potentially susceptible to securities fraud claims. The dissemination of material information by press releases may be a regulatory requirement for exchangelisted issuers. Public company officers responsible for the disclosure of material information should abide by this rule: “Does this information make me want to buy or sell the company’s stock?” If the answer is yes, then bring other officers and outside counsel into the conversation. After the initial excitement of making an important announcement, the issuer’s diligence doesn’t end. General counsel should be mindful of the content of previous social media posts and press releases and, if they require correction, should update or even retract them. This will help ensure that issuers get the positive kind of attention they want or at least avoid negative attention from regulators and plaintiffs’ lawyers.


TODAY’S GENER AL COUNSEL SUMMER 2019

Executive Summaries FEATURES

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GDPR One Year Later

Third Party Workplace Compliance Investigations

Delivering Client Value With Technology

By Kate Thompson and Charles Diamond Beau Dietl and Associates

By Luke Kopmeyer HighQ

All major corporations have HR departments and policies to combat workplace discrimination and harassment, yet the impact of the #MeToo movement and its consequences demonstrates that current systems are failing to meet the needs of both businesses and employees. A developing industry of third-party support services has arisen to address these vulnerabilities by tackling the work of fact-finding and investigation. Third-party investigators can often greatly reduce the liability of their corporate clients. By providing a buffer between employees and their supervisors, third-party services help preserve confidentiality, prevent career-damaging rumors and decrease the possibility of managerial interference in an investigation. Investigation of good faith claims can be conducted through a combination of interviews, forensic examinations, data recovery and other methods. Viable services should incorporate best practices including literacy in Title VII actions, privacy and employment law, and Fair Credit Reporting Act compliance, among others. Creating a corporate climate and office culture that is violation free cannot be effectuated by employing investigators. Comprehensive human resource structures designed to combat and prevent violations and liabilities will create the best protections for modern companies. HR should continually engage in proactive measures to protect its employees, business and reputation. One meaningful application of data obtained through investigations is using it to inform policies and procedures to decrease the ultimate need for these services.

Beyond managing legal matters, in-house counsel must understand their larger role in driving revenue to the business. This requires an investment of time to understand each department’s function, goals and challenges. The business partners and leaders trust that the legal team is protecting the business. This allows them to focus on their main goal of creating revenue. In order to build trust, in-house counsel must be proactive in protecting the business. Valuable legal teams reduce risk before a problem arises. Legal teams must redefine themselves as teammates and partners and avoid becoming perceived as the “no” department. Be open to trying new processes and brainstorming creative solutions. Leverage technology to enhance partnerships and communication between the legal team and other departments. There are many legal tech solutions available that act as a catalyst to improve processes, efficiency and communication for in-house teams. The demand from corporate legal teams for better visibility into the status of their legal matters is driving legal tech adoption in the law firms they work with. Don’t be afraid to take a hands-on, involved approach with your outside counsel. Give them access to and request that they work within your preferred collaboration platform to deliver updates, documents, financial information and more. It’s okay to demand and expect more from the law firms you work with. Technology can enhance your partnership with the business, provide additional value to all departments and strengthen your relationships with outside counsel.

By Todd Daubert and Peter Stockburger Dentons

One year ago, the EU’s GDPR went into effect. The increased focus on privacy has led regulators to consider whether their laws should follow the EU’s approach of treating privacy as a fundamental human right, or the traditional approach in the United States of addressing market failures on an issue-by-issue basis. In the months after the GDPR went into effect, some regulators in the EU took a relaxed approach to enforcement. That informal grace period appears to be ending. A report indicates that 55,955,871 euros in aggregate penalties for almost 60,000 reported data breaches were imposed during the first nine months of the GDPR. We have also seen at least one extraterritorial enforcement action. The UK’s Information Commissioner’s Office investigated a Canadian entity’s involvement with Cambridge Analytica’s alleged use of EU citizens’ data for analytics for the Brexit campaign. The company agreed to comply with a cease order. The jurisdictional question was never fully resolved. Over the next few years, we are likely to see increased enforcement and formal guidance concerning the GDPR. We are also likely to see privacy issues remain in the public spotlight, with many regulators around the world considering whether to adopt stricter data privacy and protection laws. It is important for companies to consider their own data practices and how they can increase market share, improve customer trust, and minimize risk through the implementation of sound privacy and data security policies and practices.

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Executive Summaries FEATURES

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The Most Saturated Legal Market in the World

Supreme Court Changing Where You Can Be Sued

Best Practices for Streamlining M&A

By Tamar Sacerdoti Robus Consulting & Legal Marketing

By Mark Kressel and Jacob McIntosh Horvitz & Levy

By Nick Perdikis Devensoft

One of the most prominent characteristics of the Israeli legal market is the sheer number of attorneys, one for every 160 people, making it the most saturated legal market per capita in the world. Since a legislation change in 2012 allowing international law firms and attorneys to register their services in Israel, over 90 law firms are active within the Israeli legal market today, adding a congested international layer to the market. Competition has opened the market to new boutique law firms, and the number of law firms has decreased legal fees. The Israeli legal market is increasingly using outsourcing as an effective solution to the market’s new challenges. Those outsourced find themselves unemployed or working for small wages in comparison with large law firms. Legal outsourcing provides these attorneys desperately needed supplementary income. On the other hand, those doing the outsourcing — law firms and general counsel at local and international corporations — find it a cheap, quick and effective tool for ad hoc projects they do not have the capacity to handle. Due to the start-up atmosphere of the Israeli market, numerous disrupting technologies have been created that provide solutions for any size law firm or in-house counsel. In comparison to the United States and UK markets, Israeli legal teams have taken more time to implement legal technology into their daily routine. The uniqueness of the Israeli legal market has provided new opportunities for local and international businesses.

In three decisions over the past five years, the Supreme Court has curtailed the power of courts over out-of-state and international defendants by restricting both general personal jurisdiction and specific personal jurisdiction. In Daimler AG v. Bauman, it held that the Constitution permits general jurisdiction in a court only where a company is incorporated or has its principal place of business. The exception is a case where a corporation’s operations are “so substantial and of such a nature as to render the corporation at home in that State.” In BNSF Railway Co. v. Tyrrell it made clear that a corporation doing business in many states cannot “be deemed at home in all of them.” In BristolMyers Squibb Co. v. Superior Court, it held that specific jurisdiction exists only where there is a “connection between the forum and the specific claims at issue.” In the future, defendants can expect to see plaintiffs develop new jurisdictional theories, or creative extensions of existing theories, still left open by the Supreme Court. For example, traditionally, a corporation can be sued where it has voluntarily submitted to jurisdiction. Consequently, a forum selection clause within a contract can still create specific jurisdiction over a dispute arising from that contract. The Supreme Court has interpreted the Constitution to favor global commerce and local litigation. Despite some resistance from various courts and plaintiffs, most lower courts are implementing this directive and limiting defendants’ exposure to suit in far-flung locales.

Most M&A activity is conducted using processes that do not take advantage of current technology. Deal attorneys and legal analysts rely on spreadsheets-based checklists to track the complexities of deal flow. Spreadsheets still have a role to play, but recognize their shortcomings. There are distinct advantages to leveraging digitized cloud-based playbooks designed with the complexities of the M&A legal process in mind. Cloud-based playbooks can be easily customized, and the nuances of deals can be incorporated in real time. They can be deployed across teams, eliminating static spreadsheetbased playbooks that can quickly become outdated. Automation adds enormous benefits to due diligence and integration processes. In particular, it helps reduce the hours spent on repeatable administrative tasks while ensuring compliance. With automated workflows, managers can assign tasks to other team members, receive notifications about updates and deadlines, and create dependencies. Technology can also help facilitate a better understanding of organizations’ different cultures as companies go through the M&A process. Ensuring that M&A stays on track requires a shift from fragmented, manual processes to a repeatable and collaborative team approach. With the right strategies and tools, teams can streamline their processes. They can make sure that all components for a successful merger or acquisition are accounted for, laying the groundwork for a long and fruitful partnership.


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SUMMER 2019 TODAY’S GENER AL COUNSEL

Labor & Employment

International Labor Standards in the Global Economy By Els de Wind

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orporate social responsibility has moved up companies’ agendas, particularly those of multinationals. Companies in their business agreements and policies — international framework agreements (IFAs), corporate codes of conduct, human rights policies, and supply chain or corporate social responsibility (CSR) policies — refer to international labor standards such as those found in the 1998 International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work. Multinational institutions have incorporated references to the ILO Fundamental Principles into instruments — the United Nations Global Compact and the United Nations’ Guiding Principles on Business and Human Rights (UNGPs), the Organization for Eco-

nomic Co-operation and Development Guidelines (OECD) and the ISO 26000 Standard — that apply to companies. Over the years, trade unions have been exercising pressure on multinationals to sign IFAs, which are negotiated between a global union’s federation and the corporation to apply to the company’s global operations, often including their supply chain. For trade unions, IFAs are a way of promoting recognition of their organization and worker rights at a global level. Through IFAs, the unions gain new opportunities to organize and exert influence at the company level. For companies, IFAs can mean a way to improve dialogue with local trade unions, particularly in countries where such dialogue does not exist through

worker representation bodies. IFAs can help to strengthen their competitiveness in global markets with regard to ethical standards, and signal their commitment to corporate social responsibility. Codes of conduct are usually set up by companies or groups of companies to set rules embedding their environmental and social principles and values within the company. Very often, references made in IFAs or corporate instruments are not clear; and there is not a full comprehension of their legal consequences. Most “rights” are described in a very general way. Words such as “respect” and “acknowledge” are used rather than contractual language such as “bound by” or “comply.” Can these references create direct obligations for companies even if the


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Labor & Employment obligations go beyond the requirements of the national law of the countries in which they operate? ILO conventions are directed to governments of member states, and only member states that have ratified these conventions are bound by them. To become legally binding, ILS must be implemented into national legislation and regulation. Not only can these references create legal uncertainty, there is also a risk that a company has not considered the extensive non-binding guidance given to some ILO conventions and recommendations through the tripartite ILO supervisory system. The legality and legal implications of such non-binding guidance are complex and, in some cases, controversial. An important example concerns Convention 87 on the Freedom of Association and Protection of the Right to Organize. There is an increasing sense in the international business community that this convention has been broadly interpreted without any mandate or legal basis. Direct requests to ILO member states sometimes go beyond the original purpose and meaning of Convention 87 and thus may create new obligations for ratifying member states. The Committee of Experts on the Application of Conventions and Recommendations (CEACR) has provided detailed and extensive (non-binding) guidance on the right to strike, and it has requested governments that ratified Convention 87 to align their laws and practice to its own rules on the right to strike. However, no right to strike is contained within Convention 87 or any other subsequent ILS adopted at the International Labor Conference. The circumstances of the conclusion of Convention 87 clearly establish the intention to exclude the issue of strikes from the standard setting. Governments have no obligation under Convention 87 to adhere to the CEACR`s interpretation on the right to strike. It is important to make sure that a national court asked to determine the extent of the legal obligations of the company pursuant to such reference to Convention 87 will not defer to the CEACR’s non-binding guidance. Companies are free to contract as

they see fit, provided the terms are not unlawful within the jurisdiction in which they operate. They are generally free to make commitments in which they agree to engage in labor practices that confer rights upon workers that exceed those available under national law. But companies might have signed up to more stringent obligations than they realized when they signed the IFA or other instrument in which they referred to ILO conventions or ILS. Unratified conventions and recommendations can in this way influence national law. The question arises, can an IFA or code of conduct be enforced in a court of law? And what law would the court apply? If a country has ratified an ILO convention, it must make sure that its national law conforms to the terms of that convention. But a court could decide that a specific reference to an ILO convention or specific ILS is so unambiguous and clear that the ILS has become part of the IFA and must be considered a contractual obligation of the company. It is generally accepted that codes of conduct cannot be enforced in legal proceedings, unless the code or parts of it have become part of an individual employment contract and the reference to the code of conduct was clearly phrased. However, most codes provide mere aspirations rather than contractual language. And which court would have jurisdiction in case the IFA does not include a choice for arbitration? IFAs are agreements between a multinational and one or more global unions. A striking feature of many, if not most, IFAs is that they do not include a clause on jurisdiction, or applicable law for that matter. Might this be an indication that the parties to an IFA do not consider the agreement to be enforceable in a court of law? Which court has jurisdiction and what law applies must be determined based on private international law rules. One could argue that since there is no specific legal framework for the legal enforcement of IFAs at an international level, the question of whether an IFA is legally enforceable will have to be deter-

mined based on the law of the court it comes before. Or an IFA could qualify as a collective (labor) agreement under a country’s national law, depending on the definition of a collective agreement under that law. Even if an IFA does not qualify as a collective agreement, it may still be enforceable on other grounds. Some argue that not only are IFAs by their nature unenforceable because they have a political character rather than a legal one but IFAs are primarily designed to operate as “soft law” by creating a mechanism for collaborative effort through social dialogue. The question of whether an IFA can be enforced in a court of law is still a matter of debate. It depends on its content, the requirements of the court and the applicable law. So far, the general thought seems to be that an IFA is meant to create a social dialogue framework rather than contractual obligations that can be enforced in court. From a business perspective, it is possible to include in an IFA that its statements cannot be legally enforced. Some IFAs are clear on this point. It may be true that IFAs and some other corporate instruments are generally not designed to be legally enforceable, but multinationals should be aware what commitments they enter into when signing one. And they should carefully consider what the consequences are, or can be, of references to ILO conventions, ILS, the ILO Fundamental Principles at Work and other similar bodies of rules. It might also be worthwhile to verify that the IFA or any such instrument does not conflict with the national law of the country or countries in which it is doing business.

Els de Wind is a partner in the Amsterdam-based law firm Van Doorne N.V. She currently serves as Senior Vice-Chair of the International Bar Association’s Global Employment Institute. Wind@vandoorne.com

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Labor & Employment

Sit or Stand Is the Question for California Employers By Tim M. Freudenberger and Amy S. Williams

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alifornia’s regulations require employers to provide “suitable seats” for employees to use at any workstation where the “nature of the work” performed there “reasonably permits the use of a seat.” In the last decade, workers in jobs that have traditionally required standing such as retail and grocery store cashiers, greeters, bank tellers and even security guards have filed lawsuits claiming that their employer failed to provide them with suitable seats. Customer service, however, is a crucial aspect of operating any successful business and requires meeting customer expectations of fast, efficient service. Can an employer meet those expectations if its employees are seated? California employers are faced with a

difficult decision: to provide seats or not to provide seats. The decision is not simple. More than a century ago, the California Legislature enacted the first suitable seating law, requiring suitable seats for all female employees in the mercantile industry to use when not engaged in the active duties of their employment. Over the next 60 years, the requirement expanded to include suitable seating at any workstation when the nature of the work permits, and was extended to all employees regardless of age and gender — the rationale being the protection of workers and consideration for the welfare of employees. Since 1976, California employers have been saddled with the suitable seating law that requires seats when the nature

of the work reasonably permits, and seats reasonably close to the work area that employees can use when their work requires them to stand. Suitable seating maintained a low profile for decades until the enactment of California’s Private Attorneys General Act (PAGA) in 2004. Before PAGA, only injunctive relief was available to redress a suitable seating violation and such injunctive relief could only be imposed by the California Labor Commissioner. PAGA opened the door for an employee, acting as a private attorney general, to bring an action for civil penalties on behalf of him/herself and other allegedly aggrieved employees as a representative of the state. Accordingly, PAGA triggered a cascade of litigation and employer panic. With violations of


TODAY’S GENER AL COUNSEL SUMMER 2019

Labor & Employment suitable seating resulting in possible civil penalties accruing at a rate of $100 per employee per pay period, along with attorneys’ fees and costs, the use of PAGA as a vehicle for bringing representative actions for suitable seating violations is now rampant. Providing seats for every worker in every area for every task sounds like a simple response but it could open the door to more issues. Providing seats could impact ADA access issues, impose hazards for customers and employees, and increase awkward employee postures and movements that cause injury instead of providing relief from fatigue. It could impact productivity, customer service and sales by taking up precious floor space. Until 2016, neither the California Department of Labor Standards Enforcement nor any California Court had interpreted the suitable seating provisions, and so employers had no guidance in evaluating compliance. In 2016, the California Supreme Court in Kilby v. CVS Pharmacy answered some, but not all, questions. According to the ruling, the nature of the work refers to the “tasks performed at a given location for which a right to a suitable seat is claimed,” rather than a holistic consideration of the entire range of duties performed anywhere on the job site. If the tasks performed at a specific location reasonably permit sitting, and provision of a seat would not interfere with performance of tasks that may require standing, a seat is required. For example, an employee at a retail store may perform both sales and cashier duties, and have the right to sit while cashiering but not while selling. Whether the nature of the work reasonably permits the use of seats at a specific workstation requires examination of the following:

• The relationship between standing and sitting tasks, the frequency and duration of those tasks with respect to each other, and whether sitting, or the frequency of transition between sitting and standing would interfere with other tasks or the quality and effectiveness of overall job performance. • An employer’s business judgment concerning the expected levels of customer service and other standards, and physical layout of a workspace.

Employers may not unreasonably design a workspace to further a preference for standing.

• The tasks assigned to employees and whether it is feasible to complete the work while seated.

There are several ways to evaluate these factors. Employers may or may not engage an ergonomist, but it is important to evaluate whether a seat can be used safely and effectively within the work environment. The physical layout of a workspace is important, including how it informs expectations of employer and employee with respect to job duties. Notwithstanding, reasonableness remains the touchstone and employers may not unreasonably design a workspace to further a preference for standing. The seating analysis must also take into account an employer’s business judgment as to whether the nature of the work requires standing. It is objectively reasonable for an employer to require a certain level of customer service that should be assessed, along with other relevant tasks and obligations, in determining whether the nature of the work reasonably permits use of a seat at a particular location. The California Supreme Court rejected the notion that an employee’s entitlement to a seat be based on the employee’s physical characteristics. Rather, a seat is required when the nature of the work reasonably permits it, and when a suitable one is available. Ultimately, the employer bears the burden of showing compliance is infeasible because no suitable seating exists. The good news is that before an employee can commence a suitable seat-

ing PAGA action, they must send written notice to the employer and the Labor and Workforce Development Agency (LWDA) supporting their allegation. The employee must then wait 65 days for the LWDA to respond. Only after expiration of the 65-day period can the employee commence a civil lawsuit. Thus, the employer has 65 days within which to investigate and, if appropriate, implement seating, thereby significantly limiting potential liability. The suitable seating law also requires that an adequate number of seats be placed in reasonable proximity to the work area, and that employees are permitted to use them when they are not engaged in their active duties. While California may be the most visible in its pursuit of employers regarding suitable seating, Florida, Massachusetts and New Jersey all provide for some version of a suitable seating law. With settlements providing windfalls to plaintiffs’ attorneys and state funds alike, we can expect more states to follow suit.

Tim M. Freudenberger is Founding Partner and Chair of the Class Action Defense Litigation Practice Group at Carothers DiSante & Freudenberger LLP. He defends California and national employers in all aspects of labor and employment law and related litigation, with a special emphasis on defending class action wage and hour lawsuits, class action employment discrimination lawsuits, PAGA actions and other complex litigation matters. tfreud@cdflaborlaw.com Amy S. Williams is a Partner at Carothers DiSante & Freudenberger LLP. She has extensive experience representing employers in single plaintiff actions, with a special emphasis on the defense of wage and hour class and collective actions and PAGA claims. awilliams@cdflaborlaw.com

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Labor & Employment

Developments in International Employment Law By Jeffrey D. Mokotoff and Valerie K. Ferrier

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ver the past few years, employment law has been high on the agenda for many governments worldwide, leading to a wide range of notable changes and updates. This article provides an overview of key employment law developments in the United States, China and Europe. United States. The U.S. Department of Labor (DOL) recently issued its proposed wage overtime regulations to replace the current regulations, which have remained unchanged since 2004. Under the federal Fair Labor Standards Act, United States “non-exempt” employees are entitled to be paid overtime at a rate of one and a half times their regular hourly rate of pay for all hours worked over 40 in a week, subject to certain exemptions. Among those exempt from

the overtime requirements are “white collar” exempt employees who have certain professional, managerial or discretionary authority (the “duties test”), combined with a minimum annual salary. This category of workers is known as “exempt employees.” The DOL proposed raising the minimum annual salary threshold for workers to qualify for the white-collar exemptions from the current $23,660 to $35,308 (or $679, up from the current $455 per week). For so-called “highly compensated employees” (employees who do not have to be paid overtime if they meet just one of the duties of one of the white-collar exemptions), DOL proposed raising the annual salary threshold from $100,000 to $147,414. Following initial public comment, the

DOL also proposed regular increases to the minimum annual salary threshold every four years, which will be determined after additional public notice-andcomment periods for each subsequent increase. The proposed regulation may have a significant impact on employers, as it is purported to make more than one million additional United States workers eligible for overtime. In 2016, the Obama Administration promulgated a rule to increase the minimum salary for exempt employees to $47,892 annually (or $921 per week). That rule would have also increased the salary threshold for highly compensated employees to $147,414, the amount of the current proposal. Before the Obama Administration’s rule could go into effect, however, it was enjoined by the United


TODAY’S GENER AL COUNSEL SUMMER 2019

Labor & Employment States District Court in the Eastern District of Texas, on the grounds that the DOL had exceeded its rule-making authority. In an attempt to align overtime regulations with modern pay practices, the DOL in the current proposal has also proposed allowing employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary test, provided such bonuses are paid at least annually. The DOL stated

should take steps now to ensure they would comply with the final rule when it does take effect, which is projected to be January 2020. CHINA. The People’s Republic of China’s Individual Income Tax Law (IIT Law) was amended last year. According to the new IIT Law, which took effect on January 1, 2019, employees’ livelihood expenditure — such as education, medical treatment, housing or support for elders — could be deducted from their wages before tax. Employees can apply

insurance reform. Last year, as part of the governmental function reform, the duty to collect social insurance premiums was to be transferred to the tax authority. As of May 1, 2019, the employer’s contribution rate to their employees’ pension was reduced from 20 percent to 16 percent, and their contribution towards social insurance was reduced as well. On the other hand, maternity insurance will be combined with medical insurance gradually until the end of 2019. While simplifying the social insurance contribution

Collective bargaining agreements in Spain can now include clauses allowing for termination of an employment contract once the worker has reached the legal retirement age. that it believes the proposed update to the standard salary level test will maintain its traditional purpose and help employers more readily identify exempt employees. The DOL did not propose any changes to the duties test for each of the white-collar exemptions. Employers should also examine state requirements, which in some cases apply different salary thresholds from those required under federal law. Employers with operations in New York, for example, cannot treat a New York employee as exempt from the overtime provisions of the New York Labor Law unless the employee is paid between $832-$1,125 per week (depending on the employer’s size and location), in addition to meeting the applicable duties test. Similarly, employers with California operations can only treat employees in California as exempt if they perform exempt duties and are paid an annual salary of at least $45,760 for those employers with 25 or fewer employees, or at least $49,920 for those with 26 or more employees. The DOL set a 60-day public comment period, which expired on May 21, 2019. During that time, nearly 60,000 people submitted a torrent of criticism, largely arguing that the proposed increase was too low. Although the DOL will first review the comments before implementing any change, employers

for such special deductions via their employer or they can apply themselves. Therefore, under the new law, employers may have the additional burden of processing the IIT deduction for eligible employees. In February 2019, in response to the #MeToo Movement, the Chinese government issued a notice on standardizing the recruitment process and promoting the employment of women. Pursuant to this notice, gender discrimination is now absolutely prohibited during the recruitment process. Examples of prohibited behavior are as follows: including any gender restriction or preference; restricting the employment of women or refusing to hire women due to their gender; enquiring about the marital or parental status of women; including a pregnancy test in the orientation health check; including a maternity restriction as a condition of employment; and raising the employment standard applicable to women on a differential basis. In addition, employers who may have already published a recruitment notice including any prohibited discriminatory language may be faced with punishment along with penalties ranging from $1,490 to $7,450, and may also be added to the credit blacklist. Another hot topic in China is social

process for employers, the previous maternity and medical insurance treatment for employees will remain unchanged. Social insurance reform is ongoing to promote employment and lower the burden of social insurance premiums on enterprises, in addition to taking care of senior citizens. ITALY. One of the main issues concerns changes made to the Italian retirement system. In recent years, Italy has implemented pension reform to improve the system’s sustainability. In January 2019, pension requirements increased for the old-age pension and the pension linked to length of service. For this reason, the Italian government recently introduced a new set of measures aimed at increasing the system’s flexibility and facilitating early retirement for some employee categories. For example, the law provides for early retirement for employees who are 62 or older and have paid social security contributions for a minimum of 38 years — contrary to the ordinary rules, which currently set the retirement age at 67 years with 20 years’ social security contributions or, independently of a worker’s age, at 42 years and 10 months of social security contributions. Employers can also implement collective measures aimed at facilitating continued on page 23

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Labor & Employment

Transgender Protections in the Workplace By Trevor J. Hardy and Stephanie E. Harley

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any transgender individuals across the United States go to work every day unsure of whether they will lose their jobs because of their gender identity and/or expression. Although a minority of states and localities offer employment protections, the vast majority do not. As a result, transgender individuals in jobs and locales that lack protections may seek new opportunities with employers that offer inclusive, supportive environments. By knowing the law in your jurisdiction, and implementing policies that comply with or surpass the requirements, employers will ensure that they offer supportive environments that foster the retention of talented transgender individuals. Over the last 20 years, an influx of cases addressing transgender employment protections have made their way through federal district and appellate courts. Several federal appellate courts recognize that discrimination on the basis of gender identity or gender transition violates Title VII of the Civil Rights Act of 1964 (CRA), which protects individuals from discrimination in employment; Title IX of the CRA, which protects individuals from discrimination in education; or the Equal Protection Clause of the United States Constitution. In EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., decided in 2018, the Sixth Circuit Court of Appeals held that “Title VII protects transgender persons because of their transgender or transitioning status, because transgender or transitioning status constitutes an inherently gender non-conforming trait.” In Barnes v. City of Cincinnati, the Sixth Circuit again determined that “Sex stereotyping based on a person’s gender non-conforming behavior is impermissible discrimination, irrespective of the cause of the behavior; a label, such as

[transgender], is not fatal to a sex discrimination claim where the victim has suffered discrimination because of his or her gender nonconformity.” The Sixth Circuit’s holding in Barnes affirmed the jury’s award of more than $300,000 in damages to the terminated employee and the trial court’s decision to award more than $500,000 in attorneys’ fees and costs based on the difficulty and novelty of the case. In another example, Glenn v. Brumby, the Eleventh Circuit Court of Appeals determined that a government employer violates the Equal Protection Clause when a decision maker fires a transgender employee because the employee

In April 2019, the United States Supreme Court accepted three cases related to employment protections for LGBTQ individuals. does not conform to gender stereotypes. The Seventh and Ninth Circuit Courts of Appeals have also weighed in and determined that discrimination based on gender identity, transition or stereotypes is impermissible. These decisions often emanate from earlier cases that prohibit discrimination based on gender stereotypes, including Price Waterhouse v. Hopkins, where the United States Supreme Court disavowed decisions based on gender stereotypes and confirmed statements from an earlier

case that “Congress intended to strike at the entire spectrum of disparate treatment of men and women resulting from sex stereotypes.” Other courts reject the contention that transgender individuals have workplace protections and do not hold employers liable for employment decisions based on an individual’s gender identity and/or expression. APPEALS COURTS DIFFER

Many observers recognize that a “circuit split” exists. Federal appellate courts disagree over whether transgender employees are protected from discrimination in employment, and there is no settled, national consensus addressing employers’ obligations to transgender employees. In light of the evolving nature of case law addressing protections for transgender employees, many employers are unsure of their responsibilities when an employee informs the employer that he or she is transgender and/or that he or she is going through a gender transition. In April 2019, the United States Supreme Court accepted three cases related to employment protections for LGBTQ individuals, including EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. A decision on these cases is expected in 2020. There is no way to know exactly what the Court will do, and whether protections under Title VII of the CRA or some other law will extend to transgender individuals. In the interim, employers are left to examine the law in their judicial circuit, state and locality. Regardless of additional rulings on transgender workplace protections, fostering a welcoming environment minimizes the risk of litigation to determine whether the jurisdiction in which an employer operates recognizes protections for transgender employees. If an employer does not offer protections for transgender individuals, and is ruled to


TODAY’S GENER AL COUNSEL SUMMER 2019

Labor & Employment

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have violated a transgender employee’s rights, there are severe consequences including, but not limited to, payment of damages to the employee, which may include front pay, back pay, benefits and other damages; possible payment of the employee’s legal fees and costs, which may be subject to a multiplier based on the novelty and/or complexity of the case; an exodus of diverse talent that

expects workplace protections for transgender and other minority individuals; and reputational harm resulting from media reports on acts of discrimination against transgender employees. To avoid being another “test case,” an employer can implement nondiscrimination policies that protect transgender employees from discrimination. Contacting an attorney with

experience advising employers on their obligations to prevent discrimination in the workplace is the safest and most effective way to ensure compliance with applicable laws. Creating a corporate culture that welcomes and supports diverse employees will foster a more productive environment that will benefit from diverse experiences and contributions. This same culture will also open


SUMMER 2019 TODAY’S GENER AL COUNSEL

Labor & Employment up new opportunities for growth as a diverse workforce is able to make more connections with customers and colleagues who share similar experiences. PROTECTING TRANSGENDER EMPLOYEES

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You may wonder what employers should do to protect transgender employees. Imagine that you return to your office on a Monday morning. You turn on your computer and read an email from HR informing you that an employee revealed that he or she is transgender and intends to transition. If you have not faced this situation before, you may be unsure of how to proceed and should seek assistance from outside counsel who focuses on employment issues and has worked with companies on gender transitions. Outside counsel serves an important, neutral role in assisting in-house counsel, HR, and the transgender employee as all parties navigate the employee’s workplace transition. Consider taking the recommendations outlined below as initial steps toward supporting a transgender employee. First, work with Human Resources to communicate to the transgender employee that the company supports him or her and will ensure compliance with the company’s harassment and nondiscrimination policies. Second, develop a gender transition plan (GTP) with guidance from outside counsel and the employee. Include information regarding how the employee would like to address his or her transition in the workplace. Third, ask the employee how he or she would like to communicate with co-workers and managers regarding the transition so that the employee feels comfortable, supported and protected in the workplace. Fourth, identify an individual who is best suited to oversee the GTP and check in with the transgender employee to ensure that his or her needs and concerns are addressed in a timely, respectful manner. This individual should not be the employee’s manager. Consider asking an HR professional or an ombudsperson to fill this role. Fifth, once the GTP is finalized, communicate with other employees

and remind them of their obligations to adhere to the company’s harassment and nondiscrimination policies. Consider holding additional training sessions on the policies so that employees are more aware of their responsibilities. The preceding recommendations provide a brief introduction to the steps that employers should take to support transgender employees, while educating their entire workforces on their responsibility to respect one another and foster a culture that welcomes individuals with

The Sixth Circuit’s holding in Barnes affirmed the jury’s award of more than $300,000 in damages. diverse experiences and backgrounds. The recommendations are not exhaustive, and employers must consider additional topics, including a transgender employee’s preferred pronouns, preferred name in the absence of a legal name change and preferred restroom facilities. By addressing these topics with the employee, your company demonstrates its willingness to support and assist the employee through his or her transition. In addition to working with the transgender employee on transition, the plan should address what steps the company will take to educate other employees on the transition process, the company’s harassment and nondiscrimination policies, and what steps the company plans to take to ensure that all employees are respected and treated fairly. The individual(s) tasked with educating employees may wish to hold training sessions with groups of employees. Before holding training sessions, it is important to speak with the transgender employee and gather his or her input on the most comfortable and least intrusive way to share the very personal decision to transition in the workplace, while en-

suring that other employees understand their role in creating and perpetuating a positive workplace culture. The transgender employee may wish to participate in the trainings and be available for questions, or may request a different way to communicate with other employees. In the unfortunate event that HR or a manager learns that the transgender employee is the subject of harassment or mistreatment, the employer must immediately investigate and enforce its harassment and nondiscrimination policies in the same way it would do if it received allegations of sexual harassment. All employees, regardless of their sexual orientation, are entitled to respect in the workplace. The law on protections for transgender employees will remain unsettled for at least one more year. Regardless of how the United States Supreme Court rules, employers can foster a workplace culture that emphasizes the benefits of diversity, whether it is based on race, ethnicity, gender, sexual orientation, veteran status or other traits that ultimately lead to success for individual employees and for companies as a whole.

Trevor J. Hardy is an associate at Ulmer & Berne LLP. He represents clients in a wide range of complex business, employment and labor disputes, and counsels clients on practices to avoid litigation, including implementing sound employment policies and procedures and providing strategic advisory services. thardy@ulmer.com Stephanie E. Harley is a partner at Ulmer & Berne LLP. Her areas of expertise include the full gamut of employment counseling, conflict resolution and litigation. Stephanie has successfully guided companies, business units and leadership teams on ways to improve workplace culture and implement diversity and inclusiveness initiatives. sharley@ulmer.com


TODAY’S GENER AL COUNSEL SUMMER 2019

Labor & Employment International Employment continued from page 19

a generational turnover within the company. The measures allow employers to pay allowances and increase social security contributions of the employees who will qualify for retirement within a certain time period (generally five years). These measures also entail tax advantages for employers and give them new tools, apart from the traditional incentives to leave, in order to ease redundancy processes. In 2019, employers must also deal with the effects of the new rules introduced last summer for fixed-term and agency contracts. Following the termination in November 2018 of the period of interim regulation set out by the

state. The federal act approving the cooperation agreement between competent federal and regional authorities was published on December 24, 2018; and the single permit has entered into force. Going forward, a new single (but longer) application procedure will have to be followed throughout Belgium to obtain a single permit to work and reside in the country for a period longer than 90 days. New conditions for employing foreign workers in Flanders have also taken effect. The Flemish Region introduced a new economic migration model based on three separate profiles: highly qualified and special profiles, certain medium-skilled profiles (only for shortage professions listed in a dynamic shortage profession list) and profiles belonging to a residual category who are subject to a

The proposed regulation is purported to make more than one million additional U.S. workers eligible for overtime. new legislation, employers have had to comply with more restrictive rules. For example, the maximum duration for fixed-term contracts has been reduced to 24 months, and specific grounds are now required in order to extend a fixedterm contract for more than 12 months. The Italian government is also assessing the possibility of adopting a new set of rules to govern issues related to the gig economy, expected to be introduced later this year. With regard to the contractual status of so-called “riders” (employees or independent contractors), in January 2019, the Turin Court of Appeal ruled that although riders continue to be recognized as self-employed workers, they are entitled to receive the same treatment provided for employees and, specifically, the same compensation based on the applicable collective agreement. BELGIUM. Belgium has transposed the EU “Single Permit” Directive under which foreign employees will only be required to obtain a single authorization to work and reside in a member

labor market test and for whom “special economic and social reasons” must be established. These new rules only apply in Flanders and not in the Brussels Region or Wallonia. A Royal Decree that entered into force on January 1, 2019, has extended the use of “soft runways” (the term used for a reduction of the workload of older workers) in Belgian workplaces. The decree aims to give individual employees the opportunity to join the system in the absence of a collective agreement at a sector level. SPAIN. Collective bargaining agreements (CBA) in Spain can now include clauses allowing for termination of an employment contract once the worker has reached the legal retirement age established in Social Security regulations, provided the measure is linked to coherent employment policy objectives as expressed in the CBA. Examples include improving employment stability by transforming temporary contracts into permanent contracts, hiring new workers, generational change or any

other objectives aimed at improving the quality of work. The affected worker must comply with the requirements set out in Social Security regulations to be entitled to receive 100 percent of the ordinary contributory retirement pension.

Jeff Mokotoff is CoChair of FordHarrison’s Non-Compete, Trade Secrets and Business Litigation practice group, and he established the firm’s Non-Compete News newsletter. He has a broad employment law practice, which includes drafting and litigating executive, arbitration and non-compete agreements, as well as litigating collective and class actions in state and federal courts. Before rejoining FordHarrison in 2017, he held the position of Chief Administrative Officer and Counsel for Turner Enterprises, Inc. JMokotoff@fordharrison.com Valerie Ferrier concentrates her legal practice on the advice and representation of management in issues related to employment law. Prior to joining FordHarrison, she served as a senior associate for a New Yorkbased corporate defense firm. VFerrier@fordharrison.com The Chinese commentary is from Tracy Zhu of Fangda Partners; the Italian commentary is from Emanuela Nespoli of Toffoletto De Luca Tamajo; the Belgium commentary is from Sophie Claes, Chris Engels and Inger Verhelst of Claeys & Engels; and the Spanish commentary is from Iñigo Sagardoy de Simón and Gisella Alvarado of Sagardoy Abogados. All law firms are members of Ius Laboris.

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Cybersecurity

Data and Business Litigation By Sarah F. Hutchins and Alli Davidson

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etention of data is a double-edged sword for most businesses. On the one hand, data protection has become a paramount concern for businesses. Cybersecurity breaches are incredibly costly because they engender increased regulatory oversight and damage a company’s reputation. On the other hand, businesses often over-collect, over-retain, or fail to adequately protect data, which needlessly raises risks. The current state of business litigation exemplifies this dichotomy. Data exposure is becoming a frequent source of civil lawsuits as companies face claims of negligence, breach of contract or other legal causes of action after a breach. Data can, however, serve as a treasure trove of evidence in a variety of lawsuits, including those involving trade secrets and non-compete agreements. These types of litigation have heated up nationally as the economy has improved and the competition for talent has stiffened. Companies should look in the mirror and ask: Do my data policies take these litigation trends and risks into account? Will they help or hurt my company if we need to pursue a claim or defend against one? There are practical steps that companies can take before a breach or a lawsuit to better protect their intellectual property and put themselves in a stronger position when the need for litigation arises. KNOW YOUR OBLIGATIONS

There have been numerous federal attempts at data security standards, but they have yet to coalesce into a final regulation. There are, however, federal regulations impacting certain industries or types of information, such as regulations by the Securities and Exchange Commission for public companies, more stringent security requirements for financial institutions and protection of health data. Though not specific to only data related issues, the Federal Trade Commission (FTC) has general

oversight over unfair and deceptive practices by organizations and individuals, including the fair use and storage of certain types of data. As a result, businesses could face FTC oversight if they promise to treat data a certain way but do not adhere to that promise. U.S. entities are subject to global regulation in some cases. For example, the EU implemented a robust standard last year called the General Data Protection Regulation (GDPR), and it impacts U.S.-based companies that store and use Europeans’ personal data. It also enhances restrictions on transferring personal data outside of the EU. In addition, every state in this country has its own data breach and/or protection laws that set forth the steps a company must take to notify that state’s residents if they are impacted by a data breach. The constraints on companies’ collection, storage, use and destruction of data is also defined by case law, including case law for breach of contract and negligence. The standard for negligence in relation to a data breach is still evolving in case law, and is jurisdiction dependent. Plaintiffs often argue that the defendant company failed to meet applicable industry standards in data storage and protection. The “correct” or applicable standard is often debatable and subject to multiple considerations such as business category, size and data type, though the standard from the International Organization for Standardization (ISO/IEC 27040) can be a helpful guide. The bottom line for companies is that it is important to explore all the

standards that are common practice in their industry and stay abreast of changes. By determining which ones are the most widely adopted (as well as which elements within the various standards are used across the board) and following them, you can build a strong defense against a claim of negligence. Implementing contractual protections of data can also short-circuit a negligence claim. In certain instances, contractual protection of data, such as data processed by a vendor, can be required by law. It is also important for companies to be aware that courts have found implied contracts in certain instances, including between an employer and employee, to keep data in a safe and secure manner or use data in a certain way. For instance, in Sackin v. TransPerfect Global, a federal court in New York recently denied an employer’s motion to dismiss a lawsuit and held that, in some situations, companies that require their employees to provide personal information make an implicit promise to safeguard that information.

There are many tools companies can use to immediately improve data security and strengthen their position with respect to litigation.

LIMIT ACCESS

After diagnosing their obligations, businesses need to review, and be intentional about, how they grant access to data. Especially in the realm of trade secret litigation, companies often do not realize that an individual had access to certain proprietary data before that person left the company and took it with them. A good place to start is by adopting the principle of least privilege. Only give employees access to information and the ability to do things with tech-


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Cybersecurity

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nology that they need to do their job. In simple terms, use a need-to-know basis in sharing data with your employees. Do sales employees need access to the entire company’s sales database or just their regions? There are ways to segment data on the front end to mitigate the risk of loss or exfiltration. If a business does not follow the principle of least privilege, it can be

very difficult for it to prove a trade secret misappropriation claim. For example, in trade secret litigation, one of the elements of winning against a former employee is showing that the trade secret was protected in the first place. In addition, if you can narrow the field of what the employee had access to, it will make any review into his or her activity faster and less expensive.

There are many tools companies can use to immediately improve data security and strengthen their position with respect to litigation. Consider some of the following: encrypt all devices (not just computers) and data that is transmitted; disable USB ports and CD/DVD writing capabilities; and disable access to Gmail, other outside email providers and cloud storage websites that your IT


SUMMER 2019 TODAY’S GENER AL COUNSEL

Cybersecurity

team has no control over. In addition, if employees are using mobile devices to access the network or send and receive company emails, install remote security apps with their explicit permission. Companies should also enhance data security training for employees. This training should feature best practices and include both IT and legal counsel.

your own risks and preventing liability if new employees bring trade secrets with them. Businesses should confirm in writing that every new employee does not possess trade secrets or other confidential information from a past employer. Businesses also must ensure that their confidentiality agreements are actually signed and returned.

Businesses could face FTC oversight if they promise to treat data a certain way but do not adhere to that promise.

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It can be done through tabletop simulations of incident responses, phishing tests and internal hacking teams, and industry-developed training sessions. Many companies find that phishing tests are a relatively easy way to ensure their employees are taking the training to heart, and it helps companies determine which employees need additional training. Although not exhaustive, many of these tools can protect against a breach or establish appropriate data protections in litigation. Companies should consult with outside counsel and industry security experts to explore any vulnerabilities and implement appropriate protections. Businesses can also protect themselves by establishing helpful data-related policies concerning computer use, mobile devices, data storage, document retention, disaster recovery, vendor security and data breach response. If your company does not already have a cyber insurance policy, it is a wise investment and relatively cheap compared to other types of insurance. Companies that do have cyber insurance should look at it periodically to make sure it is current as standards, risks and practices evolve. Businesses should keep in mind that other policies and procedures that may not seem like data policies, such as those directly related to employment, also impact their success with data retention and protection. For example, implementing effective onboarding practices is an important step in reducing risks with trade secrets, both in terms of protecting

Departure policies are critical in the protection of data as well. The simplest first step is collecting all company devices. In the exit interview, reemphasize that the employee is bound by confidentiality and other relevant agreements. Especially with longtime employees, it is possible that they have forgotten the requirements or become fuzzy about the line between their data and the company’s. Making that line clear can prevent a lot of trouble for both them and the company. Before the employee leaves, businesses should also get all the information they can about passwords and passcodes for company devices. With Apple devices in particular, it can be incredibly difficult to get past them at a later point. Businesses should have internal or external resources for forensic review that they can call on quickly. In addition, they should implement standard hold periods before recirculating the devices or discarding them. Evidence of intellectual property theft may not surface until months after the employee has left. The devices should be left in airplane mode in the interim so that employees cannot wipe them remotely. REVIEW AND UPDATE

Lastly, it is important for companies to have regular self-audits of their data practices. This type of reflection often happens too late. And the scope of the audits should be revisited if and when your business changes. In addition, businesses need to be

aware of how the data standards they face continue to evolve, both through legislation and litigation. It is imperative to track federal and state statutes, as well as applicable case law, on data issues impacting your industry. Each court ruling is a piece of the puzzle that can help businesses determine their overall risk profile and update their practices where necessary. By taking those steps and learning other lessons from the intersection of data and business litigation, companies can better protect their most valuable digital assets and be ready to act quickly and effectively when they need to pursue a legal claim or defend against one.

Sarah Hutchins, a partner at Parker Poe, helps clients navigate business litigation, government investigations and data privacy. sarahhutchins@ parkerpoe.com Alli Davidson, an associate at Parker Poe, represents clients in complex litigation, white collar criminal defense, internal and government investigations, and fintech matters. allidavidson@parkerpoe.com


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SUMMER 2019 TODAY’S GENER AL COUNSEL

E-Discovery

In-House Counsel Control of Technology and Review By Thomas Gricks

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n-house litigation counsel are faced with the dilemma of how to do more with less, and at a lower cost. That generally means bringing more legal work inside without the luxury of a commensurate increase in staff, and simultaneously tightening the reins on outside counsel spend. Knowledgeable in-house counsel are managing these dual objectives by strategically leveraging technology and review resources during, and even before, the discovery phase of litigation.

The process often begins with in-house counsel driving an early case assessment (ECA) to scope litigation alternatives and set the path forward. And then, through a careful and considered approach to document review (typically the most expensive component of discovery, and often litigation as a whole), counsel can minimize expense while exploiting the true value of every member of the entire litigation team. Perhaps the most important aspect of an ECA is that it is truly early. An

ECA is an investigative technique devoted to quickly locating the critical evidence that will support or refute positions that may ultimately be taken in pursuing or defending against litigation (or a regulatory investigation, for that matter). Acquiring that knowledge at the earliest possible time will promptly reveal evidentiary gaps and drive all downstream decision making, particularly settlement decisions. An effective ECA, like any other investigative technique, requires the right


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E-Discovery

combination of personnel, techniques and technology. Every member of the litigation team will have an active role in an ECA. Inhouse counsel will necessarily be responsible for identifying the key custodians who may be involved, and from whom documents must be collected. Outside counsel will have primary responsibility for identifying the principal evidentiary issues that will be critical to advancing the litigation. And the review team will be tasked with finding sufficient

An ECA will also benefit significantly from a technology-assisted review (TAR) of every evidentiary issue, so long as it is based on continuous active learning (CAL). CAL is a necessity for two reasons. First, it prioritizes the review of documents that are most likely to be relevant, which means you review better documents earlier, and with less irrelevant material. Second, there is no preparatory training period, so review of the relevant documents begins immediately. To expedite the process, documents

to TAR, typically called TAR 1.0 and TAR 2.0, and it is helpful to understand generally how they work in order to make informed decisions about the best approach to an efficient technologyassisted review. The documents that are classified as responsive by the computer may or may not be reviewed for production, but they will not be used to further train the system. The TAR 1.0 protocol has its primary application in situations such as second requests and third party subpoena

Studies have shown that it is not necessary to have subject-matter experts, typically outside counsel, train the algorithm. documents to fully answer each of those evidentiary issues. Outside counsel will then typically assimilate the documents and assess the impact of the evidentiary issues upon the ultimate success of the litigation, to inform in-house counsel’s overall case management strategy. An ECA is not a typical discovery document review and should not be managed as such. While a typical document review requires production of nearly every document relating to the litigation, an ECA is dedicated to locating only the critical documents that are needed to gain a full understanding of the issues. Consequently, an ECA emphasizes speed and analytics rather than review; and once an evidentiary issue has been reasonably resolved, further review concerning that issue is not necessary. Given the emphasis of an ECA, advanced analytics technology is imperative. Unsupervised machine learning techniques such as clustering, which group relatively similar documents together, will facilitate a quick disposition of large collections of documents — particularly sets that are obviously irrelevant and require no further evaluation. And advanced communication analytics are almost always critical to comprehensively and efficiently locating the entire complement of documents needed to fully answer every evidentiary inquiry.

that were found during the analytics phase can inform the CAL review on every issue; to minimize costs, review of each issue can cease once information in the prioritized documents has become redundant. ECA will permit in-house counsel to make fully informed case management decisions with the least cost and no wasted effort. The ECA effort is devoted to quickly and efficiently generating enough information to, essentially, determine the viability of further litigation. If resolution is appropriate, the ECA process provides a streamlined means of reaching that decision. If continued litigation is appropriate, every decision that was made during the ECA process will serve to advance discovery down the line. IMPLEMENT THE RIGHT TAR

If further litigation is inevitable, so is discovery. And a carefully crafted document review strategy will guard against out-of-control discovery costs. One of the primary components of any efficient document review will be a TAR process. TAR uses reviewer judgments to inform a computer, which then ranks or classifies all the documents in a collection so that most of the responsive documents can be located without reviewing the majority of the collection. There are two primary approaches

responses, where the documents classified as responsive will not necessarily be reviewed before production. The TAR 2.0 protocol relies primarily on CAL, and uses every coding decision throughout review to train the algorithm and improve the ranking. The review (and, in turn, the training) continues until the majority of the responsive documents have been located and reviewed. Where responsive documents will be reviewed before production, studies have shown that TAR 2.0 is more efficient than TAR 1.0 — in other words, you will review fewer documents in the long run using TAR 2.0 with CAL. Since most responsive documents will be reviewed before production in the litigation discovery process, TAR 2.0 is typically used. The TAR 2.0 workflow can be refined in ways that will minimize the number of documents that need to be reviewed, and at the same time take advantage of the expertise of every member of the litigation team. The principal practical impediment to a fully efficient, continuous active learning TAR 2.0 review is the traditional approach of batching documents to reviewers as full families. The impetus for a family-batched review is the notion that a reviewer will need to see every document in a family continued on page 33

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Intellectual Property

Responding to Surge in Fraudulent USPTO Specimens By Tamar Niv Bessinger and Jessica Vosgerchian

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rand owners know that U.S. trademark registrations are valuable in protecting their marks from infringement by third parties. That is why it is a concern that the United States Patent & Trademark Office (USPTO) has recently seen a surge in fraudulent trademark applications relying on digitally altered specimens of use. Rather than providing an image of the genuine goods bearing the trademark, applicants use graphics software to digitally place an image of the trademark on an image of the goods. The resulting registrations cause problems for legitimate trademark owners, especially since online retailers such as Amazon utilize trademark registrations to manage sellers. Fortunately, there are several strategies available for brand

raised concerns over the legitimacy of these applications and subsequent registrations. For example, the province of Shenzhen, known for its booming commercial growth, began a subsidy program in December 2014 in which companies or individuals could receive a subsidy of about $800 for each trademark registration obtained in other countries. The Shenzhen district of Longhua also instituted a subsidy program paying about $400 per registration. Moreover, it appears that companies and individuals in Longhua can apply for both subsidies, meaning that a single U.S. registration, costing $275 in filing fees, would be worth about $1,200 in subsidies. The onset of these subsidy programs closely precedes the surge in U.S. trademark applications originating from China. In 2014, the year before Longhua District launched its program, 200 U.S. trademark applications originated from the district, which has a population of about 1.3 million. A few years later, in 2017, Longhuabased applicants filed 4,372 applications. For context, Germany, with a population of over 82 million, only slightly outpaced Longhua with 4,991 U.S. applications in 2017. Shenzhen-based applicants are seemingly incentivized to falsely claim use of a trademark on goods based on altered specimens because a use-based application is usually the quickest and cheapest avenue to registration. Under U.S. trademark law, use-based applications must provide a specimen showing use of the applied-for mark for the identified goods or services. The Chinese subsidy programs only pay subsidies for issued registrations. Thus, applicants file use-

In 2014 Shenzhen began a subsidy program of about $800 for each trademark registration obtained in other countries. owners seeking to prevent fraudulent specimens from hindering their trademark rights and business interests. The major source of the problem is Chinese applicants incentivized by government subsidies. From 2016 to 2017, the USPTO experienced a 12 percent increase in trademark application filings. U.S. applicants accounted for about 34 percent of the increase, while Chinese applicants made up another 33 percent. This created an uptick of over 43 percent in the rate of filings from China. The USPTO reported that the increase in filings from China has

based applications relying on altered specimens, rather than filing applications based on intent to use, which usually take longer to register and require payment of additional USPTO fees. Foreign applicants can avoid the requirement to provide specimens showing use of the mark for the goods by filing applications under the Paris Convention or the Madrid Protocol. However, a registration under the Paris Convention can take years to issue because it requires registration of an underlying home-country registration (which itself requires investment of time and money). The subsidy programs pay substantially less for Madrid Protocol extensions of protection than for individual country registrations. Thus, filing a use-based registration with an altered specimen is the most cost-effective and time-efficient manner to obtain a registration and claim the subsidy payment. It is not known whether the subsidy programs provide an incentive to maintain the registrations once obtained, so it is possible that many of the suspect registrations will lapse when the Declaration of Use required at the sixth year anniversary is not filed. CONSEQUENCES FOR BRAND OWNERS

Registrations based on fraudulent claims of use cause problems for companies seeking to protect their trademarks on the USPTO register. A fraudulent registration may block an application for a similar mark even though the registrant does not actually have prior rights. Moreover, the strength of registered marks can be diminished if the register is crowded by fraudulent registrations. Amazon’s procedures to prevent counterfeit sales present opportunities for sellers of counterfeit goods to use fraudulent trademark registrations to subvert actual brand owners. One illus-


TODAY’S GENER AL COUNSEL SUMMER 2019

Intellectual Property

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trative example involves the mark A2S SURVIVAL used for survival equipment kits. A Hong Kong company, which did not own or use the mark for any goods, obtained a trademark registration for the mark based on apparently fraudulent use, and then cited that registration in a complaint to Amazon that caused the online retailer to remove a listing for the actual brand owner’s legitimate

goods. The legitimate brand owner petitioned to cancel the registration in the Trademark Trial & Appeal Board (TTAB) of the USPTO; and soon after, the registrant voluntarily withdrew the registration. There have also been instances of bad actors updating correspondence addresses in the USPTO system without authorization from the brand owners.

In so doing, these actors apparently seek to receive the legitimate brand owner’s Amazon Brand Registry confirmation notice, allowing them to hijack the brand on Amazon. In response, the USPTO now sends email alerts to the official addresses for correspondence to notify the prior correspondent that the address has been changed. Bad actors continue to seek new ways to game the system.


SUMMER 2019 TODAY’S GENER AL COUNSEL

Intellectual Property Recently, Chinese applicants falsely used the name of a Canadian attorney to file fraudulent applications, ostensibly to lend the appearance of legitimacy to the applications. SPOTTING FAKE SPECIMENS

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Most fake specimens exhibit telltale traits that make them easy to identify. Often, the applied-for mark looks as though it has been digitally altered and placed onto the image of the claimed product. Running such a specimen photograph through Google Reverse Image Search may reveal that the photograph was taken from an unrelated e-commerce website and altered to show the applicant’s mark. The USPTO has been proactive in rejecting applications based on altered specimens. However, in instances that escape detection by USPTO examining attorneys, third parties can take action to prevent fraudulent applications and registrations or to remove fraudulent registrations from the register. Subscribing to a trademark watch service is an excellent first line of defense because there are advantages to objecting to an application before it is published or registered. Under normal circumstances — when a fraudulent specimen is not suspected — a brand owner typically objects to a conflicting application by sending a letter to the applicant demanding withdrawal or amendment of the application. However, demand letters rarely elicit responses from applicants who file fraudulent applications based on doctored specimens. In such instances, it makes sense to object directly to the USPTO as a first recourse. Fraudulent applications have become so pervasive that in 2018 the USPTO created a dedicated email address to receive reports of suspected false specimens from concerned third parties: TMSpecimenProtest@uspto.gov. Prior to or within 30 days of publication of the ap-

plication by the USPTO, the sender may provide objective evidence of third-party commercial use of the identical image without the applied-for mark, including screenshots of active websites or photographs of print advertisements with the name of the publication. Alternatively, the sender may cite prior applications or registrations, relying on specimens using the identical image featuring different marks. Another method for challenging a specimen of a published application is initiating an opposition before the TTAB. For an existing registration based on a false specimen, petitioning the TTAB to cancel the registration is the only available recourse. Even incontestable registrations can be challenged on the basis of fraud. TTAB actions are generally more expensive than resolving disputes without formal proceedings. However, just as an applicant falsifying a specimen is unlikely to respond to a demand letter, such an applicant rarely defends a TTAB action. This leads to a default judgment in favor of the legitimate brand owner and refusal of the fraudulent application or cancellation of the fraudulent registration. Most TTAB actions are brought by trademark owners opposing registration of marks that are confusingly similar to their own marks. However, under the Lanham Act, anyone who believes they would be damaged by the registration of a mark has standing to file an opposition or cancellation as long as they have a real interest in the proceedings and a reasonable basis for the belief of damage. Under this liberal standard, opposers can include licensees, distributors or even competitors offering similar goods and services as those identified in the application or registration. The greatest hurdle to challenging altered specimens is the heightened standard of proof for a claim of fraud, which requires a showing that the applicant intended to deceive the USPTO.

Most fake specimens exhibit telltale traits that make them easy to identify.

However, trying and failing to prove fraud can still have the intended affect. In Daniel Ryan Way and Cmdw, Inc. v. Farwell, the TTAB held that the opposer failed to prove that the applicant intended to deceive the USPTO, but remanded the application to the examining attorney “to consider whether a refusal should be made on the basis that the mark had not been used on all of the identified goods when the amendment to allege use was filed.” Thus, whether through the new email notice system or traditional TTAB actions, there are effective strategies for a concerned third party to alert the USPTO of fraudulent applications based on altered specimens that impact their business interests or trademark rights.

Tamar Niv Bessinger is a partner at Fross Zelnick Lehrman & Zissu. Her practice focuses on U.S. trademark searching, filing and enforcement, as well as global portfolio management. She also negotiates and drafts coexistence, settlement and manufacturing agreements. tbessinger@fzlz.com Jessica Vosgerchian, an associate at Fross Zelnick Lehrman & Zissu, counsels clients on matters relating to copyrights, trademarks, design patents and related state laws — protecting clients’ interests in disputes at the USPTO’s Trademark Trial and Appeal Board and in federal courts. jvosgerchian@fzlz.com


TODAY’S GENER AL COUNSEL SUMMER 2019

E-Discovery

In-House Tech and Review continued from page 29

to determine whether the document under consideration is responsive or not. That notion is not borne out in practice, particularly since every document should be evaluated purely on the text within the four corners of the document for purposes of training a TAR algorithm. In reality, it will only be necessary to review extraneous family members when a document is ambiguous on its face. Not only is this the exception rather than the rule, but most modern e-discovery tools make family members available for review without the need to batch them together.

for responsiveness only, and another phase where all responsive documents are combined with their family members for a comprehensive family review for responsiveness, privilege and any other pertinent criteria. This two-phase review will typically be more efficient because the responsiveness-only review proceeds much faster than the comprehensive review. QUALITY CONTROL ROLE FOR OUTSIDE COUNSEL

The division of responsibility among the members of the review team will also impact the efficiency and cost of a TAR 2.0 review. Studies have shown that it is not necessary to have subjectmatter experts (typically outside counsel) train the algorithm and that, in fact, the conservative nature of subject-matter experts will impair training. The review team, which is typically more liberal in their review decisions, will elevate the responsive documents more quickly. In practical terms, that means two things: a CAL review will proceed more efficiently to conclusion when the review team is judging the documents, and some number of those documents may be incorrect because the review team will be more liberal than outside counsel in their view of responsiveness.

An effective early case assessment requires the right combination of personnel, techniques and technology. By reviewing on a document level, reviewers can avoid addressing wholly non-responsive families, thereby enhancing the efficiency of the overall review. Studies have also shown that the efficiency of a document-level review can be even further improved by structuring the review into two separate phases: a phase in which documents are being reviewed

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Given this phenomenon, outside counsel is best situated to conduct a quality control review of the decisions made by the review team, rather than training the algorithm directly. With the review team training, the CAL review will proceed more quickly. And with outside counsel conducting quality control, the final decision on documents will be accurate. This has proven to be an optimal approach to an efficient CAL review, and effectively takes advantage of the expertise of outside counsel and that of the review team. Ultimately, this approach of leveraging technology and review resources throughout the entire litigation process will enhance efficiency and minimize cost. ECA drives fully informed case management strategies. Active review management will facilitate control of the most costly component of discovery. In-house counsel are effectively using these techniques to control their litigation spend, and simultaneously improve efficiency.

Thomas Gricks, Esq., is Director, Data Analytics, Catalyst, which is part of OpenText. He advises corporations and law firms on best practices for applying TAR technology. tgricks@opentext.com

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SUMMER 2019 TODAY’S GENER AL COUNSEL

Compliance

What General Counsel Should Ask Tax Directors By Kathleen Pakenham aggressive tax positions. Here you need to probe into which positions are reserved, how the amounts were determined, and whether the reserves are expected to be used or released. This is particularly important for public companies since tax auditors often identify issues to examine based on 10-K reserves.

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ince tax departments report up through the finance rather than legal function in most companies, it is easy for chief legal officers to be disconnected from one of the most legally complex and risky parts of an enterprise. Couple that with the fact that most tax directors are accountants, not lawyers, and you have the all-too-common situation in which the chief legal officer is unaware of tax disputes until it may be too late. This can be avoided, however, if you know the right questions to ask and understand where in-house counsel can be most helpful to the tax department. But asking the right questions sometimes requires translation from accountant-speak to lawyer-speak. Here are some starting points: What You Should Ask: Which tax years

are subject to adjustment by the IRS? What You May Hear: “We are closed through 2009.” Translation: Tax returns from 2010 through the last filed return are subject to adjustment. The IRS usually has three

years from the time a tax return is filed to make any adjustments. During an audit, however, the IRS regularly will ask for extensions of time to complete a cycle. Many tax directors are unaware that they have the right to refuse to extend the statute or that they can limit or condition a statute extension. Because the tax audit function may be delegated to a more junior person within the tax department, audits can needlessly extend for multiple years, increasing the likelihood of an adverse adjustment and leaving reserves on the books longer than necessary. What You Should Ask: What are the soft spots on the return? What You May Hear: “We are fully reserved.” Translation: The tax department has identified what it believes are positions most likely to be adjusted and booked as an accounting reserve, based on its judgment as to the most likely outcome. In reality, this tells you very little about the company’s cash tax exposure or whether the tax department is taking

What You Should Ask: Where are we under audit? What You May Hear: “United States, Canada and France.” Translation: No surprise, but further digging may be warranted. Are the same years under audit? Is there a risk that the countries may take inconsistent positions? Has the tax department taken all appropriate steps to keep the statute of limitations on refunds open in all countries affected by an adverse change? For example, if an intercompany transaction between the United States and Germany is being audited in one jurisdiction, it is important to keep the statute open (or make other filings) in the other country to preserve any claim for tax relief. What You Should Ask: Who is advising us on the X issue? What You May Hear: “Big 4.” Translation: Here’s where things may get tricky. Tax departments usually are staffed with accountants, most of whom trained in and have deep relationships with accounting firms. As a result, there is a natural affinity towards dealing with accountants as advisors. In our experience, an accounting firm may not be the best choice to objectively advise the company on tax litigation risk, particularly where the accounting firm advised on the underlying tax position or prepared the tax return. In addition, IRS audits can be mini-litigations (or not so mini) with


TODAY’S GENER AL COUNSEL SUMMER 2019

Compliance

depositions, privilege logs, brief writing and administrative appeals, all of which demand counsel experienced in tax disputes. What You Should Ask: Do we have risk on this issue? What You May Hear: “We have an opinion.” Translation: The tax department has obtained an opinion (often from an accounting firm) that the tax position is “more likely than not” to prevail. In other words, if the matter were litigated, the company should expect to win 50.1 percent of the time. It is important to ask a few questions here: • First, what level is the opinion? Traditionally opinions are issued at the following level of confidence in declining order: will (near 100 percent), should, more likely than not, substantial authority, reasonable basis, not frivolous. • Second, is the opinion final? While this sounds simple, we very often find that taxpayers never receive a final, executed copy of an opinion. • Third, is there evidence that the company reviewed and relied on the opinion in taking the position? Evidence of reliance is critical in avoiding penalties. Not only should chief legal officers ask the right questions of their tax colleagues, they also should assist in spotting issues for which in-house counsel could provide expertise. For example, federal and state tax authorities are conducting witness interviews of company personnel with increasing regularity. Tax department members often are not trained in witness preparation, how and when to lodge objections, or how to recognize when there might be a conflict of interest in representing company personnel. Internal protocols requiring at least consultation with in-house counsel would help identify situations in which counsel should be involved, such as where former employees will be contacted, where Upjohn warnings should be given to witnesses and where there are potential claims of attorney

client privilege, work product protection or the federally authorized tax practitioner privilege (26 USC § 7525). Tax department personnel frequently do not know how to train witnesses to respond to questions and are not even aware that the company may ask its own set of questions to rehabilitate a witness, to elicit favorable facts, to correct mistakes or to clarify prior answers. The ability to develop the record in administrative proceedings may be limited, and witness interviews are often missed opportunities. Another area in which in-house counsel could provide substantial assistance is with respect to document productions. Tax audits are often document intensive. However, tax departments are not expert in identification of custodians, document collection or the rules surrounding electronically stored information. Some tax departments are unfamiliar with how to make sure that appropriate litigation holds are in effect when an audit begins, thus unnecessarily exposing the company to spoliation claims. In addition, many tax departments are not experienced in fundamental production protocols, such as Bates numbering, creation of production logs or how to create a privilege log. When a dispute arises, it unfortunately can be extremely difficult to reconstruct what already has been provided to the government or to determine how complete a search for responsive information has been. We also often find that privilege claims have been waived. In-house counsel’s expertise and familiarity with company resources in these areas can be invaluable. In-house legal expertise can also be instrumental in resolving disputes. Not only are many lawyers skilled negotiators but in-house counsel can sometimes serve almost like an arbitrator between the company’s tax department and the government audit team. Government examination teams often audit the same company over several cycles. During that time, positions can harden and personality conflicts can arise. In-house counsel who bring a fresh perspective to an issue can assist tax department personnel in objectively evaluating risks and can help break logjams.

Moreover, legal counsel can lend their expertise to memorializing any resolution of disputed issues. While some agreements with tax authorities are quite casual — no more than an agreed set of calculations — other more formal written settlement agreements that bind the government and the taxpayer may be called for in particular circumstances. When well crafted, these agreements not only resolve the current dispute but also can put the company at a significant advantage in future tax years. On the flip side, poorly drafted agreements can cause unforeseen complications down the road. Because disputes sometimes arise as to the meaning of tax settlements, it is extremely important that these agreements be thoughtfully drafted in accordance with contract principles. Input from counsel can be critical, and tax department personnel should be encouraged to take advantage of the expertise of in-house counsel to document settlements. Finally, in-house counsel are experienced advocates and — even when they are not experts in tax law or financial accounting — can be extraordinarily helpful to tax directors in making effective presentations to tax authorities. In-house counsel should offer their skills in assisting their tax department colleagues draft discovery responses or objections (tax department personnel are sometimes unaware that objections may be appropriate) and crafting oral and written presentations of the company’s position.

Kathleen Pakenham is partner-in-charge of Cooley’s New York office, co-chair of the firm’s tax practice and serves on the firm’s management committee. She is a seasoned litigator in matters involving complex questions of federal tax law and procedure. kpakenham@cooley.com

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A Few Rules of Thumb About Press Releases By Greg Kramer, Ryan Cox and Matthew Fry the future. These kinds of updates broadly fall under the category of forward-looking statements. While it is important to portray confidence to the market, it is also advisable to avoid being overly definitive concerning the likelihood of future projections. The danger is if events described in press releases fail to actually occur or to occur within promised time frames, potentially leaving an issuer susceptible to securities fraud claims. In general, Section 10(b) and Rule 10b-5 of the Securities Exchange Act, the broad anti-fraud provisions of United States securities laws, will apply equally to a company’s press releases as to other filings with the SEC. Here a few examples:

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here is nothing we are more enthusiastic about than the entrepreneurial optimism of our public company clients; and there is no greater platform for these companies to share their accomplishments and future plans with their shareholders and investment community than press releases and social media. However, like public reports filed with the Securities and Exchange Commission, press releases can draw the attention of regulators and the plaintiffs’ bar — not the kind of attention we’re looking for at all. The purpose of this article is to give public company general counsel and CFOs a few simple rules. Treat your posts on social media with the same caution as SEC filings and formal press releases. As we learned from the SEC’s high-profile action against the CEO of Tesla, regulators, plaintiffs’ lawyers and investors are paying close attention to social media posts by companies and their executives. This is a particular vulnerability for public companies. Unlike formal communications such as

press releases, the personal social media account of a public company officer may not always be subject to the company’s disclosure controls and procedures. In addition, even if a public company institutes policies and procedures regarding social media, the control environment is susceptible to being overlooked because executives can access their social media accounts from a mobile device almost anywhere. Many have impulsively tweeted from the comfort of home and unintentionally released material, nonpublic information or made statements that were misleading to investors or were perceived as racist, sexist or offensive. Disclosure controls should be equally applied to social media posts of companies and executives. Policies and procedures, pre-approval, monitoring and frequent reminders are all reasonable. FORWARD-LOOKING STATEMENTS

All executives understand the importance of timely informing the investment community of pending transactions, important developments and plans for

Maybe Problematic: The company will complete its phase IIb clinical trial for its lead drug candidate in the fourth quarter of 2019. Less Definitive: The company expects to commence the phase IIb clinical trial for its lead drug candidate in the first quarter of 2019 and, absent unanticipated developments, expects to complete the trial during the fourth quarter of 2019. The example is fairly straightforward. The issuer of the press release makes a blanket statement that the trial will be completed within a specific time frame. This takes for granted the possibility that unforeseen circumstances may delay or prevent the completion of the trial. Maybe Problematic: On December 31, 2018, we entered into a merger agreement with ABC Corp., a company whose business is synergistic with ours. The merger is not subject to any material closing conditions and is expected to close on May 1, 2019. Less Definitive: We entered into a merger agreement with ABC Corp. on December 31, 2018. We believe that the merger


TODAY’S GENER AL COUNSEL SUMMER 2019

Compliance

will result in synergies between our two companies that may allow us to reduce costs while giving our customers an expanded product offering. The merger is subject to customary closing conditions including, among other conditions, the truth and accuracy of each parties’ representations and warranties set forth in the merger agreement, and is expected to close on or around May 1, 2019. This example is more nuanced. It relates to the expected benefits of a significant corporate transaction, when it will happen and statements about a legal document. The revised language not only gives the issuer of the press release flexibility around the date the merger may be completed but couches the benefits in terms of the company’s beliefs. It also lets investors know that the merger is subject to conditions in a complex legal document. We also emphasize the importance of carefully reviewing the boilerplate safeharbor language that appears in every press release in connection with forwardlooking statements. Seasoned lawyers know nothing is ever truly “boilerplate.” Even language that seems generic should be reviewed to make sure that it is applicable to the content of the press release. There may be no time when an issuer’s public communications are subject to greater scrutiny than during

that an issuer’s communications with the public are not general solicitations. Although an expansive summary of these rules is beyond the scope of this article, the key takeaway is that issuers should establish controls and procedures that require all press releases issued prior to or during an offering of securities to be reviewed by counsel. WHEN IS A PRESS RELEASE REQUIRED?

A final point in this brief primer is to note that although many view the press release as a permissive part of an issuer’s investor relations strategy, the dissemination of material information (including bad news) by press releases may be a regulatory requirement for exchange-listed issuers. Pursuant to NASDAQ Rule 5250, “a Nasdaq-listed Company shall make prompt disclosure to the public through any Regulation FD compliant method (or combination of methods) of disclosure of any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions.” New York Stock Exchange Rule 202.05 provides that a “listed company is expected to release quickly to the public any news or information which might reasonably be expected to materially affect the market for its securities. This is one of the most important and fundamental purposes of the listing agreement which the company enters into with the Exchange.” There is no definitive list of the types of events that may require a press release under NASDAQ Rule 5250 or NYSE Rule 202.05. However, the requirement should be understood more broadly than events that trigger a Form 8-K filing and may include (1) significant financial developments, (2) new products or discoveries, (3) the success (or failure) of clinical trials or other material research and development programs, (4) corporate transactions and (5) significant legal or regulatory developments. In general, public company officers

Regulators, plaintiffs’ lawyers and investors are paying close attention to social media posts by companies and their executives. an offering, whether private or public. Various SEC rules regulate dissemination of press releases and other public communications in the period prior to and during a public or private offering of securities. Adherence to these rules will help ensure that a press release is not an impermissible offer of securities and, with respect to private offerings,

responsible for the disclosure of material information should abide by this rule of thumb: “Does this information make me want to buy or sell the company’s stock?” If the answer is yes, then it is time to bring other officers and outside counsel into the conversation. After the initial excitement of making an important announcement, the issuer’s diligence doesn’t end. General counsel should continue to be mindful of the content of recent social media posts and press releases and, if these disclosures require correction, should update or even retract the communications. Keeping disclosures updated and accurate on an ongoing basis will help ensure that issuers get the positive kind of attention they want or at least avoid negative attention from regulators and plaintiffs’ lawyers.

Greg Kramer serves as co-chair of the New York Capital Markets and Securities Practice Group at Haynes and Boone. He practices in the area of securities law, mergers and acquisitions, and alternative lending. Greg.Kramer@haynesboone.com Ryan Cox is co-chair of the Haynes and Boone Capital Markets and Securities Practice Group. He represents issuers and investors in a wide range of corporate transactions including securities offerings, venture capital financings, mergers and acquisitions, recapitalizations and restructurings. Ryan.Cox@haynesboone.com Matthew Fry is a partner in the Haynes and Boone Capital Markets and Securities Practice Group. His practice focuses primarily on corporate and securities matters, with a concentration on public and private securities offerings. Matt.Fry@haynesboone.com

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Compliance

GDPR One Year Later By Todd Daubert and Peter Stockburger

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or over 20 years, data privacy was regulated in the EU by the laws that each individual member state adopted to implement the Data Protection Directive. Three years ago, the EU adopted the General Data Protection Regulation (GDPR) to overhaul and update the European privacy and data protection framework. At the one-year anniversary of the effective date of the GDPR, it clearly has had an impact on individuals, companies and regulators around the world. The GDPR is based on the same key principles as the Data Protection Directive, but it represents a monumental shift in regulatory approach. First, the GDPR modernized and harmonized privacy and data protection in Europe by replacing individual EU member

state laws with a uniform set of rules, rights and obligations. Second, the GDPR made it significantly easier for individuals to exercise their privacyrelated rights, thus imposing far greater burdens on companies to honor privacyrelated requests by individuals. Third, the GDPR clarified the legal bases for processing personal data and making it more difficult to rely on consent. Fourth, the GDPR requires companies to notify regulators within 72 hours of discovery breaches of personal data that represent a likely risk to the rights and freedoms of individuals. Finally, and perhaps most importantly for companies based outside of the EU, the GDPR introduced a new scope of extraterritoriality and brought with it the risk of stiff penalties for non-compliance

(up to four percent of global annual turnover or 20 million euros, whichever is higher). One important impact of the GDPR is that it forced much needed conversations in C-suites and boardrooms across the world about how companies approach data privacy, individual rights, data security and data transparency. As a result, many more companies are exploring how their approach to privacy can impact their market share and customer loyalty. The avalanche of notices about updated privacy policies and press coverage that the GDPR triggered has led many individuals around the world to consider how companies are using their data. The increased focus on privacy has led regulators around the world to consider whether their laws should follow the EU’s approach of treating privacy as a fundamental human right or the traditional approach in the United States of addressing market failures on an issue-by-issue basis, which has led to a patchwork of hundreds of issuespecific federal and state laws. In 2018, California became the first state to pass a GDPR-inspired consumer privacy law. Other states are considering similar laws. INFORMAL GRACE PERIOD ENDING

With one year of enforcement actions in the books, we know much more about how EU members are likely to enforce the GDPR. In the initial months after the GDPR went into effect, some regulators in the EU took a relaxed approach to enforcement. The French Data Protection Authority, the CNIL, for example, publicly acknowledged the difficulty of complete GDPR compliance, and stated that companies not yet compliant could expect to be treated “leniently initially” provided they had acted in good faith. The Dutch issued a similar statement. That informal grace period appears to be ending. Authorities in Portugal


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Compliance

issued a 400,000 euro fine to a hospital for failure to apply appropriate access controls for patient data. A single 50 million euro fine was levied by the French CNIL against a well-known technology company in January. And in April, Poland fined a digital marketing agency 220,000 euros for non-compliance with the GDPR’s data subject rights requirement. The company was also forced to mail notification to six million people, causing an additional six million euros in damage. A report by the European Data Protection Board (EDPB) in February indicated that 55,955,871 euros in aggregate penalties for almost 60,000 reported data breaches were imposed during the first nine months of the GDPR. At a recent panel discussion, Stephen Eckersley, the head of enforcement at the UK’s Information Commissioner’s Office (ICO), said the UK had seen a “massive increase” in reports of data breaches since the GDPR’s implementation, with 1,700 self-reports by June 2018 and

We are getting clarity on the GDPR’s extraterritorial application. 36,000 expected by the end of 2019. This volume of reports risks overwhelming the resources available to EU supervisory authorities, which has led many to warn companies against overreporting, suggesting that submitting unnecessary reports for the purpose of insulating against fines could actually itself lead to an enforcement action. We are also getting more clarity on the scope of the GDPR’s extraterritorial application. Many United States companies believed that they would not be impacted, or that their compliance obligations would be limited. However, Article 3 makes clear that the regulation applies extraterritorially if certain “establishment” and “targeting” criteria are met.

Under the establishment criterion, the GDPR applies to processing of personal data “in the context of the activities of an establishment of a controller or processor” in the EU, regardless of whether the processing takes place in the EU. Under the targeting criterion, the GDPR applies to processing of personal data of data subjects who are in the EU by a controller or processor that is not in the EU under some circumstances. EXTRATERRITORIAL ENFORCEMENT

We have also seen at least one extraterritorial enforcement action. In July 2018, the ICO issued its first GDPR enforcement notice. The ICO investigated a Canadian entity’s involvement with Cambridge Analytica’s alleged use of EU citizens’ data for analytics for the Brexit campaign. The company disputed the allegations and refused to cooperate, arguing that the ICO lacked jurisdiction. The ICO nonetheless found that the Canadian company violated the GDPR by processing the personal data of EU citizens, and ordered it to stop. The Canadian company agreed to comply with the cease order. The jurisdictional question was never fully resolved. One issue that remains unclear is the status under the GDPR of international data flows undertaken pursuant to the EU-U.S. Privacy Shield. Prior to the GDPR, the Data Protection Directive generally prohibited the transfer of personal data to a country outside the EU unless the receiving country ensured an “adequate level of protection” for the personal data. In 2000, the European Commission issued a determination that the Safe Harbor Framework, negotiated between the European Commission and the United States Department of Commerce, ensured an adequate level of protection for personal data according to EU standards, even though United States national law otherwise did not. In 2015, however, the European Court of Justice invalidated the Safe Harbor Framework, and the EU and United States entered into a new agreement called Privacy Shield. In operation since August 2016, the EU-U.S. Privacy Shield provides the

general framework for the transatlantic flow of commercial data between the EU and the United States. In July 2018, the European Parliament recommended by way of a non-binding resolution that the European Commission suspend the EUU.S. Privacy Shield effective September 1, 2018 unless corrective action was taken to bring the United States into compliance with the GDPR, with recommendations made by the Article 29 Working Party. Discussions are ongoing. As of now, the Privacy Shield is still in effect. As these developments illustrate, the GDPR landscape is still developing. Over the next few years, we are likely to see increased enforcement and formal guidance. We are also likely to see privacy issues remain in the public spotlight, with many regulators around the world considering whether to adopt stricter data privacy and protection laws. It is important for companies to carefully consider their own data practices and how they can increase market share, improve customer trust, and minimize risk through the implementation of sound privacy and data security policies and practices.

Todd Daubert is chair of Dentons’ Communications and Technology sectors. He advises companies that develop, integrate and deploy new technologies in transactional, regulatory, litigation and appellate matters. todd.daubert@dentons.com Peter Stockburger is a member of Dentons’ Employment and Privacy and Cybersecurity groups. His practice focuses on cybersecurity, data privacy and employment law. peter.stockburger@dentons.com

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Third-Party Workplace Compliance Investigations By Kate Thompson and Charles Diamond

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very major corporation in the United States has human resources departments and policies to combat workplace discrimination and harassment, yet the impact of the #MeToo movement and its attendant consequences demonstrates that current systems are failing to meet the needs of both businesses and employees. Growing numbers of reports of workplace ethics violations indicate that today’s employees feel empowered to address experiences of discrimination and demand remedies. Companies must provide options for tackling these issues. Additionally, the nature of reported issues has expanded, with complaints beyond sexual harassment becoming more commonplace. Complaints regarding hostile work environments, discriminatory intent, favoritism and other previously under-reported occurrences are flooding HR departments. Companies with high media visibility and public image concerns face the dual challenge of remedying complaints while addressing accusations of institutional negligence or ambivalence that caused the underlying issues. HR departments must investigate and remedy complaints, and enact preventative measures while maintaining traditional human resource roles regarding staffing, training, strategic planning and organization. Overstretched HR departments become doubly liable in any employeeinitiated litigation concerning harassment or discrimination because they are responsible for protecting employees and maintaining viable complaint reporting procedures. They must provide demonstrable follow-up to address corporate concerns and employee expectations. A developing industry of third-party support services has arisen to address many of these vulnerabilities and guard against excessive liability by tackling the

work of fact-finding and investigation. Third-party investigators who utilize objective and equitable fact-finding techniques and create integrated reporting systems can help to greatly reduce the liability of their corporate clients. AFFIRMATIVE DEFENSE AGAINST CLAIMS

Per federal law, an affirmative defense against claims of discrimination and hostile work environment include institutional programs designed to mitigate them. Companies that have alternative means of reporting incidents and a protocol in place for their investigation meet this standard. By providing alternative outlets for employee reporting, HR

complaints while they are employed. They only feel comfortable bringing complaints after they leave, at which point the remedy is costly litigation. Third-party reporting and investigation services can encourage disclosure and facilitate a work environment that promotes communication and resolution of issues before they turn into lawsuits. Third-party investigators report directly to decision makers or designated department heads, thereby avoiding possible conflicts or internal politics that may otherwise influence an investigation. The integrity of the investigation is the bedrock of a third-party investigation and reporting system. The quality and re-

A developing industry of third-party support services has arisen to tackle the work of fact-finding and investigation. departments can help set a companywide culture that does not condone harassment or ignore complaints. Such active measures contribute to an affirmative defense in a suit that includes claims of pervasive harassment. By providing a buffer between employees and their supervisors, thirdparty services help preserve confidentiality, prevent career-damaging rumors and decrease the possibility of managerial interference in an investigation. Even companies with explicit anti-retaliation policies may have individual employees in management roles capable of covert retaliatory measures. A third-party reporting and investigation service adds a layer of protection for the employee and the employer. Additionally, for some employees an unfounded fear of retaliation may prevent them from coming forward with

liability of findings depends in large part on the methodology employed during an investigation. There are no industry standards yet; however, viable services should incorporate the best practices of existing services, including literacy in Title VII actions, privacy and employment law, and Fair Credit Reporting Act compliance, for example. Additionally, thirdparty vendors may utilize investigators certified by professional organizations such as the Society for Human Resources Management or the Association of Certified Fraud Examiners. Vendors can use different methods of collecting complaints or connecting to employees. One protocol already familiar to many is the harassment hotline, an independently administered calling service that collects complaints and relays them to appropriate HR representatives. Vendors can establish additional systems


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including web-based portals accessible directly by any employee who can log on with company credentials. Depending on the nature of the claim, reporting may be done anonymously or openly by an employee. Claims regarding whole classes of people, institutional practices, or claims of ethics violations such as embezzlement, misappropriating resources, or other actions evidenced by

something other than witness testimony may be made anonymously. If the complaint describes a victim of harassment or discrimination, identification of the claimant or potential witness may be crucial for a thorough investigation in which anonymity may not contribute to the goals of an investigation. Investigators use the information collected via their complaint platform

to create uniquely tailored plans to investigate the situation. These plans describe who the complainants and witnesses are, if and how they should be interviewed, and delineate any necessary examination of data, such as email exchanges or financial records. The protocol for any investigation may vary depending on the size of the company and the range covered. Some


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Compliance

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companies may seek third-party help specifically for sexual harassment complaints, while others may look for broad Title VII coverage (including all protected classes of workers). Still others may seek third parties to help navigate more broadly defined unfair practices or help investigate reports of financial malfeasance, theft, breaches of confidentiality, and so forth. Upon receipt of a complaint, an investigator can be immediately assigned to a case and start to perform a triagestyle evaluation to ensure investigation of good faith complaints. Should an investigator dismiss a complaint or conduct a minimal investigation upon belief that it was issued in bad faith, a report supporting that finding will be generated. Investigation of good faith claims can be conducted through a combination of interviews, forensic examinations, data recovery and other methods. The third-party will produce reports detailing the investigative measures taken and pertinent findings. Some investigative practices, such as witness interviews, are best handled by neutral parties who do not represent the corporation or a department but are merely fact-finders. Third parties can use their neutral posi-

Some companies may seek third-party help specifically for sexual harassment complaints. tion, interviewing experience and forensic skills in unexpected ways to accomplish investigations beyond the means of most HR departments. Investigators compile their factfindings into reports that describe the original complaint, include complaining witness testimony, and identify any related claims and data analysis. Reports detail findings of fact resulting from the investigation including evaluations of

the veracity of claims and supporting or contradictory material evidence. Because these reports serve to inform company decision makers and provide unbiased appraisals of facts and situations, they generally will not make specific proposals for remediation. Avoiding making remedial recommendations serves the company in several ways: It saves resources because any proposed remedy would still have to be reviewed by internal management, and it lets decision makers in the know about the company determine appropriate next steps. But investigators can and should liaise with general counsel or department heads to answer any questions and help the company manage the specific situation. LIMITATIONS AND PROJECTIONS

Third-party investigators provide diligent and neutral fact-finding because of their experience and their outsider position. For some companies, this may present limitations. If a business has a unique office culture or unusual human resource policies in place, it may take longer for third parties to understand some of the foundational issues. However, for large corporations with standard practices in place, this would rarely be a deterring issue; and often an outside perspective is beneficial. Although investigators help manage and minimize legal liability, they are not blind shields against all litigation; ultimate responsibility for workplace ethics violations cannot be shed by employing investigators. Rather, corporations should look toward investigators as a component of a system designed to minimize risk and reputation damage. Corporations looking to hire third parties should consult their general counsel about existing employee contracts and agreements before enforcing a policy mandating compliance with outside investigations. Communications between third-party investigators and HR personnel are not automatically protected under legal privilege. Counsel should employ protocols that ensure privilege is maintained when possible and recognize instances where it is not. Treating investigative communications

and documents as work product is of tremendous value should any litigation arise. Creating a corporate climate and office culture that is violation free cannot be effectuated by employing investigators. Comprehensive human resource structures designed to combat and prevent violations and liabilities will create the best protections for modern companies. HR should continually engage in proactive measures to protect its employees, business and reputation. One meaningful application of data obtained through investigations is using it to inform policies and procedures to decrease the ultimate need for these services.

Kate Thompson is General Counsel and Human Resources Director at Beau Dietl and Associates. She heads the development and management of BDA’s Ethics Solutions Division. Kate@investigations.com Charles Diamond is Vice President of Corporate Investigations at Beau Dietl and Associates. Formerly he was a senior investigator at the EEOC and a U.S. Army intelligence officer. Charles@investigations.com


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SUMMER 2019 TODAY’S GENER AL COUNSEL

WORKPLACE ISSUES

Fair Pay Audits Can Help in the Event of Litigation By Denise M. Visconti and Aaron D. Crews

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he federal Equal Pay Act has been on the books for over 50 years. Although the wage gap between working men and women has decreased over that time, it nonetheless remains. Current estimates predict that, unless something changes, men and women will not reach wage parity until 2059. Meanwhile, the news cycle every day is replete with new laws — and new lawsuits — aimed at encouraging (or forcing) companies to create workplaces that promote equality and fairly compensate all employees. More and more states are considering implementing pay equity statutes, adding to the already complex web of state and local laws addressing fair pay. The pressure on corporate leaders and in-house counsel to comply is immense. The question is how.

Denise M. Visconti is a shareholder at Littler Mendelson, where she represents clients in a broad range of employment litigation matters, including wage and hour class action litigation. She also regularly conducts pay equity audits for employers. DVisconti@Littler.com Aaron D. Crews is Littler’s Chief Data Analytics Officer. With an extensive background focused on the intersection of technology, business and the law, he leads the firm’s data analytics practice and strategy. acrews@littler.com

One of the best ways for companies to assess compliance is to conduct a compensation audit that evaluates whether differences in pay are supported by legitimate business considerations. Such an audit, which should be conducted under attorney-client privilege, can identify any salary differentials to be rectified. In Littler’s 2019 Employer Survey of more than 1,300 in-house counsel, HR professionals and C-suite executives, nearly half of respondents

(48 percent) said they have conducted audits of their pay practices and compensation data. Taking a proactive look at pay can stave off a claim or a lawsuit. But a compensation audit also can inform and prepare companies if that claim or lawsuit is filed. If your company is in the unenviable position of receiving a complaint of unequal pay from an employee, or worse yet a lawsuit, a pay audit can put you in


TODAY’S GENER AL COUNSEL SUMMER 2019

the driver’s seat. Companies that have conducted audits ultimately save money by being able to make an informed decision on whether to fight claims or resolve them, and often do so much more quickly and cheaply than otherwise might be possible. A technology-based platform for conducting pay equity audits can identify and analyze pay disparities, and leverage data analytics to support litigation strategy. When claims are made after an audit is performed, counsel can do a deep dive into the issues raised and assist clients in ascertaining whether they have merit, or whether the complainants simply misunderstand the basis of their compensation. Often claims can be resolved before they turn into litigation.

the issues on which discovery is needed from the plaintiff or third parties. Knowing the results of an audit can help identify what objections should be asserted during the discovery phase of litigation. We have used our knowledge of what the audit showed to narrow the scope of information conveyed to the complainant. This approach not only streamlines the discovery process but also enables clients to successfully defend against claims and resolve matters. If all else fails and the matter goes to trial, then a pay equity audit and its results can help trial counsel explain very complicated and complex issues — like pay differences — to a jury. Compensation decisions often are the product of several decisions that have taken place over time, which can lead to difficulty in explaining why two seemingly similar individuals are being paid differently and what business justifications support those pay differences. If an audit is done correctly and done well, you should understand whether you can legally support any existing pay differences long before your company ever sees a claim. The emphasis on closing pay gaps and driving for pay parity appears to be here to stay. Proactively looking at whether your compensation structure fairly compensates all employees cannot only help you create a workplace that promotes equality, it also can help you defend your compensation structure should one of your current or former employees challenge it.

A technology-based platform for conducting pay equity audits can identify and analyze pay disparities, and leverage data analytics to support litigation strategy. Where resolution of a complaint or lawsuit proves impossible, having a pay audit can also inform the litigation that ensues. When companies have detailed information about the complainant’s comparators and understand what factors have influenced pay, they can approach litigation knowing what defenses they can prove should the matter proceed toward trial. For instance, we have used information gleaned during audits of clients’ pay data to inform the contents and choices of pleadings and what motions might be possible or necessary. We also have used the privileged information to help dictate the cadence of the litigation, decide the order of discovery and guide when to introduce settlement discussions into the litigation. Information learned during a pay audit also can inform and often narrow

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SUMMER 2019 TODAY’S GENER AL COUNSEL

THE ANTITRUST LITIGATOR

Litigation Immunity and Sham Litigation By Jeffery M. Cross

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tried a patent antitrust case to a jury in federal court last summer involving the idea that sham litigation can strip away the immunity from antitrust liability that is normally granted to a patent owner bringing an infringement action. It is an important antitrust principle. The Supreme Court established a doctrine of immunity from antitrust violations for petitioning the government, including the courts. This doctrine is known as the Noerr-Pennington doctrine after the two cases initially establishing the principle. In bringing a patent infringement action, the patent owner is generally acting unilaterally. Therefore, but for the immunity under the Noerr-Pennington doctrine, the patent owner might be subject to a charge of monopolization under Section 2 of the Sherman Act. A patent owner has the right to exclude others from making, using or selling an infringing product as part of the patent grant. Litigation to enforce this right is protected from a claim of monopolization, even if the effect of a successful infringement action may be

Jeffery Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group at Freeborn & Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com

to maintain a monopoly. Furthermore, even if the result of the infringement action was a finding that the patent was not infringed or was invalid, the Noerr-Pennington doctrine would generally protect the patent owner from antitrust liability. In creating this immunity for petitioning the legislature, the Supreme Court began with the basic proposition that no violation of the Sherman Act could be predicated on attempts to influence the passage of laws or the enforcement of those laws. This conclusion was based on two related principles: First, a finding of liability would impair representative government. The Court stated that the whole concept of representative democracy depended on the ability of the people to make their wishes known to their representatives. To hold that the government retains the power to act in a representative capacity, while at the same time hold that people cannot freely inform the government of their wishes, would impute to the Sherman Act a political purpose. The Court found that there was no basis in the legislative history for such a purpose. Second, a construction of the Sherman Act that would bar people or businesses from associating together in order to petition government would repeal important constitutional principles that could not lightly be imputed to Congress. The most significant of these constitutional principles are the rights to assemble and petition protected by the First Amendment. The Court also addressed the question of whether the right to petition government would be lost if the purpose

of urging the legislature to pass a particular law was to harm a rival. It noted that it was not unusual or illegal for people to seek action on laws in the hope that they might bring about an advantage to themselves and a disadvantage to their competitors. It stated that a construction of the Sherman Act that would disqualify people from taking a public position on matters in which they are financially interested would deprive the government of valuable sources of information, and deprive the people of the right to petition in the very instances that may be of the most importance to them. The Supreme Court went on in subsequent cases to apply these principles to efforts to influence the executive branch, government agencies and the courts. The Court created an exception to this immunity for sham litigation. It recognized that there may be instances where the alleged conduct is a mere sham to cover up what is actually nothing more than an attempt to interfere with the business relationships of a competitor. In such a case, application of the Sherman Act would be justified. In an early case interpreting the sham exception, the Court found that application of the Sherman Act would be justified in condemning a program by rival truckers in opposing — with or without probable cause and regardless of the merits — every application by competing truckers for operating rights or the transfer of operating rights. It found that the defendants had harassed and deterred plaintiffs in their use of administrative and judicial proceedings to obtain operating rights. The result


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was to deny plaintiffs free and unlimited access to the agencies and the courts. The Court described defendants’ conduct as a pattern of baseless, repetitive claims that the trier of fact could conclude abused the administrative and judicial process. Although in establishing the NoerrPennington doctrine, the Court had initially rejected an argument that intent to harm rivals was relevant with regard to the legislative process, it held that intent could be relevant in litigation if there was intent to harm competition directly by filing numerous lawsuits regardless of outcome merely to drive up the costs of the competitor. In a subsequent decision, the Supreme Court established a two-prong test determining whether litigation is a sham. The first prong requires a showing that the lawsuit was objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. Only if this first prong was met may a

trier of fact consider the second prong, which evaluates the litigant’s subjective motivation or intent. This prong asks whether the baseless suit conceals an attempt to interfere directly with a competitor’s business relationship through use of the government process, as opposed to the outcome of that process. The Court addressed the question of whether litigation may be a sham merely because the litigant is not motivated by an expectation of success. It answered this question in the negative and held that an objectively reasonable effort to litigate cannot be a sham regardless of subjective intent. The Court reiterated its holdings in developing the Noerr-Pennington doctrine that, in attempting to influence the passage and enforcement of laws, a patent owner for example would not lose immunity if its sole purpose in acting was to destroy competition. It also elaborated on what it meant

by the objectively baseless first prong. It emphasized that a winning lawsuit is, by definition, a reasonable effort at petitioning for redress and therefore not a sham. It also stated that the existence of probable cause to institute legal proceedings precludes a finding that an antitrust defendant has engaged in sham litigation. It described probable cause as no more than a reasonable belief that there was a chance that a claim may be held valid upon adjudication. The Noerr-Pennington immunity from antitrust liability for bringing litigation is an important principle of antitrust law, but litigants need to be aware of the sham exception.


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PRIVILEGE PLACE

In-House Counsel, PR Consultants and the Privilege By Todd Presnell

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catastrophic product failure, a relatively minor employee relations issue – any public relations crisis is often judged in the court of public opinion long before it is judged in a court of law. Company executives traditionally tasked the legal department with managing both, but increasingly they’re turning to public relations specialists to guide the organization through the court of public opinion. Unfortunately, lost in the crisis shuffle is the key question of whether the attorney-client privilege protects company lawyers’ communications with outside PR firms from disclosure. Fortunately, front-end strategies exist to increase the chances that lawyerconsultant communications never enter a court of law. The answer to any in-house privilege question begins with the foundational privilege elements. The corporate attorney-client privilege protects from discovery confidential communications between a company’s employees and its lawyers so that the lawyers can provide the company with legal advice. Each

Todd Presnell is a partner in Bradley’s Nashville office. He is a trial lawyer, and creator and author of the legal blog Presnell on Privileges (www. presnellonprivileges. com). He provides internal investigation and privilege consulting services to in-house legal departments. tpresnell@bradley.com

foundational element remains critical when communicating with public relations consultants, but the “employee” and “legal advice” components prove more troublesome. Two privilege concepts, however, provide in-house lawyers with opportunities to minimize these troubles: the Kovel doctrine and the functional equivalent doctrine. The Kovel doctrine, originating in the Second Circuit’s decision in United States v. Kovel, extends the privilege to

communications between a company lawyer and third-party consultants so long as those communications are for the purpose of assisting the lawyer in understanding non-legal concepts in order to provide the company with legal advice. The most common example is a lawyer’s communications with outside accountants. If an in-house counsel communicates with an accountant to better understand accounting concepts in order to provide the company with


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optimal legal advice, then the privilege covers those communications. In the right circumstances, the Kovel doctrine may persuade a court of law to find that the privilege covers communications between corporate counsel and an external public relations consultant. If the lawyer can prove through a detailed declaration that communications were necessary to assist in providing legal advice to the company, then the privilege should apply. On the other hand, if the PR professional’s effort is nothing more than routine public relations work to portray the company in a better light, then there is no legal advice component and, thus, no privilege. Let’s review a couple of examples where this strategy succeeded and where it failed. In Stardock Systems, Inc. v. Reiche, a November 2018 decision from the Northern District of California, the question presented was whether the Kovel

ogy group’s alleged bad acts. During this activity, the hospital’s outside counsel sent the GC an email containing legal advice. The GC then forwarded the email to the hospital’s PR firm. The hospital’s privilege claim over the email chain failed because the GC’s forwarding of outside counsel’s email constituted privilege waiver. The court rejected the hospital’s Kovel argument, finding that it did not apply because the PR consultant “was uninvolved in the legal issue in question.” The court found it persuasive that the GC, rather than the hospital’s outside counsel, retained the consultant, and that he forwarded the legal advice email to the consultant without seeking her assistance in providing legal advice. A comparison of Stardock and Excela provides a practice tip. In-house counsel should consider retaining outside counsel and having outside counsel engage the PR firm. Courts will more readily accept the legal advice argument if outside counsel is directing or handling the communications. And whether with in-house or outside counsel, the engagement letter should specifically state that the PR firm is retained, at least in part, to assist counsel with providing the company with legal advice, and that it understands and agrees to keep lawyer communications confidential. The functional equivalent doctrine holds that the privilege protects communications between a company’s lawyer and a third party if that third party is the “functional equivalent” of an employee. In other words, if a company’s third-party consultant acts as an employee would, then there is no reason to distinguish between a lawyer’s communications with the consultant and her communications with an employee so long as the communications were for legal advice. Courts require specific proof of the consultant’s necessity for legal purposes, as the Southern District of New York

The Kovel doctrine and the functional equivalent doctrine provide in-house lawyers with opportunities to minimize these troubles. doctrine protected communications between a party’s law firm and a public relations firm that the law firm retained for the case. The court held that Kovel applied because outside counsel, not the client, retained the consultant. The court found that the law firm hired the PR firm “specifically for the purposes of litigation strategy,” and that the communications related GC’s “litigation strategy” and “dispensing and exchange of legal advice in responding to the lawsuit.” The opposite result occurred in a 2017 Pennsylvania case. In BouSamra v. Excela Health, a hospital became involved in a legal dispute with its thirdparty cardiology group. The hospital’s GC retained an outside public relations firm “to aid in publicizing” the cardiol-

illustrated by the 2019 case of Pearlstein v. BlackBerry. When BlackBerry’s stock price declined upon publication of a market-analyst’s report of high customer returns of Z10 smartphone, BlackBerry’s GC retained an outside public relations consultant to help draft a press release to counter the negative analyst report. The court found BlackBerry’s functional equivalent evidence lacking, ruling that BlackBerry engaged the PR consultant “for his expertise in preparing press releases.” There was no evidence that the consultant was engaged to assist the GC in providing legal advice, or that he communicated with the GC for legal advice purposes. Therefore, when the GC copied the consultant on internal emails, he waived the attorney-client privilege. The BlackBerry opinion should not discourage in-house counsel from asserting the functional equivalent doctrine to protect lawyer-consultant communications, but rather offer practice guidance. The key, again, is the privilege’s legal advice element. If the company has an engagement agreement with the thirdparty consultant, it should state that part of her duties may include speaking confidentially with company attorneys so these attorneys can provide the company with legal advice. Moreover, when communicating with the consultant, the lawyer should note its privileged and confidential status, and stand ready at the beginning to later explain in court why the communications were necessary to provide legal counsel to the company. Whether seeking to establish and maintain the privilege over lawyerconsultant communications via the Kovel doctrine or the functional equivalent doctrine, the key is to consider these privilege avenues at the outset of a developing crisis. Without taking these preliminary steps, in-house counsel may initially succeed in the court of public opinion, but later lose it all in the court of law.

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Delivering Client Value With Technology By Luke Kopmeyer

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s a legal tech consultant, I sit at an interesting intersection between law firms and corporate legal departments. Every day from this vantage point, I explore how to best achieve the goals of both, which at times can seem to oppose one another. Law firms are looking to win new business as well as expand business with their existing clients, while many in-house teams are aiming to show value to the business by handling more legal work in house. To best serve our clients on both sides of the in-house and external counsel sectors, I spend a lot of time asking questions, seeking feedback and learning about how legal teams use technology to solve their day-to-day challenges — from project management to vendor management and everything in between. I also work to discover what else our clients would like to use technology to accomplish, which turns out to be a lot. This desire to find ways to do more with technology is part of the reason I was excited to have the opportunity to speak with Larry Luke Kopmeyer is a Oleksa, assistant solutions consultant general counsel of at HighQ. He has more than 10 years Cirrus Aircraft. I of legal experience asked ask Larry as a practicing atabout his past torney, eDiscovery experiences and project manager and how he currently analytics consultant. He focuses on deuses technology to veloping innovative build relationships technology solutions with internal and for legal departexternal teams. ments and law firms. He offered useful luke.kopmeyer@ highq.com advice and insights

about how in-house legal departments could deliver more to their business, get more from their technology and extract more value from their external counsel. Here is what I came away with: 1. Deliver more as a strategic business partner. Beyond simply managing legal matters, in-house counsel must understand their larger role in driving revenue to the business. This requires open communication and an investment of time to understand each department’s function, goals and challenges. 2. Anticipate legal issues and reduce risk. The business partners and leaders trust that the legal team is protecting the business from risk. This trust allows the business partners to focus on their main goal of creating revenue. In order to build this trust, in-house counsel must be proactive in protecting the business. Valuable legal teams will identify issues and reduce risk before a problem arises. 3. Find creative ways to achieve the business objectives. Legal teams must redefine themselves as teammates and partners and avoid becoming perceived as the “no” department. Be open to trying new processes and brainstorming creative solutions. Each of these three tenets relies on the others. If in-house counsel understands the business, they are in a better position to anticipate legal issues. Developing a partnership with the different business units also allows for more creative solutions to achieve business goals. Collaboration is vital continued on page 55

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The Most Saturated Legal By Tamar Sacerdoti

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Market in the World

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srael is one of the leading technology hubs in the world, with the largest number of start-ups per capita, and more than 300 research and development centers of leading companies worldwide. It has attracted attention disproportionate to its size in respect to the amount of business and economic activity it generates. Israel’s legal market is also an anomaly in comparison to counterparts in the Americas, Europe and the East. One of the most prominent characteristics of the Israeli legal market is the sheer number of attorneys, one for every 160 people, making it the most saturated legal market per capita in the world. There are 80,000 registered attorneys working in the public and private sectors. For the sake of comparison, the UK has one attorney for every 400 people; and Japan, an attorney for every 6,000 people. International law firms have had an increasing presence within the Israeli legal market. Since a legislation change in 2012 allowing international law firms and attorneys to register their services in Israel, over 90 law firms are active within the Israeli legal market today, adding a congested international layer to the market.

Competition, Outsourcing and Technology These surprising numbers have had sector-wide implications over the past few years. Although all legal markets are impacted by globalization and technology, one can see three different changes taking place within the Israeli legal market, a market that has not changed over the past 60 years. These include the increasing and different forms of competition, the use of legal outsourcing and the slow entrance of legal technology into the market.

Firstly, competition is fierce. In the past, the biggest and most prominent deals were handled by the top law firms. Today, the market has opened a very competitive secondary layer of legal business, with new boutique law firms leading major litigation cases, mergers and acquisitions deals and IPOs. However, the increase in the number of law firms has inevitably decreased legal fees. For comparison’s sake, a partner at a top Israeli law firm charges an equivalent amount of fees as a young associate at a similar size international law firm — even before discounts given to family, friends, friends of friends and others. Not surprisingly, this provides new challenges to the smaller or less successful legal businesses, forcing them to adapt new and creative business plans. Some of these plans include different ways to be unique in the market, including the increase of cross-border activity, gaining more international clients or delving into new niche markets. Some firms have decided to merge with others, but this is a two-way street. Not only are niche boutique law firms looking to find a more secure home for their business but also larger law firms are increasingly merging with small niche law firms to offer com- Tamar Sacerdoti prehensive services is Head of the International Department as a new way of at Robus Consulting retaining clients. & Legal Marketing, These mergers one of Israel’s leaders have completely in providing business development serdominated the Israeli legal market vices to international law firms looking to over the past few expand within Israeli years, counting markets. in the dozens in tamar@robus.co.il

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2018 and five just within January and February this year. Naturally, this leads to an unstable legal market as a whole, and a nervousness within law firms in particular. Secondly, the Israeli legal market is increasingly using outsourcing as an effective solution to the market’s new challenges. Those outsourced find

refer resources to more complex assignments, sometimes using legal outsourcing. The Israeli high-tech industry is second in size only to Silicon Valley and is an integral part of the legal-tech community. Due to the start-up atmosphere of the Israeli market, numerous disrupting technologies have been created that provide solutions for any size law firm

the challenges and changes have also brought new opportunities. Law firms and in-house counsel are increasingly open to adopting and embracing new methods of operation, business models, marketing and business development tools. This not only lets new players enter the market but also allows legal teams

Law firms and general counsel find outsourcing a cheap, quick and effective tool for ad hoc projects they do not have the capacity to handle.

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themselves unemployed or working for small wages in comparison with large law firms. Legal outsourcing provides these attorneys desperately needed supplementary income. On the other hand, those doing the outsourcing — law firms and general counsel at local and international corporations — find it a cheap, quick and effective tool for ad hoc projects they do not have the capacity to handle. Legal outsourcing opportunities provide law firms with cheaper, better and innovative services, delivering their clients critical added value and allowing them to stand out in the market. As an example, LawFlex allows businesses to access top lawyers from across the globe without the large overheads of traditional law firms, offering an efficient and reliable way to temporarily expand legal capacity, by hiring experienced lawyers from a variety of jurisdictions on a short-term basis, or for any length of time required to complete a project or fill a specific need. Legal outsourcing within and from Israel is growing, often referring legal work to other Israeli attorneys, or to their international partners. Thirdly, legal technology is slowly but surely replacing the mundane technical activities of an attorney, and many law firms are an integral part of promoting this industry. New legal technologies help law firms prioritize legal tasks and

or in-house counsel. In comparison to the United States and UK markets, Israeli legal teams have taken more time to implement legal technology into their daily routine. One of the more popular benefits and uses of these technologies can be seen in training young lawyers. Instead of using young lawyers to do small, technical tasks, the implementation of artificial intelligence within the legal system does these tasks instead, allowing a law firm to provide more substantive, fast and effective training to their associates, increasing their individual legal capabilities and growing the firm’s capacity as a whole.

New Players, Streamlined Services Although the sheer numbers in the Israeli market have created difficulties for local and international law firms in standing out to potential clients,

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to streamline their services. In addition, the changes of the market, along with the impact of a globalized world, have made the Israeli market more international in its business, clients and structure. This provides opportunities for international business to feel more comfortable within the Israeli legal and business markets, and brings new business and markets for Israeli enterprises and organizations. The best example can be seen in the increasing expansion of Israeli business to new markets over the past 10 years, including continental Europe, the Far East and South America. The uniqueness of the Israeli legal market has forced numerous changes in the type of competition, the increasing use of legal outsourcing and the implementation of legal technology within diverse legal teams. These changes have provided new and exciting opportunities for local and international businesses.

“I refer to the magazine often and the information is useful in my daily work.” SUBSCRIBE NOW TODAYSGENER ALCOUNSEL.COM/ SUBSCRIBE


TODAY’S GENER AL COUNSEL SUMMER 2019

Delivering Value

continued from page 51 to achieving all three. The legal team should work to develop close relationships and open communications with all departments, and collaborate as much as possible to solve their business and legal issues. The more welcome and included in your process other departments feel, the more likely you are to intercept potential risk. DEMAND MORE FROM YOUR TECHNOLOGY

Begin leveraging technology to enhance partnerships and communication between the legal team and other departments. There are many legal tech solutions available that can act as a catalyst to improve processes, efficiency and communication for in-house teams. When evaluating new legal technology, it is important to prioritize five key factors: • Ease of adoption and user interface. Is the technology intuitive and easy to use? If a standard user within your business can’t figure it out with minimal training, they simply won’t use it. That will severely limit, if not cripple, the technology’s ability to transform and improve processes. To successfully achieve department and, hopefully, business-wide adoption, it’s important to have an understanding of your team’s experience with technology. Identify early adopters and empower them to help others on the team ease into the technology. • Return on investment potential. If the legal tech you selected delivers everything it promises, how much time will be saved? How do those hours translate into saved budget? If you can tie technology investment to quantifiable ROI, it will be easier to win buy-in and additional future investment from your business. • Enterprise-wide application. There are countless point solutions avail-

able to lawyers that are so specific to legal work that they are only useful to your department, limiting the business’s ROI. Select a technology solution that offers a wide range of inter-departmental uses and integration opportunities. Company-wide adoption will make your processes more efficient and your resulting data more consistent and reliable. • High-level data security. Your business’s reputation and long-term success depend on keeping your confidential data safe. Each week, we hear news of a fresh data breach. The damage done can ripple out for years, costing millions in lost business and ongoing litigation. Any enterprisegrade, cloud-based technology solution should protect your data with military-grade security. Don’t settle for less. • Pricing and scalability. Thanks to the cloud, legal technology is more attainable than ever. The flexibility of the cloud means that businesschanging technology no longer requires a massive financial investment, long-term commitments or costly on site IT staff to maintain the applications. Most solutions are available at a low cost of entry for legal departments of all sizes. They are updated regularly and easily scalable as your needs and business grow. In addition to these factors, the future of legal tech within corporate legal teams will almost certainly involve the use of artificial intelligence to improve efficiency. However, even as technology continues to advance, these areas will continue to be crucial to selecting longterm litigation solutions that deliver more value. COLLABORATION WITH OUTSIDE COUNSEL

The demand from corporate legal teams for better visibility into the status of their legal matters is driving legal tech adoption in the law firms they work

with. For corporate legal teams, the hope is that active collaboration with outside counsel will result in reduced legal spend. Improved transparency will empower corporate legal teams to strategically determine what work can be brought in house. Cloud-based solutions with a great user experience, mobile access and enterprise-grade data security are rising to the challenge to meet this demand by bringing internal and external teams closer. Explore on-demand, real-time updates on litigation status to better manage budget spend and avoid costly surprises. Retain and control all knowledge, legal research and data produced by outside counsel during litigation for future analysis, reporting and forecasting. Improve and track access to litigation data, such as pleadings, exhibits and transcripts. Drive process efficiency by putting your valuable, shared data and content to work. Don’t be afraid to take a hands-on, involved approach with your outside counsel. Give them access to and request that they work within your preferred collaboration platform to deliver updates, documents, financial information and more. It’s okay to demand and expect more from the law firms you work with. Improved collaboration will build your relationship with the firm and empower your team with the information and tools to inspire confidence and trust within the business. To be successful, corporate legal teams must wear two very different hats — business and legal. It’s tough to look good donning them at the same time without the right approach to technology. Technology can enhance your partnership with the business, provide additional value to all departments and strengthen your relationships with outside counsel.

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Supreme Court Changing Where You Can Be Sued By Mark Kressel and Jacob McIntosh

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he first question a general counsel should ask when informed of a lawsuit against his or her company is whether the court in question has personal jurisdiction over the corporation. After years of aggressive expansion by states and federal appellate courts of the exercise of personal jurisdiction over out-of-state and international defendants, in three decisions over the past five years, the United States Supreme Court has curtailed the power of courts over out-of-state and international defendants by restricting both general personal jurisdiction (all-purpose jurisdiction) and specific personal jurisdiction (case-specific jurisdiction). These decisions implicitly recognize the rapid growth and increasing societal benefits of interstate and global commerce. This article explains the Court’s opinions, reviews how lower courts have subsequently responded and explores some potentially surviving theories that plaintiffs may rely on going forward to assert personal jurisdiction over non-resident corporate defendants. JURISDICTIONAL SHIFT

In Daimler AG v. Bauman, Argentinian plaintiffs sued a German holding company in California, alleging the company’s Argentinian subsidiary had committed human rights violations in Argentina. The plaintiffs contended jurisdiction existed in California because the company’s American subsidiary did substantial business in California that was vital to the German parent’s business. The United States Supreme Court held that the subsidiary’s contacts with California were not sufficient to support general jurisdiction over its German parent. Instead, the Constitution permits general jurisdiction in a court only where a company is incorporated or has its principal place of business. Beyond that, it will require an exceptional case where a corporation’s operations are “so substantial and of such a nature as to render the corporation at home in that State.” In BNSF Railway Co. v. Tyrrell, two workers from outside Montana sued a railroad in Montana for injuries that occurred in other states. The Montana Supreme Court ruled there was jurisdiction because the railroad was “doing business” in Montana. The court reasoned Daimler did not apply because it dealt with a different type of claim against a foreign corporation. The United States Supreme Court reversed, clarifying that Daimler’s bright-line “at home” standard applies to all assertions of general jurisdiction over out-of-state defendants. Although the railroad had thousands of employees and miles of railroad track in Montana, the Court made clear that a corporation doing business — even a substantial amount of business — in many states cannot “be deemed at home in all of them.”

If a plaintiff asserts a theory of jurisdiction in the plaintiff’s chosen state that would also result in jurisdiction in all 50 states, that theory is probably unconstitutional.

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The Court turned its attention to specific jurisdiction in BristolMyers Squibb Co. v. Superior Court. There, a group of Mark Kressel is a partner at Horvitz & plaintiffs brought Levy and has handled a mass tort action appellate matters in a against a pharmawide range of areas, ceutical company including patent, in California over the California Environmental Quality the drug Plavix. Act, the anti-SLAPP Some plaintiffs statute, the First were California Amendment, punitive residents injured damages, general by the drug in business litigation and premises liability. California, but He is currently on the the vast majority executive committee were non-residents of the ABA Council injured in other of Appellate Lawyers states. The Caliand served as the 2018 CAL Chair of fornia Supreme the Appellate Judges Court permitted Education Institute specific jurisdicSummit. tion over the nonmkressel@ residents’ claims horvitzlevy.com because they arose from the same defective product and same national marketing scheme as the California claims. The United States Supreme Court again reversed, holding that specific jurisdiction exists only where there is a “connection between the forum and the specific claims at issue.” Even though the company had extensive contacts with California, none of those contacts gave rise to the non-residents’ claims. And the Constitution does not permit jurisdiction over out-of-state defendants for out-of-state claims merely because they are similar to claims brought by others that would support specific personal jurisdiction. Viewed together, these three cases likely reflect a consensus that the benefits that flow from facilitating the technologically driven growth in interstate and global commerce outweigh the challenges posed to individual plaintiffs who may have fewer choices of forums where they can bring suit. While society benefits from the free flow of goods

and services across state and national borders, those benefits will be chilled if companies fear being hauled into court in every state where they do business. It is sufficient if litigation occurs where the claim arose or on the corporation’s home turf. Looking ahead, this approach offers a useful rule of thumb: If a plaintiff asserts a theory of jurisdiction in the plaintiff’s chosen state that would also result in jurisdiction in all 50 states, that theory is probably unconstitutional. These decisions also demonstrate the court’s focal shift from practical fairness to the parties to more abstract constitutional and societal concerns. Although earlier decisions were more aggressive in asserting jurisdiction where the marginal burden on the defendant of having to litigate in the plaintiff’s chosen state was

business, even when that corporation generates substantial revenue or employs hundreds of workers there. The courts, for the most part, have resisted plaintiff’s inevitable claims that they bring the “exceptional case” where general jurisdiction is warranted elsewhere. Further, lower courts have indicated that the Supreme Court’s decisions implicitly undermine several other, longheld theories of jurisdiction: Stream of commerce: This theory permitted specific jurisdiction where a company places its products into the marketplace with the mere expectation they might be sold within the forum state. Multiple courts have noted “stream of commerce” is at odds with Bristol-Myers, which requires that the defendant has

Some courts have concluded that states retain power to force “consent” to general jurisdiction in exchange for the privilege of doing business there. minimal — such as for corporations that already did substantial business in the forum state even if that business was unrelated to the plaintiff’s claims — the Supreme Court’s recent cases limit jurisdiction based on notions of constitutional due process, international comity and federalism limits on the power of states to decide claims properly brought elsewhere. LOWER COURTS RESPONSE

The impact of these decisions is readily apparent in state and federal appellate courts. For the most part, after a few false starts, these courts understand the import of the Supreme Court’s new decisions and have applied them broadly. For instance, courts have found Daimler’s bright-line “at home” test for general jurisdiction hard to satisfy in a forum that is not a corporation’s place of incorporation or principal place of

affirmatively reached out to the forum state in ways that substantially relate to the plaintiff’s claims. Bristol-Myers also stated that the mere fact that an out-ofstate defendant contracts with an in-state distributor is not enough to establish jurisdiction. Sliding-scale jurisdiction: Under this theory for specific jurisdiction, the more extensive and wide-ranging a defendant’s contacts were with the forum, the less a connection had to be shown between those contacts and the plaintiff’s claim. The Supreme Court rejected this theory in Bristol-Myers as resembling “a loose and spurious form of general jurisdiction.” Multiple courts have since struck down or called into question similar tests used in their respective jurisdictions. This may have a significant impact in the online and e-commerce spaces, where the dominant Zippo test — in


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which a higher level of website interactivity increases the likelihood of specific jurisdiction — may have been undermined by Bristol-Myers. Agency/representative services: This theory allowed general jurisdiction when a corporation uses an agent or representative entity to conduct activities that are so important the corporation would do them itself if there were no agent available. The Supreme Court in Daimler expressed doubt as to this theory and, subsequently, several lower courts have held that a court cannot exercise general jurisdiction over a non-resident parent corporation based solely on its agent’s or subsidiary’s actions in the forum state. One court has noted the inverse rule is also true: A court cannot establish general jurisdiction over a foreign subsidiary purely based on the activities of a domestic parent corporation. Importantly, however, a court can still exercise specific jurisdiction if an out-of-state corporation purposefully avails itself of a forum by directing its agent to take action there that harms the plaintiff. United States as forum for litigating global human rights abuses: Various federal statutes provide causes of action for human rights abuses and acts of terrorism primarily occurring outside of the United States, and some federal appellate courts welcomed these claims. But the stringent requirements of the Supreme Court’s recent decisions likely foreclose the United States as a forum to adjudicate most claims for harms occurring entirely outside of the United States, even when the victims are United States citizens. FUTURE OF PERSONAL JURISDICTION

In the future, defendants can expect to see plaintiffs develop new jurisdictional theories, or creative extensions of existing theories, still left open by the Supreme Court. Consent: Traditionally, a corporation can be sued where it has voluntarily submitted to the jurisdiction of the forum.

Consequently, a forum selection clause within a freely negotiated contract can still create specific jurisdiction over a dispute arising from that contract. The question is less clear regarding the “consent” that some states mandate as a condition of doing business in the state through registration statutes. Courts are split as to whether these statutes are still constitutional. Some courts have concluded that states retain the power to force “consent” to general jurisdiction in exchange for the privilege of doing business there. Other states have reasoned that such statutes swallow the due process constraints laid out by the Supreme Court by effectively replacing the “at home” test for general jurisdiction with the now-rejected “doing business” test. Research and development: At least one court has hypothesized that clinical trials or market research for a pharmaceutical drug conducted within a forum may be a basis for specific jurisdiction in that forum over claims by non-residents injured by that drug in other states. Alter ego: Personal jurisdiction may still arise over an out-of-state parent corporation if it is merely the alter ego of its in-state subsidiary. This “alter ego” relationship requires that the out-ofstate corporation exercise control of

the subsidiary’s internal affairs or daily operations. Conspiracy: In some states, an out-of-state defendant who Jacob McIntosh joined Horvitz & Levy lacks any contacts in 2018 as part of with the forum the firm’s Appellate participating in a Fellowship Program. civil conspiracy Since then, he has may be subject to participated in a variety of projects, jurisdiction based including the drafting on the actions of briefs in the Ninth of an in-state Circuit and performco-conspirator. ing case-related Plaintiffs are likely legal research. jmcintosh@ to allege creative horvitzlevy.com theories of “conspiracy” between target out-of-state defendants and instate defendants to obtain jurisdiction over the former. In conclusion, the Supreme Court has interpreted the Constitution to favor global commerce and local litigation. Despite some resistance from various courts and plaintiffs, most lower courts are implementing this directive and limiting defendants’ exposure to suit in far-flung locales.

V I S I T  T O D A Y S G E N E R A L C O U N S E L . C O M   F O R T H E L AT E S T N E W S , A N A LY S I S , C O M M E N TA R Y F O R G C s A N D O T H E R I N - H O U S E C O U N S E L .

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BEST PRACTICES FOR STREAMLINING M&A By Nick Perdikis

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here’s much optimism about the mergers and acquisition market, with transactions predicted to continue strong through June this year. But optimism alone doesn’t make for a fruitful deal. Anyone involved in M&A knows that successful integration of the two involved organizations is where value is truly realized. A significant chunk of this responsibility falls to general counsel and their teams. General counsel oversee a vast portfolio of duties, including corporate M&A. Managing this wide-ranging portfolio puts increased pressure on legal resources, which isn’t helped by the fact that M&A legal teams are also constrained by high-frequency, manual processes and workflows that introduce inefficiencies and errors. They must find ways to leverage best practices and technology. Here are some things they can do to streamline legal operations and free up resources to focus on what matters. Excel without Excel. Most M&A activity is conducted using processes that, while still adequate, do not take advantage of current technology. Consider the traditional spreadsheet, a favorite among

legal teams. Deal attorneys and legal analysts rely on spreadsheets-based checklists to track the complexities of deal flow, including due diligence, drafting and amending agreements and memorandums, tracking signatories, reporting to management, and so on. It’s a labor intensive, inefficient, and fragmented process that limits collaboration, propagates duplication and introduces risk. Further, since spreadsheets are individually owned and siloed from other IT systems, users turn to other ways to Nick Perdikis is CEO share information, and Chief Revenue such as secure Officer of Devensoft, where for the past data storage platsix years, he has forms or virtual grown the company data rooms. into a leader in the These pitfalls B2B SaaS market by can be avoided helping companies around the world betby stepping away ter manage, execute from the spreadand deliver on their sheet. They still M&A programs. have a role to play, nperdikis@ but it’s important devensoft.com

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to recognize their shortcomings. They’re static documents that do not allow for a great amount of flexibility or collaboration. Cloud-based M&A practice management tools that allow teams to share and manage documents, simplify project management and track all their M&A activities in one place may be better options. The goal is to provide information that everyone can access and update without depending on a version control linchpin. Traditional spreadsheets do not offer that luxury. Work with a playbook. Integration cannot be done ad hoc. M&A deal attorneys and legal analysts must consistently follow the same trusted, consistent and repeatable process. A due diligence and integration management playbook can help. It saves time by providing teams with clear guidance throughout the due diligence, negotiation and integration process. It encapsulates best practices and lessons learned and is a useful way to align everyone around their company’s key positions and negotiation principles. Playbooks often take the form of spreadsheets, but there are distinct advantages to leveraging digitized cloud-based playbooks designed with the complexities of the M&A legal process in mind. Playbooks contain content such as terms and conditions and contract language that is dynamic and evolving. Cloud-based playbooks can be easily customized, and the nuances of deals can be incorporated in real time. They can then be deployed across teams, eliminating static spreadsheet-based playbooks that can quickly become outdated. Automate the process. Automation adds enormous benefits to due diligence and integration processes. In particular, it helps reduce the hours spent on repeatable administrative tasks while ensuring compliance. With automated workflows, managers can assign tasks to other team members, receive notifications about updates and deadlines, and create dependencies. In the past, deal attorneys and support teams would individually email NDA agreements

to hundreds of invited team members and manually track signature history and receipt — a time-consuming and error-prone process that can be greatly improved through automation. For example, a large pharmaceutical company sought to streamline its M&A workflow to ensure that its deal team was compliant with confidentiality and other regulatory requirements before they gained access to sensitive information. Using a sophisticated M&A software system, each invited team member received an auto-generated email with a link to login and review the proposed agreement. An intuitive, self-guided review workflow allowed every individual to accept each section or request clarification from the designated deal attorney. The company’s legal team also had the ability to quickly see who had signed the document and who had not, send automatic reminder emails, and generate compliance reports at the click of a button. Integrate culturally. Cultural integration may be the most important component of any combined partnership. If the organization does not include the right mix of people — and if two disparate cultures are not integrated successfully — there is a chance the merger or acquisition will fail before it has even begun. Although cultural integration means different things to different people, it essentially boils down to the values both organizations adhere to and how they conduct business. Whether an M&A team is integrating across international borders or with a single organization, they must be sensitive to how the target’s legal team does business and find ways to accommodate those differences. If they’re acquiring a company with its own legal team and governance process, they should spend time getting to know their counterparts and their contract management practice. Technology can help facilitate a better understanding of organizations’ different cultures as companies go through the M&A process.

Communicate early and often. At the beginning of the integration process, there will be many questions without an answer. Leadership must try to address them as best they can and assuage any concerns — especially the “me” concerns around job security and stability — both internally and with counterparts at the target company. Teams should develop communication strategies that allow them to share timelines and provide information about each business and how their respective values will be integrated. They should be as transparent as possible. Even if they don’t have all the answers, their efforts will help build a culture of trust during the early stages of the process. Avoid integration fatigue. Once a deal is announced, there’s a frenzy of activity as everyone focuses on how it will all unfold. Meetings are held, roles and responsibilities are discussed, and timelines and milestones are defined. At this point, teams are usually burning the candle at both ends. As a result, they’re at risk of making costly mistakes. To avoid integration fatigue, it’s important to build breaks into the schedule to keep people fresh and give them time to focus on their “day job.” Managers should think of ways to take some pressure off. Technology and automation can help in this regard. Implementing automation solutions allows teams to spend less time on administrative tasks and frees them to focus on things that are important. Close the Deal. Ensuring mergers or acquisitions stay on track and are successful requires a fundamental shift from fragmented, manual processes to an automated, repeatable and collaborative team approach. But with the right strategies and tools, teams can streamline their M&A processes. They can make sure that all the key components for a successful merger or acquisition are accounted for, laying the groundwork for a long and fruitful partnership.


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SUMMER 2019 TODAY’S GENER AL COUNSEL

BACK PAGE FRONT BURNER

GC’s Several Roles Require Disparate Skill Sets By Rees W. Morrison

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EOs expect their general counsel to devote the largest portion of their time to contributing as a senior executive of the company and thinking like a business person. In line with that role, usually in United States corporations, the general counsel reports directly to the CEO and serves on the company’s management committee. With respect to this predominant role of the general counsel, CEOs look for a blend of strategic thinking, deep knowledge of the company and industry, and insight into applicable legal risks and opportunities. Second in priority, CEOs expect the general counsel to anticipate and deal with legal issues, sort through and be able to explain them competently and quickly, and marshal the resources of the law department and the law firms it retains to resolve them. Thus, separate from being a senior executive of the company, general counsel are expected by CEOs to navigate the roiling waters of the legal environment. Third on the list of typical expectations, CEOs rely on their general counsel to manage legal spending and Rees W. Morrison is headcount efficiently. Law a principal of Altman departments often have Weil, Inc. He has more than 25 years of a relatively high percentage of well-compensated experience advising law departments on employees (aka lawyers), cost control, depart- so the internal legal budget ment structure, proconstantly undergoes scrucess improvement, tiny by Human Resources. outside counsel management, perfor- Business executives and mance benchmarking CFOs fret about outside and other key issues. spend: “Why do we rack He also specializes up such bills when we have in data analytics for inside lawyers?” Typically, legal organizations. a law department spends rwmorrison@ altmanweil.com about as much on external

counsel as it spends on its internal staff, so the general counsel is expected to steward shareholder money as it is spent internally and externally. Research such as the Chief Legal Officer Survey conducted annually by Altman Weil show that these three roles set the priorities of general counsel. Stated broadly, CEOs look to their general counsel to spend approximately half of their Business counselor, time as a senior executive legal eagle, and of the business, a third manager — three of their time addressing roles that each call legal questions and a fifth for different skills. of their time managing the legal resources of the company. This holds true regardless of department size. Of course, CEOs recognize that major events such as mergers, class actions, public relations crises or governmental investigations distort how the general counsel allocates time during those upheavals; but over a period of months, this general allocation is likely to hold. Business counselor, legal eagle, and manager — three roles that each call for different skills. General counsel who embrace this distribution of their time to meet the expectations of their boss make use of various tools and methodologies. As a key officer of the company, general counsel use calendaring software, multiple tools of communication and news aggregators among other tools, and a department tuned to client structure and needs. As the top lawyer, general counsel read voraciously (including blogs and magazines), create templates for status reports, research legal databases, and talk frequently with partners at law firms. As departmental managers, they lean on matter management databases, legal ops experts, alternative service providers, data analytic insights, tips from trade groups and the better practices of other law departments that strengthen their own.


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Data security regulation in this country has reached the point where federal standards, even strict ones, would be easier to deal with than...

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Data security regulation in this country has reached the point where federal standards, even strict ones, would be easier to deal with than...

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