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A Conversation With Joanna Hubberts

Thu, 21 Nov 2024 21:31:38 Z

Cooley partner Joanna Hubberts appeared on an episode of the “Hsu Untied” podcast, discussing her job before law school as a mechanical engineer and how it guided her career as a patent lawyer.

Listen to the podcast

DEA/HHS Telemedicine Prescribing of Controlled Substances Extension

Thu, 21 Nov 2024 18:36:23 Z

On November 15, 2024, the US Drug Enforcement Agency (DEA) and the Department of Health and Human Services (HHS) jointly issued a temporary rule, which extends the current flexibilities relating to prescribing controlled substances via telemedicine through December 31, 2025. See the temporary rule.

Without this action, the telemedicine flexibilities were scheduled to expire at the end of the year, on December 31, 2024. Per the DEA’s press release, the agencies are extending the flexibilities to continue to review and consider the 38,000 comments and feedback received from public listening sessions in response to the 2023 proposed telemedicine rules.

This marks the third extension of the DEA’s temporary rule, which was originally enacted in 2020, during the height of the COVID-19 pandemic. The DEA’s rule created certain flexibilities to the Ryan Haight Online Pharmacy Consumer Protection Act of 2008 (Ryan Haight Act) – the federal law that governs telemedicine prescribing of controlled substances. These exceptions include:

Allowing qualified practitioners to prescribe Schedule II – V controlled substances via audio-video telemedicine without conducting a prior in-person medical examination of the patient, subject to certain requirements.
Authorizing qualified practitioners to prescribe Schedule III – V narcotic controlled medications approved by the Food and Drug Administration (FDA) for treatment of opioid use disorder via audio-only telemedicine encounters (e.g., buprenorphine).
Allowing a qualified practitioner to register with the DEA in one state, instead of requiring the practitioner to register with the DEA in each state the practitioner seeks to prescribe.

These flexibilities allow practitioners and digital health companies that treat patients with controlled substances to expand their scope of operations by removing the in-person requirement (at least on the federal level), which served as a barrier to a digital-only offering.

The timing of the extension further punts the enactment of the long-awaited permanent regulations interpreting the federal Ryan Haight Act to the incoming Trump administration, which will be forced to act on this issue in its first year. Digital health companies whose offerings include controlled substance prescribing should stay abreast of any future changes to maintain compliance.

If you have any questions or would like further information about what this may mean for your business, please reach out to a member of Cooley’s life sciences and healthcare regulatory team.

Preparing for Proxy Season: 15 Tips and Reminders for In-House Teams

Thu, 21 Nov 2024 17:01:09 Z

Cooley will be hosting two webinars in December 2024 and January 2025 to help companies prepare for the upcoming proxy season:

Hot Governance and Engagement Proxy Tips You Need to Know, at 11:30 am PST/2:30 pm EST on December 12, 2024, featuring Cooley partner Beth Sasfai, special counsel Michael Mencher, corporate governance senior strategic advisor Broc Romanek, and co-founder and CEO of Proxy Analytics Steve Pantina.
Proxy Season Preview (Including ISS and Glass Lewis Policy Updates), at 10:00 am PST/2:00 pm EST on January 15, 2025, featuring Cooley partners Ali Murata and Brad Goldberg, along with Compensia principal Mark Borges.

In advance of these webinars, our compensation and benefits, governance, and ESG teams put together a list of 15 key reminders for general counsel and in-house teams to consider as they ramp up for proxy season.

1. Brush up on proxy advisor and investor policies with an eye toward proactive disclosure opportunities.

Pay attention to proxy advisor and investor policies, including upcoming updates, but distinguish between general recommendations and policies with voting implications. These policies highlight which practices may impact voting recommendations and decisions but also indicate areas where proxy disclosure can be impactful, especially around executive compensation. In many cases, discovering that a company practice is misaligned with a voting policy is not a death sentence and, even at this stage, companies can craft disclosure and engagement strategies to compensate.

2. Remember to overlay proxy advisor independence standards.

Don’t forget that ISS and Glass Lewis have their own independence definitions, which include numerous and more detailed trip wires than listing exchange standards.

3. Start now on compensation disclosure.

If you have not already started working on your compensation disclosure, initiate that process now – and establish a timeline that affords sufficient time for reflection, drafting and revisions.

4. Considering adding new workstreams.

Make sure to consider the need for additional workstreams, either because of recent compensation disclosure developments – for instance, option grant timing and application of clawback policies – or because of a change in reporting status, such as loss of emerging growth or smaller reporting company status or adoption of new types of plans.

5. Pay attention to investor feedback.

Review results of engagement discussions when planning proxy disclosures. This often gives you much more useful information than formal policies.

6. Begin from your weak points.

Anticipate your weaknesses so that they can be addressed in a positive manner. Among other things, review your prior year’s proxy advisor reports to identify areas of historical concern – and consider whether additional shareholder engagement is warranted or would be helpful at this point. (And it’s never too late to start if there has not yet been any engagement.)

7. Respond to prior-year issues.

Consider adding shareholder engagement and responsiveness disclosure to your proxy, especially if you received low support for management proposals last year or a shareholder proposal received significant support.

8. Engage with your compensation committee.

Consult the compensation committee chair to see if there are any points they will want to see emphasized in the compensation disclosure.

9. Reflect bylaw and governance guidelines amendments.

If you amended your bylaws or governance guidelines since the last proxy – either to address the universal proxy rules or in response to recent Delaware litigation or plaintiffs’ demands – confirm that the description of your advance notice requirements and other bylaw provisions and governance guidelines are up to date in the proxy statement.

10. Confirm if additional proposals or a preliminary proxy are needed.

Consider if additional management proposals will be needed for this year’s meeting – such as equity plan amendments or changes to governance documents in response to a successful prior-year shareholder proposal – and determine if any will require the filing of a preliminary proxy under Rule 14a-6.

11. Talk about board composition and address any concerns.

If you have board composition vulnerabilities related to diversity, independence, overboarding, or tenure, or you have received investor pressure on refreshment, consider adding proxy disclosure regarding director skills and recruitment, as well as evaluation of time commitments and tenure.

12. Review proxy maturation strategies.

Trying to keep up with the Dow Joneses? Consider how your pacing peers have evolved their proxy governance disclosure as they’ve matured, particularly the addition of polished overviews of governance practices, engagement, leadership structures and board composition.

13. Find the right place for environmental, social and governance (ESG) disclosures.

Review any proxy ESG disclosures included in the past and consider whether these disclosures are appropriate for your proxy, or if some material should be moved to a website or ESG report.

14. Focus on risk oversight.

Do you have disclosure of board and management oversight of key risk and strategic areas? Remember that proxy advisors and investors have policies emphasizing the importance of oversight of matters such as cyber, climate, and emerging technologies.

15. Have a post-meeting game plan.

Plan for after the meeting, including a board session to review the results of the meeting and proxy season more broadly. If you expect negative outcomes, prepare your senior management and the board, and develop a response strategy.

Kura Oncology Announces Global Strategic Collaboration With Kyowa Kirin

Wed, 20 Nov 2024 20:08:00 Z

San Diego – November 20, 2024 – Cooley advised clinical-stage biopharmaceutical company Kura Oncology (Nasdaq: KURA) on its global strategic collaboration with Kyowa Kirin to develop and commercialize ziftomenib, Kura’s selective oral menin inhibitor that is being investigated for the treatment of acute myeloid leukemia (AML) and other hematologic malignancies. Under the terms of the agreement, Kura, which is committed to realizing the promise of precision medicines for cancer treatment, will receive an upfront payment of $330 million and expects to receive up to $420 million in near-term milestone payments, including a payment upon the launch of ziftomenib in the monotherapy relapsed/refractory setting for patients with AML. In addition, Kura is eligible to receive additional development, regulatory and commercial milestone payments of $741 million, totaling up to $1.161 billion in payments for milestones and the opt-in for solid tumor indications.

The Cooley team advising Kura is led by life sciences partner Charity Williams and associates Chen Chen and Jonathan Kaufman; tax partners Aaron Pomeroy and Todd Gluth and associate Amanda Pacheco; antitrust partner Howard Morse and special counsel David Burns; corporate partner Charles Bair; and cyber/data/privacy special counsel Andrew Epstein.

Cooley has represented Kura Oncology since its inception in 2014, guiding the company through its initial funding, initial public offering and follow-on offerings, including its oversubscribed $150 million private placement in January 2024.

Cooley Lawyer Recognized as Hong Kong Rising Star

Wed, 20 Nov 2024 15:47:42 Z

Cooley counsel Joyce Wang was recognized by Asian Legal Business (ALB) as a Hong Kong Rising Star for 2024, which showcases lawyers under 40 who provide high-quality work and earn accolades from their clients, colleagues and supervisors.

See the full list of winners

Michael Yu, partner in charge of Cooley’s Hong Kong office, was previously named an ALB Hong Kong Rising Star in 2023.

A Rising EU Antitrust Enforcement Tide: â€˜Exclusionary Disparagementâ€™ of Pharma Rivals

Wed, 20 Nov 2024 14:54:00 Z

On October 31, 2024, the European Commission (EC) fined Teva 462.6 million euros (US$503 million) for abusing its dominant position to delay competition to Copaxone (glatiramer acetate), its blockbuster multiple sclerosis pharmaceutical. This groundbreaking decision confirms that European Union antitrust enforcement in the pharmaceutical sector remains a priority and continues to attract novel theories of harm, and that infringements draw serious financial exposure. It also raises important questions as to the boundary between legitimate and illegal means of competition in the pharma sector.

The abuse of a dominant position that may affect trade within the EU and prevent or restrict competition is prohibited under Article 102 of the Treaty on the Functioning of the European Union. In the Teva case, the EC objected to two practices it found had the overall goal of delaying competition and artificially prolonging the exclusivity of Tevaâ€™s Copaxone, thereby hindering market entry and uptake of rival glatiramer acetate treatments in seven EU Member States.

First, it found that Teva had â€œartificiallyâ€ extended patent protection for Copaxone. We address the elements and context of this practice in a separate alert.
Second, it found that Teva had engaged in exclusionary disparagement of a competing glatiramer acetate. We analyse that practice in this alert.

The fine imposed in this case is the highest yet in the pharmaceutical sector, surpassing the 330.1 million-euro (US$359 million) penalty levied on Servier 10 years back. Teva confirmed that it will seek an appeal against the decision before the EUâ€™s General Court.

Exclusionary disparagement

This is the first time that the EC has held a pharma company liable for â€œabuse of a dominant positionâ€ because it had engaged in an â€œexclusionary disparagementâ€ campaign targeting a rival.

The EC found that Teva had conducted a disparagement â€œcampaignâ€ targeting rival multiple sclerosis products. The campaign was directed at key stakeholders (e.g., physicians and national decision-makers for pricing and reimbursement of medicines) influencing market access and pricing of medicines, and was designed to cast doubts about the safety, efficacy and therapeutic equivalence â€“ with Copaxone â€“ of a rival glatiramer acetate treatment. That rival product had been assessed for regulatory approval and obtained marketing authorization. The EC found that Tevaâ€™s objective was to slow down, or block, the entry of its rival.

The rising tide

Antitrust enforcement against allegedly â€œexclusionary disparagementâ€ is becoming a more common feature at the EC and Member State levels (applying EU antitrust law and national law modelled on EU law), as authorities scrutinise communications by pharmaceutical companies that may discredit competitors and their products. It is now more than a decade since the French Competition Authority fined Sanofi (incidentally, following a complaint by Teva) 40.6 million euros (US$44 million) and Schering-Plough 15.3 million euros (US$16 million) on grounds of abuse of dominance consisting of disparagement of generic versions of, in Sanofiâ€™s case, Plavix (clopidogrel) and, in the case of Schering-Plough, Subutex (buprenorphine). Decisional practice and case law has evolved since that time, but the distinction between abusive disparagement and healthy debate or marketing practices remains contentious.

Disparagement or free speech?

A series of cases involving Roche, Novartis and Genentec illustrates the thorny nature of disparagement claims. Novartis markets Lucentis (ranibizumab) in the EU, a treatment for wet age-related macular degeneration (wet AMD), that was developed by Rocheâ€™s Genentec and licensed to Novartis. Roche markets Avastin (bevacizumab), a blockbuster cancer treatment also developed by Genentec, which is not authorized for the treatment of wet AMD but is used off label as a low-cost option to treatments like Lucentis. Notwithstanding that Avastin was not approved for wet AMD, the Italian Competition Authority adopted a decision finding that Rocheâ€™s and Novartisâ€™ Italian subsidiaries had colluded to reduce competition from that product, when used in wet AMD, vis-Ã -vis Lucentis. They had allegedly conspired to â€œartificiallyâ€ differentiate the products in external communications around risks associated with the off-label use. The companies were fined 182 million euros (US$198 million) and, after exhausting appeals, the decision was confirmed.

As part of the appeals process, the Italian Council of State requested guidance from the Court of Justice of the European Union (CJEU), specifically on whether an antitrust violation could arise from an arrangement between the two firms concerning communications on adverse reactions resulting from the off-label use of Avastin. The CJEU confirmed (para. 95) that this might indeed be so: â€œthe dissemination, in a context of scientific uncertainty, to the EMA, healthcare professionals and the general public of misleading [safety] information [concerning off-label use], with a view to reducing the competitive pressure resulting from such use on the use of the other medicinal productâ€ restricted competition. In that case, the restriction resulted from contacts between two firms communicating â€œmisleadingâ€ safety information â€œin a context of scientific uncertaintyâ€, rather than from one dominant firm acting unilaterally.

However, relying on the CJEUâ€™s judgment, the competition authorities of France and Belgium later found that Roche and Novartis collectively held a dominant position, this position had been abused, and fines were imposed â€“ in France 444 million euros (US$482 million), and in Belgium 2.8 million euros (US$3 million). France labelled the conduct a â€œdisparagingâ€ practice â€œunjustifiably exaggerating the risks associated with the â€˜off-labelâ€™ useâ€, and Belgium noted that ophthalmologists, hospitals and regulators had been â€œmisledâ€ by continued warnings â€œabout the risks of an off-label use of Avastin even after the publication of studies that no longer allowed to do so without qualification or reference to the scientific uncertainty created by these studiesâ€.

The French decision was challenged on appeal, and the Paris Court of Appeal concluded that the communications on safety did not attract antitrust liability. The Paris Court recognised that, at the relevant time, there was scientific uncertainty about the use of off-label Avastin for wet AMD. Communications that were sufficiently grounded in fact and made in an objective and neutral tone did not constitute abusive â€œdisparagementâ€ under antitrust rules, but were an exercise of freedom of speech contributing to a legitimate debate. The Paris Court also noted that communications concerning differences between an authorized originator product and an authorized generic (which are legally presumed to be as safe and efficacious) should not be assessed against the same standard as communications concerning a product authorized for use in an indication and a product used off label in that indication. In recognising the legitimate need for open scientific debate (great minds do not always think alike!), the approach of the Paris Court was different â€“ and more balanced â€“ than the approach in Belgium (appeal pending) and Italy to the communications, even accounting for factual differences in the different countries.

First EC decision

Earlier this year, the EC concluded its investigation into Vifor Pharma, which was resolved by a commitment decision. The EC suspected that Vifor had pursued a disparagement campaign targeting Pharmacosmosâ€™ product Monofer (ferric derisomaltose), which was considered the closest competitor of Viforâ€™s intravenous iron deficiency treatment Ferinject (ferric carboxymaltose). Viforâ€™s communications targeted mainly healthcare professionals and were apparently aimed at protecting Ferinject from competition with Monofer. The EC was concerned that it could have unduly hindered the update of Monofer in nine Member States.

The EC did not make a definitive finding on liability in this case and imposed no fine, but its decision imposed binding commitments on Vifor (and Vifor will be liable to pay a fine if the EC finds that it has breached these commitments). There are three elements to the commitments, which remain in effect for 10 years. First, Vifor must launch a â€œcomprehensive and multi-channelâ€ communication campaign to â€œrectify and undo the effectsâ€ of its earlier messages about the safety of Monofer. Second, it must not engage in external promotional and medical communications about Monofer's safety profile using information that is neither based on the productâ€™s label nor derived from clinical trials specifically designed to compare Ferinject and Monofer across the entire European Economic Area. Finally, Vifor must take several steps to ensure compliance with the commitments, which also will be monitored by an independent trustee.

Comment

The appeals process against the ECâ€™s decision that Teva has said it will launch will last several years (for instance, in the Servier case, the final appeal was decided 10 years after the ECâ€™s decision). That will surely measure whether the ECâ€™s assessment of Tevaâ€™s market position â€“ and specifically, whether it was right to conclude that it holds a â€œdominantâ€ position â€“ was correct. The principally more important question, especially to other pharma companies, is whether and when â€œexclusionary disparagementâ€ amounts to abuse of a dominant position.

In this regard, it is important to recall that case law unambiguously holds that not every exclusionary effect is detrimental to competition, even those caused by the conduct of a dominant firm. Normal competition may indeed lead to departure from the market or the marginalisation of rivals. To establish that conduct is â€œabusiveâ€, the EC must show that the dominant firmâ€™s conduct actually or potentially restricts competition by excluding firms equally efficient to the dominant, or by hindering their growth, and that the conduct involves methods other than those which are part of â€œcompetition on the meritsâ€ â€“ or normal competition â€“ between firms.

The distinction between communications â€œon the meritsâ€ and abusive â€œdisparagementâ€ is often delicately balanced, and, as the overview above illustrates, the consequences of getting the balance wrong can have dire effects. In the Avastin/Lucentis scenario, the Paris Court of Appeal distinguished between the exercise of free speech by measured, sufficiently grounded communications and disparagement designed to exclude a rival. In this regard, the available evidence â€“ and the robustness of that evidence â€“ matters. This explains the distinction, in that case, between comparisons involving authorized medicines and those used off label. The commitments in the Vifor case embody the same idea: Comparisons there would be based on the label of the rival medicine or broad-based clinical trials conducted with a relevant purpose. The cardinal rule, according to the CJEU, is to avoid â€œmisleadingâ€ communications, directed at decision-makers influencing a productâ€™s uptake and designed for reducing competitive pressure from rivals.

The evolving antitrust enforcement against exclusionary disparagement adds yet another layer of considerations that should be weighed when shaping medical communications campaigns in Europe. This includes communications aimed at healthcare professionals, but also professionals involved in reimbursement and pricing â€“ and even the public at large. The enforcement practice discussed in this alert addresses particular circumstances of the pharmaceutical industry, but competition authorities may well, as they have done in other settings, identify similar concerns in other industries.

Stiff EU Antitrust Fine for â€˜Misuseâ€™ of Patent System Delaying Rival Pharma Entry

Wed, 20 Nov 2024 14:46:00 Z

First, it found that Teva â€œartificiallyâ€ had extended patent protection for Copaxone. We address the elements and context of this practice in this alert.
Second, it found that Teva had engaged in exclusionary disparagement of a competing glatiramer acetate. We analyse that practice in a separate alert.

The â€˜divisionals gameâ€™

This is the first time that the EC identified as an â€œabuse of a dominant positionâ€ a pharma companyâ€™s â€œmisuseâ€ of European Patent Office (EPO) rules and procedures on divisional patents. The EC referred to Tevaâ€™s strategy as the â€œdivisionals gameâ€.

In short, Tevaâ€™s basic patent for glatiramer acetate expired in 2015. The company then filed several serial divisional patent applications focused on the manufacturing process and the dosing regimen of glatiramer acetate. The EC found that these created a web of secondary patents, protecting Copaxone, which were challenged by rivals. During the EPOâ€™s review of the applications, Teva started enforcing these patents against its rivals to obtain interim injunctions. However, when patents seemed likely to be revoked, Teva withdrew the applications. The EC found that this was done to avoid a formal invalidity ruling, which would have had knock-on effects on the validity of other divisional patents. Eventually though, all of the divisional patents were annulled.

The EC found that Tevaâ€™s â€œdivisionals gameâ€ was illegal and abusive because it allowed Teva to artificially prolong legal uncertainty over its patents. It forced rivals to repeatedly start new lengthy legal challenges and potentially hindered rivalsâ€™ entry.

Prior EC cases

Although this is the first time that the EC has found that a divisional patent strategy was abusive â€“ and fined the patent applicant â€“ the allegedly illegal conduct bears similarity to practices that the EC has intervened against in the past. Two prior cases are particularly relevant.

Misleading of patent offices

In AstraZeneca, the EC fined AstraZeneca 60 million euros (US$65 million) for abusing a dominant position involving its Losec (omeprazole) product, used in the treatment of gastrointestinal acid-related conditions. The EC found that AstraZeneca had provided misleading information to six national patent offices, and thereby gained extended patent protection for Losec through so-called supplementary protection certificates (SPCs). (It also was found to have misused regulatory procedures by selectively deregistering marketing authorizations, with the intent of blocking or delaying generic entry by parallel traders.) In the granting of the SPCs, the patent offices had relied on the information provided by AstraZeneca and had not, as in the case of patent applications, assessed whether new inventions were involved. The SPCs allowed AstraZeneca to block or delay generic omeprazole entrants.

The Court of Justice of the European Union (CJEU) ultimately upheld the ECâ€™s finding that the misleading practice involved abusive conduct. The CJEU recalled established case law holding that a dominant firm must not â€œeliminate a competitorâ€ and thereby strengthen its position by using methods other than those which come within the scope of â€œcompetition on the meritsâ€. The CJEU concluded that the company had â€œdeliberately attempted to mislead the patent offices and judicial authorities in order to keep for as long as possible its monopolyâ€ by notifying the patent offices of â€œhighly misleading representations and by a manifest lack of transparencyâ€, and that this conduct â€œfell outside the scope of competition on the meritsâ€ (para. 93).

The CJEU also noted that assessment of whether representations made to public authorities for purposes of improperly obtaining exclusive rights are misleading must be made on specific facts and may vary according to the circumstances of each case. It could not be inferred, however, that any patent application made by a dominant firm which is rejected because it does not satisfy the patentability criteria automatically gives rise to antitrust liability.

Misuse of the patent system

In Almirall/Boehringer, the EC investigated, as in AstraZeneca, whether Boehringer Ingelheim had secured patents by providing misleading information to the EPO. Almirall had been granted patent protection in relation to aclidinium bromide, which is used in the treatment of chronic obstructive pulmonary disease (COPD). Shortly after a conference presentation of pre-clinical work involving aclidinium bromide, Boehringer, the market leader in the treatment of COPD, filed three patent applications related to combination treatments involving aclidinium bromide and other agents, and later also filed several divisional patents. Almirall objected to the applications and brought court challenges, where Boehringer was held to have provided false information regarding one patent application. After Almirall complained to the EC that Boehringer had abused a dominant position by filing for patents about the new treatments that lacked merit, the EC launched an investigation concerning the alleged misuse of the patent system to exclude potential COPD competition.

The ECâ€™s investigation was ultimately closed, after the parties â€“ at the ECâ€™s recommendation â€“ reached a bilateral settlement agreement. That settlement removed the alleged blocking positions and ended the pending litigation between the parties, so that Almirall was free to launch its own combination medicines after obtaining marketing authorisation from the competent bodies. On that basis, the EC concluded that it no longer needed to pursue the investigation.

Comment

The appeals process against the ECâ€™s decision that Teva has said it will launch will last several years (for instance, in the Servier case, the final appeal was decided 10 years after the ECâ€™s decision). That will surely measure whether the ECâ€™s assessment of Tevaâ€™s market position â€“ and specifically, whether it was right to conclude that it holds a â€œdominantâ€ position â€“ was correct. The principally more important question, especially to other patent holders, is whether and when a â€œdivisionals gameâ€ amounts to abuse of a dominant position.

Given the inherently exclusionary properties of patents, a critical question for the courts will be to decide whether the practices that the EC, for the first time, found objectional form part of normal competition in the pharmaceutical industry. Patent applications and strategies to extend patent protection certainly are commonplace â€“ and, under existing case law, seeking patents that are later rejected does not, in itself, attract liability. Companies need not be infallible in their dealings with regulatory authorities. Although there are parallels between the Teva, AstraZeneca and Almirall/Boehringer cases â€“ all three involved strategies to secure extended exclusivity that allegedly raised entry barriers for cheaper rival products â€“ there also are principled differences. AstraZeneca deliberately (and Boehringer apparently) made misleading representations to patent authorities with a view to disadvantaging competitors. Teva used the patent system to its advantage, allegedly with the intent of delaying a rivalâ€™s entry, but the materials available as of today do not suggest that it acted fraudulently vis-Ã -vis the EPO.

Thus, the ECâ€™s theory of harm in Teva appears to extend the potential for antitrust liability beyond the AstraZeneca case law. The boundary between normal and illegal conduct will not be clear until the General Court has ruled on Tevaâ€™s appeal. In the meantime, firms will do well to analyse strategies for patent protection carefully to reduce risk under EC competition law. This is especially important for firms that may hold dominant positions and expect challenges from generic or other entrants with cheaper alternatives.

Glass Lewis 2025 US Benchmark Policy Guidelines: Key Policy Updates

Tue, 19 Nov 2024 19:35:37 Z

On November 14, 2024, Glass Lewis, one of the two most influential proxy advisory firms, released updates to its voting policies for the 2025 proxy season. The Glass Lewis 2025 Benchmark Policy Guidelines will apply for shareholder meetings held on or after January 1, 2025. This alert provides a high-level description of key policy updates contained in these guidelines. Similar to 2024, Glass Lewis introduced relatively minor policy updates for 2025, with a continued focus on executive compensation and board oversight matters – including the notable introduction of an artificial intelligence-related policy for the first time, as previewed by Glass Lewis’ informal feedback survey, which included numerous AI-related questions.

While Glass Lewis is influential for many institutional shareholders, for most companies Institutional Shareholder Services (ISS) recommendations have a greater impact on voting outcomes. Updated ISS policies will likely be published before the end of 2024, and proxy voting policy and stewardship guideline policies from key institutional investors, such as BlackRock, Vanguard and State Street, are expected in early Q1 2025.

In advance of the publication of its 2025 policy updates, on November 18, 2024, ISS released its Proposed 2025 Benchmark Voting Policy Changes, with a request for comments during a comment period running until December 2, 2024. The proposed policy changes are relatively minor and include potential updates to the policies on poison pills and special purpose acquisition company (SPAC) extension proposals. Effective for 2025, ISS also will implement certain pay-for-performance policy application changes, including a greater emphasis on performance equity design or disclosure concerns in the qualitative analysis. ISS will include more details on these application changes in its US Executive Compensation Policies FAQ, expected in mid-December. In addition, ISS indicated that potentially more significant policy changes may be adopted for 2026 (or later) regarding the treatment of time-based equity awards, as previewed in its annual survey.

In evaluating the impact of the Glass Lewis policy updates, as well as these other forthcoming policies, companies should consider the composition of their shareholder base, the extent to which those shareholders look to ISS or Glass Lewis in determining whether to support a proxy proposal, and the areas with which their shareholders appear to be most concerned. Some institutional shareholders follow ISS or Glass Lewis recommendations without exception, some consider the ISS or Glass Lewis recommendations as a factor – but not necessarily a determinative factor – in their voting decisions, and others are guided by their own policies, which may or may not overlap with ISS and Glass Lewis policies. Even if Glass Lewis does not have a consequential influence on a particular company’s shareholders, it is often viewed as a standard-setter for best practices in corporate governance, and changes in policies often reflect investors’ changing expectations.

Governance policy updates

Board oversight of AI

In the absence of material AI-related incidents, Glass Lewis will generally not make voting recommendations on the basis of a company’s AI oversight or disclosure. However, when there is evidence that shareholders have been materially impacted by insufficient AI oversight or management, Glass Lewis may recommend against appropriate directors. While the new policy emphasizes the importance of AI oversight, the guidelines do not call for negative voting recommendations in the absence of material incidents. This policy generally tracks the cybersecurity oversight policy included in Glass Lewis’ 2024 guidelines.

Board responsiveness to shareholder proposals

Glass Lewis’ updated policy on responsiveness to shareholder proposals calls for engaging with shareholders and providing responsiveness disclosure when proposals receive significant support (generally more than 30% but less than a majority of votes cast). The guidelines continue to express an expectation that companies either implement shareholder proposals receiving support from a majority of votes cast and/or provide sufficient disclosure on responsive shareholder engagement. The 2025 guidelines continue to call for board responsiveness when more than 20% of shareholders withhold votes or vote against director nominees or management proposals.

Reincorporation

Glass Lewis revised its policy on management proposals to reincorporate to different states or countries to emphasize that it will evaluate proposals on a case-by-case basis. In particular, the updated policy identifies several factors that may be considered when evaluating the impact of reincorporation on shareholder rights – including material differences in corporate statutes and case law, changes in corporate governance provisions, differences in fiduciary duties standards and whether the new jurisdiction is considered a “tax haven.” In a likely reaction to the February 2024 Delaware Court of Chancery decision in the lawsuit challenging the reincorporation of TripAdvisor (a controlled company) from Delaware to Nevada, the updated policy also notes that in cases where a controlled company is seeking to change its domicile, Glass Lewis will closely evaluate how the independent board members came to their recommendation, if the controlling shareholder had any ability to influence the board, and if the proposal also is put to a vote of disinterested shareholders.

Compensation policy updates

Change-in-control provisions

The 2025 Say-on-Pay guidelines include additional language on change-in-control arrangements that provide for committee discretion in connection with the treatment of unvested awards. Where such discretion exists, Glass Lewis expects company disclosure to include a commitment to providing future disclosure on committee rationale for any decisions regarding the treatment of unvested awards, should a change in control actually occur.

Overall approach to executive pay programs

The updated guidelines include clarifying language regarding Glass Lewis’ approach to Say-on-Pay recommendations to emphasize that executive compensation programs are reviewed on a case-by-case basis – including a review of quantitative analyses, structural features, best practice policies, disclosure quality, pay trajectory and the company’s ability to align executive pay with performance and the shareholder experience – and that generally no one factor reviewed in isolation will lead to a negative vote recommendation outside of “particularly egregious pay decisions and practices.” The Glass Lewis policy continues to emphasize the importance of company disclosures, but includes new language emphasizing that even smaller reporting companies subject to scaled disclosure requirements should still ensure that their proxy disclosure contains sufficient information to support informed shareholder voting.

Other updates to compensation-related guidelines include:

Highlighting “adjustments to performance results that lead to problematic pay outcomes” as one example of practices that may contribute to a negative vote recommendation.
Including post-vesting holding periods as a long-term incentive plan best practice.
Noting that executive share ownership minimum requirements should be “meaningful.”
Stressing that problematic golden parachute features introduced in a golden parachute proposal include new and excessive single-trigger entitlements.

Cresta Closes $125 Million Series D

Tue, 19 Nov 2024 17:13:00 Z

Palo Alto – November 19, 2024 – Cooley advised Cresta, an end-to-end generative artificial intelligence (AI) platform for contact centers, on the closing of its $125 million Series D. The round was led by new investors World Innovation Lab (WiL) and QIA, with participation from Accenture, EnvisionX Capital, LG Technology Ventures, Qualcomm Ventures and Workday Ventures. The round also includes returning investors Andreessen Horowitz, Greylock Partners, J.P. Morgan, Sequoia Capital and Tiger Global.

Lawyers Peter Werner, Eric Walder, Talya Kornitzer and Kelly McCormick led the Cooley team advising Cresta.

Outbound Investment Security Program: Final Rule

Tue, 19 Nov 2024 15:07:06 Z

On October 28, 2024, the US Department of the Treasury issued final regulations implementing the Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (August 9, 2023). As expected, the regulations – the Outbound Investment Security Program (OISP) – prohibit or subject to notification requirements certain transactions involving US persons and specified foreign technology sectors. The OISP is aimed primarily at US-person investments in the semiconductor and microelectronics, quantum information technology, and artificial intelligence (AI) sectors of a designated country of concern – currently China, including Hong Kong and Macau (for ease of reference, collectively “China”). The OISP will take effect on January 2, 2025.

Deriving authority from the International Emergency Economic Powers Act, the OISP prohibits or subjects to notification requirements certain transactions made by “US persons” in “covered foreign persons” engaged in “covered activity.” In large part, the OISP tracks Treasury’s advanced notice of proposed rulemaking issued on June 21, 2024. The OISP appears to be aimed at limiting certain foreign actors from obtaining access to US capital and associated intangible benefits (e.g., access to technology and talent networks, enhanced standing or prominence, market access, and additional financing) in furtherance of activities identified as contrary to US national security or foreign policy interests.

For purposes of the OISP:

A US person is:
1. A US citizen or lawful permanent resident, wherever located.
2. An entity organized under the laws of the US and its foreign branches.
3. Any person in the US, regardless of nationality (31 CFR § 850.229).
A covered foreign person (CFPs) is:

A “person of a country of concern” (PCC) that engages in a “covered activity.”
A person that directly or indirectly holds any voting interest, board seat or equity interest in, or holds any power to direct or cause the direction of the management or policies of, a person defined in (1), when such person derives more than 50% of its revenue or net income individually, or as aggregated across such persons from each of which it derives at least $50,000 (or equivalent) of its revenue or net income, on an annual basis, or incurs more than 50% of its capital expenditure or operating expenses, individually or as aggregated across such persons from each of which it incurs at least $50,000 (or equivalent) of its capital expenditure or operating expenses, on an annual basis (31 CFR § 850.209).

Covered transactions, with certain limited exceptions, involve a US person’s direct or indirect:
1. Acquisition of an equity interest or contingent equity interest in a person that the US person knows at the time of the acquisition is a CFP.
2. Provision of a loan or a similar debt financing arrangement to a person that the US person knows at the time of the provision is a CFP, where such debt financing affords or will afford the US person an interest in profits of the CFP, the right to appoint members of the board of directors (or equivalent) of the CFP, or other comparable financial or governance rights characteristic of an equity investment but not typical of a loan.
3. Conversion of a contingent equity interest into an equity interest in a person that the US person knows at the time of the conversion is a CFP, where the contingent equity interest was acquired by the US person on or after January 2, 2025.
4. Acquisition, leasing or other development of operations, land, property or other assets in a country of concern that the US person knows at the time of such acquisition, leasing or other development will result in, or that the US person plans to result in, the establishment of a CFP or the engagement of a PCC in a covered activity.
5. Entrance into a joint venture, wherever located, that is formed with a PCC, and that the subject US person knows at the time of entrance into the joint venture that the joint venture will engage, or plans to engage, in a covered activity.
6. Acquisition of a limited partner (LP) or equivalent interest in a venture capital fund, private equity fund, fund of funds or other pooled investment fund (in each case, where the fund is not a US person) that a US person knows at the time of the acquisition likely will invest in a PCC that is in the semiconductor and microelectronics, quantum information technology, or AI sectors, and such fund undertakes a transaction that would be a covered transaction if undertaken by a US person (31 CFR § 850.210).
PCCs are any of the following:
1. Citizens or lawful permanent residents of China, provided such persons are not also US citizens.
2. Entities incorporated or headquartered in or with a principal place of business in China.
3. The government of China (including instrumentalities thereof) or persons acting on behalf thereof.
4. An entity in which persons identified in (1) through (3), individually or in the aggregate, directly or indirectly, hold at least a 50% outstanding voting interest, voting power of the board or equity interest.
5. Any entity in which one or more persons identified in (4), individually or in the aggregate, directly or indirectly, hold at least a 50% outstanding voting interest, voting power of the board or equity interest (31 CFR § 850.221).
Covered activities comprise:
1. Certain semiconductors and microelectronics.
2. Quantum information technologies.
3. Certain AI technologies, described in further detail below (31 CFR § 850.208, 31 CFR § 850.224, 31 CFR § 850.217).
Knowledge includes actual knowledge and constructive knowledge – i.e., reason to know based on reasonably available information and appropriate investment due diligence (31 CFR § 850.216).

In furtherance of its apparent policy objectives, the OISP prohibits US persons from engaging in a covered transaction with a CFP or covered joint venture that:

Semiconductors	Quantum	AI
Develops or produces specified electronic design automation software for the design of integrated circuits or advanced packaging. Develops or produces certain front-end semiconductor fabrication equipment, equipment for performing volume advanced packaging, or commodity, material, software, or technology designed exclusively for use in or with extreme ultraviolet lithography fabrication equipment. Designs integrated circuits meeting or exceeding specified performance parameters. Fabricates certain logic-integrated circuits meeting specified criteria.	Develops, installs, sells or produces supercomputers enabled by advanced integrated circuits and meeting specified criteria. Develops a quantum computer or produces critical components required to produce a quantum computer. Develops or produces quantum-sensing platforms designed or intended for military, government intelligence or mass surveillance end use. Develops or produces certain quantum networks or quantum communication systems.	Develops any AI system designed exclusively to be used for or intended to be used for military, government intelligence or mass surveillance end uses. Develops any AI system trained using a quantity of computing power greater than 10^25 computational operations (e.g., integer or floating-point operations). Develops any AI system trained using a quantity of computing power greater than 10^24 computational operations (e.g., integer or floating-point operations) using primarily biological sequence data.

In addition, the OISP prohibits US persons from engaging in covered transactions with specified restricted parties – including those designated on the US Department of Commerce’s Entity List and Treasury’s Specially Designated Nationals and Blocked Persons List.

The OISP requires notification to Treasury of US-person engagement in transactions with CFPs or covered joint ventures that design, fabricate or package integrated circuits not subject to prohibitions, or develop AI systems not subject to prohibitions, and that are:

Designed for any military, government intelligence or mass surveillance end use.
Intended for use in a cybersecurity, digital forensics, penetration testing tool or control of robotics systems application.
Trained using a quantity of computing power greater than 10^23 computational operations (e.g., integer or floating-point operations).

Importantly, the OISP prohibits US persons from knowingly directing a transaction by a non-US person that the US person knows at the time of the transaction would be a prohibited transaction if engaged in by a US person. A US person “knowingly directs” a transaction when the US person has authority to make or substantially participate in decisions on behalf of a non-US person entity and exercises that authority to direct, order, decide upon or approve a transaction that would be prohibited if engaged in by a US person (31 CFR § 850.303). Notably, such US persons who recuse themselves from the following activities will not be considered to have exercised their authority to direct, order, decide upon or approve a transaction:

Participating in formal approval and decision-making processes.
Reviewing, editing, commenting on, approving and signing relevant transaction documents.
Engaging in negotiations with the investment target or other transaction counterparty (e.g., joint venture).

Importantly, a US person must take all reasonable steps to prohibit and prevent any transactions by a controlled foreign entity that would be prohibited if engaged in directly by a US person. As a practical matter, this means that foreign subsidiaries of US parents must comply with the OISP’s prohibitions or notification requirements.

This also means that individual US persons who exercise control over foreign persons must act to cause their controlled foreign entities to comply.

The OISP excepts from prohibition or notification requirements the following transactions:

Investments by US persons:
- In a publicly traded security that trades on a securities exchange or through “over-the-counter” trading.
- In a security issued by a defined investment company that is registered with the US Securities and Exchange Commission (e.g., index funds, mutual funds or exchange traded funds), or a company that has elected to be or is regulated as a business development company.
- Made as an LP or equivalent in a venture capital fund, private equity fund, fund of funds or other pooled investment fund, where the LP’s committed capital is not more than $2,000,000 aggregated across any investment or co-investment vehicles of the fund, or the LP or equivalent has secured binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be a prohibited or notifiable transaction.
- In a derivative, provided the derivative does not confer the right to acquire the entity, any rights associated with equity, or any assets in or of a CFP.

Importantly, notwithstanding the above, an investment is not excepted if it affords the US person rights with respect to CFPs beyond standard minority ;shareholder protections enumerated in the OISP.

A US person’s acquisition of equity or other interests in an entity held by one or more PCCs, provided that the US person is acquiring all equity or other interests of the PCCs and, following such acquisition, the entity does not constitute a CFP.
A transaction between a US person and its controlled foreign entity that supports operations that are not covered activities or that maintains covered activities that the controlled foreign entity was engaged in prior to January 2, 2025.
A transaction made after January 2, 2025, pursuant to a binding, uncalled capital commitment entered into before January 2, 2025.
The acquisition of a voting interest in a CFP by a US person upon default or other condition involving a loan or a similar financing arrangement, subject to certain conditions.
The receipt of employment compensation by an individual in the form of an award of equity or grant of an option to purchase equity in a CFP, or the exercise of such option.
Certain transactions with or involving persons that Treasury has determined is addressing national security risks in a way substantially similar to the US.

In addition, transactions that the US government has determined are in the national interest of the US are exempt from the OISP’s prohibition or notification requirements, as are transactions undertaken by or on behalf of the US government for the conduct of official business.

US persons undertaking covered transactions under the OISP regime must file a notice with Treasury within 30 days of the transaction’s completion if the transaction is notifiable, or within 30 days of obtaining actual knowledge that a transaction was covered and either notifiable or prohibited. The OISP contemplates that filers may receive follow-up questions, requests for additional information or no communication in return other than an acknowledgment of receipt.

Knowing violations of the OISP – including failure to submit required notifications – can result in civil or criminal liability (including individual liability).

Material misrepresentation, concealment or omission of facts submitted to Treasury constitute a violation. Further, actions to evade or avoid the OISP are prohibited.

Civil penalties will not exceed the greater of $368,136 (as adjusted for inflation annually) or twice the amount of the violative transaction. A person who willfully violates the OISP may face fines of up to $1 million and/or imprisonment of up to 20 years.

Treasury has the authority to nullify, void or otherwise require divestment of any prohibited covered transaction. In addition, Treasury may undertake investigations related to the regime.

Persons who violate the OISP may submit voluntary self-disclosures to Treasury.

As a new and complex program, the OISP’s application, impact and enforcement remain to be seen. Nonetheless, persons with known exposure – such as US-person funds that invest in China-affiliated advanced technology sectors or US-person entities that contemplate acquisitions of the same – are on notice that their activities may be affected as of January 2, 2025. Such parties promptly should take steps to achieve compliance with the OISP’s requirements.

If you have any questions about the above, please reach out to [email protected]?subject=Outbound%20Investment%20Program%20Final%20Rule">Kevin King, [email protected]?subject=Outbound%20Investment%20Program%20Final%20Rule">Chris Kimball, [email protected]?subject=Outbound%20Investment%20Program%20Final%20Rule">Annie Froehlich or [email protected]?subject=Outbound%20Investment%20Program%20Final%20Rule">Dillon Martinson.

CFPB Asserts State Consumer Privacy Laws Do Not Sufficiently Protect Consumer Financial Data

Tue, 19 Nov 2024 13:25:44 Z

The Consumer Financial Protection Bureau (CFPB) published a report on November 12, 2024, examining state and federal privacy protections for consumer financial data.

The report analyzes state and federal privacy laws that have been passed in recent years – many of which exempt data and/or institutions that are subject to the federal Gramm-Leach-Bliley Act (GLBA) and the Fair Credit Reporting Act (FCRA). Based on this analysis, the CFPB concludes that states should consider removing or narrowing the GLBA and FCRA exemptions in their privacy laws in order to provide more robust privacy protections over consumer financial data.

Privacy over consumer financial data

The report highlights the importance of privacy in regard to consumer financial data, which the CFPB views as particularly sensitive information. Consumers use technology products more and more to manage their financial data – whether online banking services or mobile payment apps. In the report, the CFPB explains that, in its view, this creates “unprecedented opportunities for companies to collect large quantities of various types of data concerning Americans’ economic lives and behaviors,” necessitating robust privacy protections.

The CFPB also states that, in its view, consumer financial data is increasingly important to financial institutions and technology companies, enabling more effective advertising and product improvement and development. The CFPB is concerned that the effect of this demand for consumer financial data “creates new opportunities for scammers and … can enable manipulative business practices.”

US state privacy laws exempt consumer financial data

Against this backdrop, states have increasingly passed privacy laws governing personal data. These laws provide individuals with certain rights over their personal data – such as the right to access, the right to delete and the right to portability of their data (meaning that consumers can easily transfer it) – which the CFPB notes are modeled on the European Union’s General Data Protection Regulation. Some states provide consumers with certain data opt-in and opt-out rights, such as those which require consumers to opt in before a business is allowed to process their sensitive data, or give consumers the right to opt out of the sale of their data or receiving targeted advertising based on their data.

The report includes a chart of the 18 state consumer privacy laws passed between 2018 and today. As reflected in the chart, all of these laws exempt data subject to the GLBA, and all but California’s exempt institutions subject to the GLBA as well as their affiliates. The CFPB also notes that all of the state laws identified exclude communications made in compliance with the FCRA and its implementing regulations.

CFPB critiques and recommendations

In the report, the CFPB echoes comments it has previously made regarding the existing limitations of the privacy protections – in particular, under the GLBA and its implementing regulation, Regulation P. For example, the CFPB highlights that the GLBA requires financial institutions to inform consumers that they may opt out of having their data shared, rather than requiring such financial institutions to obtain affirmative opt-in consent from consumers (which would be more protective). In addition, the CFPB highlights concerns of the Government Accountability Office that “some financial institutions are abusing Regulation P’s model notice option to mask just how much data they collect on consumers and all the ways they allow that information to be used.”

To fill the gaps it believes are left by the GLBA, the CFPB encourages states to reconsider the relevant exemptions within their privacy laws.

Addressing potential legislative concerns about preemption if GLBA – and also FCRA – exemptions in state privacy laws were pared back, the CFPB says that, in its view, state privacy laws would generally fall outside of applicable federal preemption provisions. Specifically, the CFPB takes the position that the FCRA’s and GLBA’s preemption provisions generally allow for state laws that are not inconsistent and are more protective of consumers. The CFPB also argues that it is unlikely that the state privacy laws would “prevent or significantly interfere with the exercise by national banks of their powers” and, thus, be preempted under the National Bank Act.

Impact on financial institutions

The report is ultimately just that – a report of findings, not legislation, rulemaking or enforcement action. While not binding, the report serves as a strong suggestion to states to consider bringing GLBA entities and FCRA-covered data within the scope of their privacy laws. Notably, the decision to do so, however, rests with state legislatures – across multiple states – that may or may not have the same priorities or appetite to make adjustments to their privacy regimes, just to fill perceived gaps that, alternatively, could be addressed at the federal level.

More broadly, the report underscores the CFPB’s continued focus on ensuring that consumers’ financial data is protected. For example, the CFPB recently issued its long-awaited Section 1033 open banking rule, which is intended to give consumers more access to and control over their financial data. The CFPB also has been vocal about using existing law, such as the FCRA, and amendments to the regulations issued thereunder, to better protect against potential misuses of individuals’ consumer financial data (such as practices by data brokers), as reflected by Director Rohit Chopra’s recent remarks.

In addition, we have seen the CFPB take the position that providing “[i]nadequate security for sensitive consumer information collected, processed, maintained or stored by … [a] company can constitute an unfair practice” under the Consumer Financial Protection Act. Although the report does not mention unfair, deceptive, or abusive acts and practices (UDAAP), this past position suggests that, at least, the current CFPB may not be shy about leveraging its UDAAP authority to ensure consumer financial data is adequately protected.

Cooleyâ€™s Bench-Growing Bet on More Government Scrutiny Paid Off

Mon, 18 Nov 2024 19:39:27 Z

Michael Attanasio, Cooley partner and chair of the firm’s global litigation department, was quoted in a Law360 feature about the department’s hiring of 40+ litigation partners over the past five years. He highlighted the additions of Susanne Grooms to launch the firm’s congressional investigations practice and Elliot Kaye (former chair of the Consumer Product Safety Commission), as well as former partners Lindsay Jenkins (now a federal judge in the Northern District of Illinois) and Elizabeth Prelogar (now US solicitor general). Attanasio also touched on CooleyREG, a regulatory platform launched last year.

Read the article

Aclaris Therapeutics Announces Global License Agreement With Biosion, $80 Million Private Placement

Mon, 18 Nov 2024 17:46:00 Z

Reston – November 18, 2024 – Cooley advised Aclaris Therapeutics (Nasdaq: ACRS), a clinical-stage biopharmaceutical company developing novel drug candidates for immuno-inflammatory diseases, on its exclusive license agreement with Biosion and $80 million private placement.

Under the terms of the agreement, Aclaris will grant Biosion worldwide rights (excluding Greater China) to BSI-045B, a potential best-in-class, clinical-stage, novel anti-thymic stromal lymphopoietin (TSLP) monoclonal antibody, and BSI-502, a potential best-in-class, preclinical-stage, novel bispecific antibody directed against both TSLP and interleukin-4 receptor (IL4R).

The private placement comprises 35,555,555 shares of common stock at a purchase price of $2.25 per share and is expected to close on or about November 19, 2024, subject to satisfying customary closing conditions. Vivo Capital led the placement, with participation by new and existing investors, including Forge Life Science Partners, Rock Springs Capital, RA Capital Management, Adage Capital Partners, Decheng Capital, Logos Capital and Samsara BioCapital.

Lawyers Mark Ballantyne, Brian Leaf, David Brinton and Arjan Ganji led the Cooley team advising Aclaris on its private placement, and lawyers Kenneth Krisko, Ruomu Li and Brian Stalter led the team advising on the licensing agreement.

Cooley has advised Aclaris since December 2014, including on its $63.3 million initial public offering in October 2015, and through many subsequent financings during its life as a public company.

Law360â€™s Legal Lions of the Week

Mon, 18 Nov 2024 17:16:06 Z

Cooley lawyers Bobby Ghajar, Judd Lauter and Jessica Williams were featured on Law360’s Legal Lions of the Week list for securing a favorable preliminary injunction on behalf of the City and County of San Francisco, barring the Port of Oakland from using “San Francisco Bay” in its international airport’s new name.

Read the article (subscription required)

Cooley CEO Rachel Proffitt Talks AI, IPOs and Leadership

Mon, 18 Nov 2024 14:44:17 Z

Cooley partner and CEO Rachel Proffitt was profiled in the San Francisco Business Times. She noted how San Francisco has changed since the turn of the millennium, discussed the impact of artificial intelligence (AI) on the legal profession and initial public offerings (IPOs), offered advice for lawyers, and shared how she (mostly) conquered her fear of public speaking.

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Litigator of the Week: Shoutout

Fri, 15 Nov 2024 17:51:21 Z

A Cooley intellectual property litigation team earned a shoutout on The American Lawyer’s Litigation Daily Litigator of the Week Runners-Up and Shout-Outs list for securing a preliminary injunction in favor of its client, the City and County of San Francisco, prohibiting the Port of Oakland from using the name “San Francisco Bay Oakland International Airport.”

The team includes partners Bobby Ghajar and John Hemann, special counsel Judd Lauter, and associates Ryan Stevens and Jessica Williams.

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Trump Versus Media Moves Back to the White House

Fri, 15 Nov 2024 16:12:16 Z

Robert McDowell, Cooley partner and chair of the firm’s global communications practice group, was quoted in The Wall Street Journal about concerns media companies may have under the new Trump administration.

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How Big Law Congressional Investigation Practices Will Stay Busy in 2025

Fri, 15 Nov 2024 15:23:44 Z

Susanne Grooms, Cooley partner and leader of the firm’s bipartisan congressional investigations practice, was quoted in Law.com about how congressional investigations will change under the Trump administration, noting the Republican party’s oversight of the White House and Congress.

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Oakland Airport Must Stop Using â€˜San Francisco Bayâ€™ in Name

Thu, 14 Nov 2024 21:11:19 Z

Cooley partner Bobby Ghajar spoke to Law360 about the preliminary injunction he and the Cooley trademark team secured on behalf of San Francisco, barring the Port of Oakland from using “San Francisco Bay” in its international airport’s new name. On November 12, 2024, a federal magistrate judge in California ruled in the trademark infringement suit, saying that travelers might be confused into thinking the Oakland airport is affiliated or associated with the San Francisco International Airport.

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Cooley Secures Preliminary Injunction for City of San Francisco in Airport Trademark Fight

Wed, 13 Nov 2024 20:48:10 Z

San Francisco â€“ November 13, 2024 â€“ Cooley successfully secured a preliminary injunction on behalf of its client, the City and County of San Francisco, in a trademark infringement lawsuit against the Port of Oakland, which operates Oakland International Airport, prohibiting it from using its new name, â€œSan Francisco Bay Oakland International Airport.â€

On November 12, 2024, a federal judge from the US District Court for the Northern District of California ruled that Oaklandâ€™s new name violated San Franciscoâ€™s San Francisco International Airport trademark, as the name was likely to imply an affiliation or business relationship between the two airports. The order requires the Port of Oakland â€“ and those acting in concert with it â€“ to stop using or marketing the â€œSan Francisco Bay Oakland International Airportâ€ name and trademark.

The lawsuit and preliminary injunction followed the Oakland Board of Port Commissionersâ€™ decision earlier this year to rename Oaklandâ€™s airport over objections from San Francisco officials, airlines, regional stakeholders and Bay Area residents.

The Cooley litigation team was led by partners Bobby Ghajar and John Hemann, special counsel Judd Lauter, and associates Ryan Stevens and Jessica Williams. They were joined by David Chiu, Yvonne MerÃ©, Julie Veit and Christopher Stuart from the San Francisco City Attorneyâ€™s Office.

The case is City and County of San Francisco v. City of Oakland and Port of Oakland in the US District Court for the Northern District of California (Case No. 3:24-cv-02311-TSH). Read the preliminary injunction order.

Read the City of San Franciscoâ€™s press release.

Kpler Announces $241 Million Acquisition of Spireâ€™s Maritime Business

Wed, 13 Nov 2024 18:58:00 Z

London – November 13, 2024 – Cooley advised Kpler, a fast-growing data and analytics firm on a mission to build one platform for global trade intelligence, on its acquisition of Spire Global’s maritime business for approximately $241 million.

The Cooley team was led by Ben Shribman, Rita Sobral and Leo Spicer-Phelps, with assistance from Louise Burt, Marzia Di Candido, Christine Graham, Olivia Anderson, Amber Fisher, Caroline Hobson, Mo Swart, Natasha Kaye, Eerik Kukebal and Jeffrey Tolin.

Cooley has advised Kpler since 2021, such as its $200 million strategic growth investment from Insight Partners and Five Arrows in 2022.

Bitcoin, Cryptocurrency Practices Stand to Gain From Trump Election

Wed, 13 Nov 2024 18:39:06 Z

Cooley partner Will Pao was quoted in Law.com about how a second Trump administration could impact the crypto market, advising clients and other industry participants to have “measured optimism.”

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Spainâ€™s Climate Champion Gears Up for the EUâ€™s Top Antitrust Job

Wed, 13 Nov 2024 15:09:18 Z

Cooley partner Jonas Koponen was quoted in Bloomberg on incoming European Commissioner for Competition Teresa Ribera’s application of foreign subsidy law, noting the importance of avoiding a trade war.

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RPM Ventures Leads Firefly Aerospaceâ€™s Oversubscribed $175 Million Series D

Tue, 12 Nov 2024 17:50:00 Z

San Francisco – November 12, 2024 – Cooley advised early-stage venture capital firm RPM Ventures as the lead investor for Firefly Aerospace's oversubscribed $175 million Series D. Firefly Aerospace is an end-to-end space transportation company with launch, lunar and on-orbit services. The round included participation from existing and new investors, including GiantLeap Capital and Human Element.

Lawyers Kevin Rooney, Alison Tong, Grant Schweikert, Alfred Browne, Hailey Yook, Parker Erkmann, Shelby Saunders, David Fletcher, Christopher Kimball and Kevin King led the Cooley team advising RPM Ventures.

DoD and SBA Approve First Set of Critical Technology SBICs

Tue, 12 Nov 2024 14:09:58 Z

On October 22, 2024, the Department of Defense (DoD) and the Small Business Administration (SBA) announced approval of 13 inaugural small business investment company (SBIC) licensees and so-called green light approved investment funds pursuant to the Small Business Investment Company Critical Technology (SBICCT) Initiative. The DoD anticipates that this first cohort of investor fund participants will invest nearly $3 billion in more than a thousand portfolio companies that operate in one or more of 14 “critical technology” areas that the DoD has identified and grouped into three categories:

Seed areas of emerging opportunity – biotechnology, quantum science, future-generation wireless technology and advanced materials
Effective adoption areas – trusted artificial intelligence (AI) and autonomy, integrated network systems of systems, microelectronics, space technology, renewable energy generation and storage, advanced computing and software, and human-machine interfaces
Defense-specific areas – directed energy, hypersonics, and integrated sensing and cyber

The DoD and SBA jointly launched the SBICCT Initiative last year to increase private investment in critical technologies considered vital to domestic national and economic security, including at the component level and production processes. The initiative – run out of the DoD’s Office of Strategic Capital (OSC) and the SBA’s Office of Investment Innovation (OII) – issued an Investment Policy Statement stating that, “[b]y providing capital and technology sector guidance, the SBICCT Initiative aims to empower highly qualified investors to scale public-private partnered capital and catalyze investment in critical technology areas.”

The SBICCT Initiative leverages the SBA’s existing SBIC program authorities to provide low-cost capital guaranteed by the government to SBIC funds demonstrating an investment strategy whereby at least 60% of total capital deployments will be into markets aligned with the DoD’s identified critical technology areas.

Approval involves a formal application and a thorough underwriting and due diligence process, which includes technical, financial and national security considerations. Applicants must establish a track record of advancing early-stage companies and scaling emerging technologies.

Participating investors may include established venture capital investors with expertise in sectors related to the critical technology areas, family offices that have pursued venture or private equity early- or growth-stage critical technology investments, venture debt investors with fund backing and historical success in critical technology-related sectors, and potentially private growth equity investors with relevant experience. The investment funds participating in the SBICCT Initiative contemplate investing across a variety of asset classes – including direct lending, seed, venture, growth, fund of funds, buyout and special situations. Once the SBA administrator gives final approval for an applicant fund to begin raising private capital as an SBIC, the fund is considered a “green light approved” investor pre-qualified for an SBIC license and progresses toward final licensing, which is contingent upon final diligence. The SBA granted the first SBICCT Initiative license in early July 2024.

Licensed funds can obtain SBA-guaranteed loans of up to $175 million each to enhance investment returns at the fund level. The DoD also will provide access to program-related support designed to help participating funds drive value in implementing their investment strategies. Such support will include access to technical experts, cybersecurity offerings from the National Security Agency to help protect critical technologies, consideration for security clearances as necessary to enable the development of critical technologies, and cooperative research and development agreements (CRADAs) or similar agreements with the DoD to facilitate research, development and information sharing among the DoD, investment funds and portfolio companies.

Companies seeking to receive SBIC investments also must meet a variety of eligibility requirements on top of the industry focus for this particular initiative – including that the prospective portfolio company must be a small business and must not be a re-lender or re-investor, passive business or substantially foreign operation, among other things, as detailed in the applicable SBIC regulations (13 CFR, part 107).

The SBICCT Initiative targets identified gaps in access to capital and stands to help bolster the domestic industrial base. The overarching goals of the initiative include protecting the nation’s competitive advantage on the global stage by strengthening supply chains and driving the development and commercialization of critical technologies.

This initiative complements similar, recent efforts by venture capital and private equity firms, outside of the SBIC program, to invest in defense tech and other national security-focused companies, as well as efforts by the government to provide viable domestic alternatives to foreign capital for US companies, thereby limiting foreign access to sensitive technologies. Indicative of the latter, in addition to the statutory and regulatory requirements of the SBIC program and the SBA that are applicable to all SBIC licensees and companies eligible for SBIC financing, the SBICCT Initiative imposes certain additional initiative-specific restrictions, such as:

SBICCT Initiative licensees may not raise capital from investors from countries that the Department of State has identified as being of particular concern. This currently includes Burma, the People’s Republic of China, Cuba, Eritrea, Iran, the Democratic People’s Republic of Korea, Nicaragua, Pakistan, Russia, Saudi Arabia, Tajikistan and Turkmenistan.
Citizens of countries of special concern cannot own, control, or be associated or affiliated with the licensee.
Licensees are prohibited from making investments into companies where individual citizens of or entities located in a country of special concern exercise ownership, control or influence, or hold a majority of the economic interest.

Nevertheless, because the term “critical technology” is a key concept in the Committee on Foreign Investment in the United States (CFIUS) regulations governing foreign investments in US businesses, investor participants should carefully assess the potential CFIUS implications of investments in portfolio companies with critical technology.

To date, more than 100 funds have expressed interest in the SBICCT Initiative. The program accepts applications during quarterly windows, and the next filing deadline is November 15, 2024.

ISS Opens Peer Group Submission Window for 2025 Annual Meetings

Mon, 11 Nov 2024 19:02:36 Z

Institutional Shareholder Services (ISS) uses peer group data as one input in their analysis of a company’s executive pay program that may ultimately impact their vote recommendation for a company’s “say-on-pay” proposal and/or director elections. Each year, ISS constructs its own group of “peers” for each company, which it uses to analyze the company’s executive pay and relative company performance for the preceding year. ISS considers a company’s self-selected peer group as part of that peer group construction methodology. Accordingly, ISS periodically invites companies to submit any changes they have made to their self-selected peer group for their next proxy disclosure. For annual meetings of US and Canadian companies slated to be held between February 1, 2025, and September 15, 2025, (or January 31, 2026, for European companies), that submission window opened at 9:00 am EST today, Monday, November 11, 2024, and will close at 8:00 pm EST on Friday, November 22, 2024.

We encourage any companies that have changed their peer groups from those publicly disclosed in the last proxy filing to consider providing that information to ISS during the submission window, because doing so may result in greater overlap between the company’s self-selected peer group and the ISS-constructed peer group. Submissions should reflect peer companies used in setting CEO pay for the fiscal year ending prior to the company’s next upcoming annual meeting (e.g., for calendar year-end companies, the peer group used in making 2024 compensation decisions). Compensation committees take great care in selecting appropriate peer groups, and it is appropriate for ISS to analyze pay decisions and company performance compared to that carefully chosen peer group. Participating in the peer group submission process increases the likelihood that ISS will take the company’s self-selected peer group into greater account.

Companies are not obligated to participate in the submission process, and some companies may not want to provide this information or feel that the benefit of doing so is not sufficiently meaningful in their circumstances. For companies that do not submit any information, the proxy-disclosed peers from the company’s last proxy filing will automatically be factored into ISS’ peer group construction methodology. We recommend that even a company that has made no changes to its previously disclosed peer group (or that otherwise declines to participate) still verify through the submission process that ISS has collected the complete and relevant peer group from its most recent proxy statement.

Note that a company should only participate in the peer submission process if the company intends to disclose the resulting peer group in its next proxy filing. For example, an emerging growth company that participates in the peer submission process should be prepared to voluntarily disclose the same submitted peer group in the company’s next proxy filing, even though the company is subject to the scaled proxy disclosure rules and not otherwise required to disclose a peer group.

Additionally, the peer submission process is unlikely to be useful to a company where the ISS vote recommendation is not meaningful. Although ISS has a strong following of institutional shareholders, companies should consider – as a threshold matter – the composition of their shareholder base, the extent to which those shareholders look to ISS (or other proxy advisory firms) in determining whether to support a proxy proposal, and the areas with which their shareholders appear to be most concerned.

Cooley Partner Appears on â€˜Tech Talk With 20for20â€™

Mon, 11 Nov 2024 18:45:00 Z

Ethan Glass, Cooley partner and chair of the firm’s antitrust and competition practice group, appeared as a guest on an episode of the “Tech Talk with 20for20” podcast, where he discussed the complexities of antitrust law in the housing market and provided an overview on legal actions against multifamily revenue management.

Listen on Apple Podcasts

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Cooley Recognized With Multiple Awards From Lexology Index

Fri, 08 Nov 2024 21:13:00 Z

Cooley was recognized as USA – California Law Firm of the Year at the Lexology Index Awards 2024. Additionally, partner Patrick Van Eecke was honored as Data Privacy Lawyer of the Year, and partner Rod Freeman was recognized as Lawyer of the Year for Product Liability Defence for the third year in a row.

Lexology Index (formerly known as Who’s Who Legal) presents awards to individuals and firms that perform exceptionally well in its research, along with announcing awards for the leading firms in more than 70 jurisdictions. An awards presentation was held in London in November 2024.

Two Cooley Partners Recognized for Securities Defense Excellence

Fri, 08 Nov 2024 15:39:21 Z

Boston and Palo Alto â€“ November 8, 2024 â€“ Two Cooley partners have been named on the Securities Docket Enforcement Elite 2024 â€“ a list of the best securities enforcement defense lawyers in the industry.

The publication selected Luke Cadigan, who leads Cooleyâ€™s East Coast business litigation team and is partner in charge of the firmâ€™s Boston office, along with Shannon Eagan, who leads the business litigation practice for Cooleyâ€™s Palo Alto office, where she is partner in charge.

Securities Docket seeks to identify the lawyers who can manage bet-the-company matters and respond quickly to government enforcement and regulatory actions. Results are based on extensive research by Securities Docket staff, external nominations, and input from senior lawyers and other professionals in the field.

Cooleyâ€™s securities litigation + enforcement practice is a global team with deep experience representing companies, boards and individuals in investigations by the US Securities and Exchange Commission (SEC), as well as other US and foreign regulators and law enforcement agencies. The team includes a former SEC regional director and an assistant director from the SECâ€™s Enforcement Division, in addition to several former senior officials and prosecutors from the Department of Justice (DOJ) and US attorneyâ€™s offices around the country. Clients benefit from our extensive experience with and inside the SEC and DOJ, along with our proven record of achieving outstanding results in highly sensitive investigations.

What a Second Trump Term Could Mean for FDA and CPSC

Fri, 08 Nov 2024 15:18:40 Z

Cooley partners Elliot Kaye, former chair of the US Consumer Product Safety Commission (CPSC), and Matt Howsare, former CPSC chief of staff and current chair of Cooley’s North American product safety practice, were quoted in Law360 on the potential issues facing the CPSC during President-elect Donald Trump’s second term, including ecommerce and online marketplaces as well as artificial intelligence.

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Wall Street Gets M&A Reboot With Trump Set to Undo Khan Era

Thu, 07 Nov 2024 20:18:00 Z

Sonya Erickson, Cooley partner and global chair of the firm’s business department, was quoted in Bloomberg on how M&A deal activity will recover heading into 2025 following the US presidential election result.

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Geron Corporation Announces up to $375 Million in Funding With Royalty Pharma and Pharmakon Advisors

Thu, 07 Nov 2024 17:23:00 Z

San Francisco â€“ November 7, 2024 â€“ Cooley advised Geron Corporation (Nasdaq: GERN), a commercial-stage biopharmaceutical company aiming to change lives by changing the course of blood cancer, on its up to $375 million in synthetic royalty and debt financings with Royalty Pharma and Pharmakon Advisors. The transactions comprise a $125 million synthetic royalty with Royalty Pharma and $250 million of committed senior secured debt with investment funds managed by Pharmakon Advisors.

Lawyers Mischi a Marca, Shimeng Cheng and Addison Pierce lead the multidisciplinary team advising Geron, which included public companies partner Chadwick Mills, patent counseling and prosecution partner Jonathan Cousin, tax partner Xander Lee, and life sciences partner Jennifer Raab.

Cooley has previously advised Geron on various corporate and financing matters, including its $227.8 million follow-on offering in January 2023.

New HSR Premerger Notification Requirements: Implications for Private Equity Clients

Thu, 07 Nov 2024 14:51:00 Z

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) recently announced significant changes to the Hart-Scott-Rodino (HSR) premerger notification rules – including changes to the HSR form and associated instructions. Although the new HSR rules are softened from what was initially proposed by the FTC in June 2023 and do not alter the filing thresholds nor change the substantive merger review process, the updates will increase the time and cost required to prepare the HSR filing and will require private equity (PE) firms to disclose more details about their ownership structures and other investments.

Understanding the changes

The revised HSR rules are anticipated to take effect in early 2025. Some of the most notable changes that may impact PE transactions include:

New disclosure requirements targeting PE – including disclosure of information about minority shareholders, certain limited partners and other entities apart from the ultimate parent entity (including production of an organizational chart that shows the relationships between a sponsor’s affiliates and associates, if one exists, and requiring the disclosure of “street names” of funds or investment groups).
Reporting relevant prior acquisitions that the parties entered during the preceding five years.
Including narrative descriptions of competitive overlaps, supply relationships, deal rationale and ownership structure of the acquiring firm.
Broader production of “business documents,” including deal-related documents that analyze competition from the “supervisory deal team lead” (in addition to officers and directors as previously required), as well as regularly prepared reports provided to the CEO that analyze competition in any overlap during the last year and any similar reports that were produced to the board.

Impact on private equity

Disclosure of ownership and supply relationships

The updated HSR rules follow the current regulatory trend toward increased scrutiny of PE transactions. The rules may have a disproportionate burden on PE buyers, who typically have larger networks of investors, affiliates and suppliers to report, as well as overlapping members on various boards. For example, limited partnerships must now disclose limited partners with management rights, in addition to their general partner. Additionally, instead of only identifying the ultimate parent entity and the acquiring entity, intermediary entities and their relevant general and limited partners must be disclosed. The new rules also require the disclosure of “doing business as” or “street names” of investors related to master limited partnerships, funds or investment groups to enable regulators’ ability to research the holdings of an investment group.

Increased scrutiny of roll-ups

The new HSR rules also reflect the antitrust authorities’ increased focus on roll-up transactions, where firms buy and combine a number of smaller companies in a series of transactions to form a larger group. For years, the FTC has struggled with how to address roll-ups escaping antitrust scrutiny when the companies acquired do not cross the minimum filing threshold for merger review. The new requirement that filers provide a description of current or known products or services that compete or could compete with the other party, as well as products either party sold or purchased from the other party, will result in these types of transactions being more easily identified. Even if a previous transaction does not meet the thresholds to require disclosure under HSR rules, the description of competitive overlaps and supply relationships could cause the reviewing agency to further investigate a transaction and learn about the parties’ previous transactions.

Increased time and costs

For PE clients, the changes could impact deal structure and timing. In particular, the time required to complete the HSR filing will vary more significantly by deal than it did under the prior HSR requirements. PE firms will need to consider such variability when assessing deal timing and structure. According to the agencies, the new HSR rules will increase the time required for a filer to prepare an HSR filing by 68 hours on average – with an increase of 10 hours for the simplest filings and an increase of 121 hours or more in transactions involving competitive overlaps or supply relationships.

Early termination

One positive development for PE firms is that, with the new filing requirements, the agencies now expect to have sufficient information to better determine whether a transaction may require a closer look to assess the potential competitive effects up front. Thus, they are re-implementing early termination, which allows the agencies to clear transactions that do not present any potential concern prior to the expiration of the 30-day waiting period.

Planning for delays/increased timing between signing and closing

Today, parties often require that the HSR filing be made within five to 10 days of deal signing. For simple transactions with no overlaps, the additional time to draft the HSR filing under the new HSR rules should be minimal (i.e., a day or two). However, for more complex transactions or those with competitive overlaps (or supply relationships), additional time between signing and filing the HSR should be contemplated. In such circumstances, parties may consider allowing for the HSR to be filed “as soon as reasonably practical” after signing – as is often done for foreign filings – or, if including a requirement to file within some number of days, allowing for the HSR filing date to be extended upon mutual agreement by outside counsel. Parties also may consider making the HSR filing based on a letter of intent or term sheet to save time if there are not other time-gating matters to deal with in the transaction.

Important insights

Document creation: The new HSR rules will require the production of additional documents, including more information on competitive overlaps and supply relationships. Ensure that all deal team members and document drafters, including those relevant individuals at portfolio companies, are aware of the HSR document production requirements.
Additional legal costs and time: The time required to complete the HSR filing may vary more significantly by deal than it did previously. Parties should be prepared for this to now take anywhere from 10 hours to upwards of 120 hours of additional time, depending on the particulars of the transaction.
Early termination: The FTC will resume granting “early terminations” of HSR filings once the new rules go into effect.
Filing on a letter of intent: With the upcoming changes, PE firms may consider filing on a letter of intent or term sheet prior to the implementation of the new HSR rules if the parties intend to complete a transaction but the deal signing and the filing of the HSR could slip past the HSR implementation date (e.g., early 2025). Doing so could allow the merging parties to file under the current less onerous HSR requirements while they finalize the transaction documents.

Additional resources

To help companies navigate the changes to the HSR rules, please see our full client alert, which includes the following additional resources:

An FAQ addressing possible queries related to the final rule.
An appendix with a table summarizing the changes to the rules, along with implications for filing parties.

Cooley private equity associate Rebecca Wainstein also contributed to this alert.

Avid Bioservices Announces $1.1 Billion Acquisition by GHO Capital Partners and Ampersand Capital Partners

Wed, 06 Nov 2024 08:00:00 Z

New York – November 6, 2024 – Cooley advised Avid Bioservices (Nasdaq: CDMO), a dedicated biologics contract development and manufacturing organization (CDMO) working to improve patient lives by providing high-quality development and manufacturing services to biotechnology and pharmaceutical companies, on its definitive merger agreement to be acquired by funds managed by GHO Capital Partners and Ampersand Capital Partners in an all-cash transaction valued at approximately $1.1 billion. Under the terms of the merger agreement, GHO and Ampersand will acquire all outstanding shares held by Avid’s stockholders for $12.50 per share in cash. The per-share purchase price represents a 13.8% premium to Avid’s closing share price of $10.98 on November 6, 2024, the last full trading day before the transaction announcement, and a 21.9% premium to its 20-day volume-weighted average share price for the period ended November 6, 2024.

Lawyers Bill Sorabella, Matthew Silverman, Sarah Buchik, Patrick Reed, Alexis Johnson, Barbara Mirza, Austin Holt, Howard Morse, Kathy O’Neill, Julia Brinton, Phil Mitchell, Todd Gluth, Christophe Beauduin, Koji Fukumura and Peter Adams led the Cooley team advising Avid.

Cooley has previously advised Avid on several litigation and investigation matters.

Printify Announces Merger With Printful

Tue, 05 Nov 2024 19:21:00 Z

Seattle – November 5, 2024 – Cooley advised Printify, a technology platform headquartered in Latvia that makes it possible for anyone, anywhere, to sell customized products with zero upfront investment, on its merger with Printful, a Latvia-based technology company that helps ecommerce sellers of all sizes use production-on-demand and other fulfillment solutions to turn their ideas into brands and products. The merger will open new prospects for accelerated growth for both companies and offer millions of customers broader opportunities to develop their online businesses on a global scale.

Lawyers Nick Davis, John Robertson, Caitlin Breitenbruck, Phoebe Huang and Katie Rosati lead the Cooley team advising Printify.

Bad-Mouthing Your Rivals Is a Bad Idea

Tue, 05 Nov 2024 19:14:39 Z

Partner Jonas Koponen was quoted in POLITICO Pro Fair Play on the European Commission’s 462.6 million euro fine against Teva Pharmaceuticals for abusive drug patent filing and competition.

Read the article (subscription required)

Koponen was also quoted in Global Competition Review, Commercial Dispute Resolution and Law.com about Teva’s fine.

How the Election Results Could Shape Data Privacy Policy

Tue, 05 Nov 2024 19:10:16 Z

Travis LeBlanc, Cooley partner and co-chair of the firm’s global cyber/data/privacy practice, was quoted in Law360 on how the US election results may impact data privacy regulations with the development and use of technology. LeBlanc also noted that cybersecurity is a prevalent issue for both the Republican and Democratic parties.

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Cuomo Told a House Panel His Memory Was Hazy. Is That a Perjury Defense?

Mon, 04 Nov 2024 18:55:57 Z

Susanne Grooms, Cooley partner and lead of the firm’s congressional investigations practice, was quoted in The New York Times regarding the difficulty of proving that someone is intentionally lying about their memory, in reference to former New York Governor Andrew Cuomo’s testimony about COVID-19-related deaths in state nursing homes.

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MVP: Cooleyâ€™s Travis LeBlanc

Mon, 04 Nov 2024 18:16:57 Z

Travis LeBlanc, Cooley partner and co-chair of the firm’s global cyber/data/privacy practice, was featured in Law360 as a Cybersecurity & Privacy MVP. In his profile, LeBlanc highlighted his work for clients over the past year, why he chose to become a privacy and security lawyer, the biggest challenge and proudest moment of the year, and his advice for junior lawyers.

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The Rookie

Mon, 04 Nov 2024 18:05:44 Z

Cooley antitrust partner Kathy O’Neill featured in Washington Post piece on the importance of young people being involved in government to ensure it functions effectively for all. She also discussed why she joined Cooley following her time as the senior director of investigations and litigation at the US Department of Justice (DOJ) Antitrust Division, why she is an antitrust lawyer, her description of antitrust, and the DOJ’s case against AT&T in the 1980s.

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Tempus Announces $600 Million Acquisition of Ambry Genetics

Mon, 04 Nov 2024 16:20:00 Z

Chicago – November 4, 2024 – Cooley advised Tempus AI (Nasdaq: TEM), a technology company advancing precision medicine through the practical application of artificial intelligence in healthcare, on its agreement to acquire Ambry Genetics, a company focusing on genetic testing that aims to improve health by understanding the relationship between genetics and disease. Under the terms of the agreement, Tempus will pay $375 million in cash and $225 million in shares at closing, of which $100 million will be subject to a lock-up agreement until one year post-transaction close.

Partner Erin Kirchner led the Cooley team advising Tempus.

Cooley previously advised Tempus on its $410.7 million initial public offering in June 2024.

Cooley Secures Zero Prison Time for Former FTX Executive Nishad Singh in Criminal and Civil Investigations

Fri, 01 Nov 2024 20:28:08 Z

New York – November 1, 2024 – Cooley navigated Nishad Singh, former FTX director of engineering, through the highest-profile and fastest-moving financial fraud investigation in decades.

Singh was one of Sam Bankman-Fried’s top lieutenants and was alleged to have conspired with Bankman-Fried and others to use billions of dollars in FTX customer funds to pay large expenditures for FTX’s sister company, Alameda Research. Singh also was involved in what the government alleged to be one of the largest campaign finance offenses in US history.

On October 30, 2024, Judge Lewis A. Kaplan of the US District Court for the Southern District of New York said that he was “persuaded” by Singh’s cooperation in the investigation, and that Singh was put in a difficult position by Bankman-Fried. Judge Kaplan did not impose any prison time and instead ordered Singh to contribute funds to the $11.2 billion forfeiture tab and spend three years on supervision.

In addition to representing Singh in the investigation by the US Attorney’s Office for the Southern District of New York (SDNY), Cooley also represents Singh before the Securities and Exchange Commission, the Commodity Futures Trading Commission and the New York Attorney General’s Office in the highly visible criminal and civil investigation.

The US attorney for the SDNY called the collapse of FTX “one of the biggest financial frauds in American history.”

The Cooley team was led by partners Andrew Goldstein and Russell Capone, with support from associates Anu Dhillon and Jorge Sarmiento. The team earned a runners-up spot on The American Lawyer’s Litigation Daily Litigator of the Week Runners-Up and Shout-Outs list for the work. AP News, Axios, CNBC, CoinDesk, Bloomberg, Law360, The New York Times and Reuters also reported on the matter.

CFPB Says FCRA May Govern Background Report Providers and Users, Including Tech Companies

Fri, 01 Nov 2024 18:34:22 Z

On October 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued a consumer financial protection circular explaining that background reports, including scores, obtained from third parties and “used by employers to make hiring, promotion, reassignment, or retention decisions are often governed by” the Fair Credit Reporting Act (FCRA).

While the guidance is generally applicable to providers of background reports and scores, a large focus is on those that incorporate artificial intelligence (AI) tools, with algorithms trained on broad data sets, for use in the employment decision-making process. CFPB Director Rohit Chopra further emphasized concerns regarding the role of AI in employment decisioning during a joint field hearing held by the Department of Labor (DOL) and the CFPB on the day the circular was released.

The circular and field hearing follow a 2023 announcement that the CFPB and the National Labor Relations Board (NLRB) had entered into an information sharing agreement – which, among other things, was aimed at identifying and addressing possible FCRA violations by entities that collect and sell worker data to third parties for use in employment decisions.

FCRA compliance expectations

Consumer financial protection circulars, like the one issued by the CFPB on October 24, are intended to ensure that agencies responsible for enforcement of consumer financial protection laws, such as the FCRA, enforce those laws consistently.

This circular reflects the CFPB’s position that:

Background reports assembled from databases containing “public records, employment history, collective-bargaining, or other information about a worker” or containing scores “assessing a current worker’s risk level or performance” may qualify as consumer reports under the FCRA.
Entities that provide such reports to third parties for use in hiring and/or subsequent employment decisions may qualify as “consumer reporting agencies” and, if so, must comply with the FCRA.
Employers who use such reports for hiring or subsequent employment decisions must comply with the FCRA, including by obtaining workers’ consent to procure a consumer report, providing notices before and when taking any adverse action with respect to a worker, and only using the consumer report information obtained for permissible purposes as outlined in the FCRA.

In the circular, the CFPB also offers guidance to enforcement personnel considering whether an “employer that makes employment decisions based on a report from a third party is regulated by the FCRA.” The CFPB suggests enforcers consider whether:

The employer is using the report for “employment purposes,” meaning for purposes of “evaluating a consumer for employment, promotion, reassignment or retention” (and, thus, for either initial hiring or subsequent employment decisions).
The report was obtained from a “consumer reporting agency,” meaning an entity that “assembled” or “evaluated” consumer information for purposes of providing the report – which the CFPB says may include companies, such as tech companies, that collect “consumer data in order to train an algorithm that produces scores or other assessments about workers for employers.”

On that point, the CFPB further explains, within a footnote, its position that a software provider could potentially meet the definition of a “consumer reporting agency” where the provider assembles or evaluates consumer report information to develop software that produces reports used by third parties to evaluate workers for “employment purposes” or the software itself assembles or evaluates information about a worker to provide reports to third parties to use for such purposes. In doing so, the CFPB rebuffs long-standing Federal Trade Commission (FTC) guidance providing that a seller of software that enables users to compile credit report information is not a “consumer reporting agency” – given it is not itself “assembling or evaluating” information – asserting that, in its view, the FTC guidance is “inapplicable to many of the kinds of technology used today.”

Notwithstanding, the CFPB acknowledges that not “all third parties that assemble or evaluate data will qualify as ‘consumer reporting agencies.’” Specifically, it highlights that the FCRA does not apply to a report containing only information as to the “transactions or experiences between the consumer and the person making the report.”

Looking ahead

The circular is the latest in a series of CFPB publications focused on ensuring compliance with the FCRA, across sectors and with respect to new technologies. For example, the CFPB published two advisory opinions in January 2024 addressing consumer reporting agency obligations under the FCRA related to background check reports, and in June 2024 it issued a proposed rule that would keep most medical debt information off consumer reports.

The circular also aligns with the CFPB’s broader focus on the use and impact of AI in consumer financial services. In the last year or so, the CFPB has:

Issued guidance concerning information that must be included in adverse action notices, under the Equal Credit Opportunity Act (ECOA), when AI or complex models are used in credit decisioning.
Approved a rule, developed with other federal agencies, to address the use of AI and complex algorithms in home appraisals.

In addition, the CFPB recently detailed its observations and concerns regarding the use of AI, in consumer financial services, in response to a US Department of the Treasury request for information (RFI) on the uses, opportunities, and risks presented by AI. In doing so, the CFPB emphasized that “[a]lthough institutions sometimes behave as if there are exceptions to the federal consumer financial protection laws for new technologies,” in its view “that is not the case.”

Septerna Announces Upsized $331.2 Million IPO

Fri, 01 Nov 2024 17:58:00 Z

San Francisco – November 1, 2024 – Cooley advised the underwriters of Septerna, a clinical-stage biotechnology company pioneering a new era of G protein-coupled receptor (GPCR) oral small molecule drug discovery, on its upsized $331.2 million initial public offering (IPO). Septerna issued and sold 18,400,000 shares priced at $18 per share, which includes the full exercise of a 30-day option for the underwriters to purchase 2,400,000 additional shares. Septerna’s common stock began trading on the Nasdaq Global Select Market on October 25, 2024, under the ticker symbol SEPN. J.P. Morgan, TD Cowen, Cantor and Wells Fargo Securities acted as the joint bookrunners for the IPO.

Partners Denny Won, Charlie Kim, Kristin VanderPas and David Peinsipp led the Cooley team that advised the underwriters.

Litigator of the Week: Runners-Up

Fri, 01 Nov 2024 16:11:04 Z

A Cooley white collar team earned a runners-up spot on The American Lawyer’s Litigation Daily Litigator of the Week Runners-Up and Shout-Outs list for securing no prison time for client Nishad Singh, the former director of engineering at FTX, in connection with the trial of Sam Bankman-Fried.

The team was led by partners Andrew Goldstein and Russell Capone and included associates Anu Dhillon and Jorge Sarmiento.

Read the article

Cooley Recognized as Tipping the Scales Firm

Fri, 01 Nov 2024 14:09:57 Z

Cooley was recognized as a Tipping the Scales firm in the Diversity & Flexibility Alliance’s 2024 New Partner Report for electing a new partner class consisting of more than 50% women. The report is a yearly examination of data compiled from more than 200 of the nation’s largest and top-grossing law firms about the gender breakdown of lawyers promoted to partnership.

Read the full report

Read the Law360 article about the report (subscription required)

The 2024 Tipping the Scales firms were honored at the Diversity & Flexibility Alliance’s 2024 Annual Conference.

Ninth Circuit Confirms: Certain Stem Cell Products Require FDA Premarket Approval

Thu, 31 Oct 2024 21:17:00 Z

On September 27, 2024, in USA v. California Stem Cell Treatment Center, Inc., the US Court of Appeals for the Ninth Circuit issued a decision agreeing with the US Food and Drug Administration (FDA) that the defendants’ stem cell product requires premarket drug approval under the Federal Food, Drug, and Cosmetic Act (FDCA), because the stem cells constitute a “drug” that did not qualify for any of the exemptions from the premarket application requirement under FDA’s human cell, tissue, and cellular- and tissue-based product (HCT/P) regulation.¹

This closely watched case is significant because by reversing the lower court’s ruling, the Ninth Circuit now joins the US Court of Appeals for the DC Circuit and the US Court of Appeals for the 11th Circuit in concluding that stem cell products require FDA premarket approval similar to other FDA-regulated medical products. It remains to be seen whether the defendants will seek certiorari from the US Supreme Court on the Ninth Circuit’s ruling.

FDA’s regulation of HCT/Ps

HCT/Ps are articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion or transfer into a human recipient.² Examples of HCT/Ps include bone, ligament, skin, heart valve, cornea, stem cells derived from blood and reproductive tissue. As relevant here, these products are regulated as drugs under the FDCA based on their intended uses. If a product is intended to affect the structure or any function of the body, or to diagnose, cure, mitigate, prevent or treat a disease, it is a drug under the FDCA.³ Drugs require an approved or cleared premarket application before they can be lawfully marketed – e.g., a New Drug Application (NDA) or a Biologics License Application (BLA), depending on the type of molecule at issue.

HCT/Ps that are medical products are required to have an FDA-approved application in place to be lawfully marketed unless they meet certain requirements spelled out in FDA’s regulations that allow for an HCT/P to be regulated solely under section 361 of the Public Health Service Act. To be a “361” product, an HCT/P must be:

Not more than minimally manipulated.
Intended for homologous use.
Not combined with cells or tissues of any other product except for water, isotonic salt or glucose solution, or a sterilizing agent.
For autologous use, allogenic use by a first or second degree blood relative or reproductive use, or does not have a systemic effect and is not dependent upon metabolic activity to achieve its primary function.⁴

Alternatively, FDA regulations may exempt an HCT/P from all FDA regulation if the business that manufactures the HCT/P qualifies for an exception, such as the same surgical procedure (SSP) exception.⁵

The SSP exception applies where the HCT/Ps are removed from an individual and the same HCT/Ps are implanted back into the same individual during the same surgical procedure. If the SSP exception does not apply, the HCT/P will be regulated as a drug and/or biological product, and premarket review will be required.

Procedural history

In 2017, FDA inspected two entities co-founded by two California-licensed physicians: the California Stem Cell Treatment Center and the Cell Surgical Network Corporation. Following these inspections, FDA concluded that the defendants’ stem cell products were unapproved drugs, and that the defendants were manufacturing these products in violation of the FDCA. In 2018, FDA sued the defendants seeking a permanent injunction to prevent them from marketing these unapproved drugs.⁶

In its decision, the US District Court for the Central District of California wrestled with distinguishing between what constitutes a “drug” under the FDCA and what is considered a “medical procedure,” when both drugs and surgical procedures are intended for the diagnosis, cure, mitigation, treatment or prevention of disease. The district court noted that there are no FDA-approved surgical procedures. It also noted that the line between “drug” and “procedure” is “especially muddy when licensed medical doctors enter a patient’s body, extract that patient’s cells, and reintroduce those cells to that patient after some amount of cellular processing.”⁷

In its 2022 decision, the district court ultimately held that the defendants’ stem cell product was not a “drug” under the FDCA, concluding that the “defendants are engaged in the practice of medicine, not the manufacture of pharmaceuticals.”⁸ The court also held that the defendants’ use of stromal vascular fraction (SVF) during their “SVF surgical procedure” fell within the SSP exception. The court determined that the SSP exception applied to the defendants’ stem cell procedure because it concluded that the product was autologous, meaning “it involves collecting a patient’s cell population naturally occurring in the patient’s adipose tissue and relocating that cell population back into the same patient,” and that “there is no evidence that the cells are anything other than autologous cells removed from, belonging to and returned back to the patient.”⁹

Holding

In reversing the district court’s ruling, the Ninth Circuit rejected the district court’s conclusions that the defendants’ stem cell product was not a drug, and that the SSP exception applied to the defendants’ SVF surgical procedure.

Specifically, the Ninth Circuit relied on the plain meaning of the FDCA that broadly defined “drugs” based on the intended use, holding that “the undisputed intent as reflected in [Defendants’] marketing [is] to treat a long list of diseases and to affect structures of the body, such as to regenerate cartilage.”¹⁰ In so doing, the Ninth Circuit favorably cited the DC Circuit in Regenerative Sciences, which also utilized a plain reading of the FDCA to arrive at a similar conclusion. ¹¹

The Ninth Circuit dismissed the defendants’ argument that classifying their stem cell mixture as a drug would interfere with the practice of medicine. The court pointed out that this argument had already been rejected by the Ninth Circuit in a previous case, United States v. Kaplan, which relied on the DC Circuit’s decision in Regenerative Sciences.¹² In so doing, the Ninth Circuit refused to “classif[y] the distribution of drugs by doctors” as exempt from the FDCA because to do so would create significant gaps in FDA’s oversight over pharmaceutical products.¹³ Ultimately, the Ninth Circuit concluded that Kaplan forecloses the defendants’ practice of medicine argument that would take the defendants’ stem cell product outside of FDA’s drug regulations.¹⁴

The defendants also attempted to invoke the major questions doctrine, which the court rejected, finding that FDA’s regulation of drugs created or used by doctors “is unlike the situations in which the major questions doctrine has been applied.”¹⁵ The Ninth Circuit provided a few reasons. First, this case does not raise issues of extreme economic and political significance. Second, FDA’s regulation of human cell and tissue products is not a sudden assertion or transformative expansion of authority. Third, the court found no mismatch between the defendants’ stem cell product and the statutory scheme, distinguishing this case from the sole Supreme Court case addressing the major questions doctrine in the FDCA context (i.e., FDA v. Brown and Williamson Tobacco Corp.). In Brown, the Supreme Court ruled that FDA lacked authority to regulate tobacco products, concluding that “there is no room for tobacco products within the FDCA’s regulatory scheme.”¹⁶ Unlike the Supreme Court, the Ninth Circuit concluded that the defendants’ stem cell product “fits comfortably within the FDCA […].”¹⁷

Finally, the Ninth Circuit held that the SSP exception did not apply here because the “same” HCT/Ps were not removed and implanted back into the patient. In reaching this conclusion, the Ninth Circuit demonstrated a strong grasp of the underlying science involved in the stem cell procedure. The court analyzed the procedure itself, noting that the stem cell procedure here involved subjecting fat tissue to “enzymatic digestion” and multiple rounds of centrifugation to remove the fat cells from the fat tissue in a process that creates the stem cell mixture. The remaining cell mixture is then filtered, and it is this filtered mixture of cells – including stem cells – that is implanted back into the patient.

In determining which HCT/P was removed during the SVF procedure, the district court found that the cells within the removed fat tissue constituted the removed HCT/P, as these cells, not the fat tissue, were the target of the procedure and created the implanted mixture.¹⁸ However, the Ninth Circuit disagreed, holding that this focus is misaligned with the purpose of the HCT/P regulation and the SSP exemption. The court noted that procedures eligible for the SSP exemption should carry relatively low risk, and that processing HCT/Ps introduces risk. Significant processing of fat tissue, which the defendants acknowledge is necessary to produce their stem cell mixture, introduces an amount of risk that the SSP exception was not intended to accommodate.¹⁹ Consequently, the court held that procedures eligible for the SSP exception should not involve significant processing, which disqualified the defendants’ stem cell procedure due to its use of significant processing.

What’s next?

With three circuit courts now in alignment that certain stem cell procedures are properly regulated as drugs under the FDCA and subject to premarket approval, this decision could have significant implications for any company developing or offering stem cell treatments, particularly those involving SVF.²⁰ Entities engaged in this industry will need to consider these rulings when developing treatments involving stem cells to ensure they comply with the FDCA and its implementing regulations for premarket drug approval, which includes demonstrating each drug’s safety and efficacy for its specific intended uses. Entities that fail to comply with these requirements could face enforcement by FDA and ultimately the Department of Justice, including actions similar to the one the government brought against the defendants in this case.

Auguste Humphries, an associate in Cooley’s life sciences and healthcare regulatory practice, contributed to this alert.

Notes

21 CFR 1271.15(b).
21 CFR 1271.3(d).
21 U.S.C. 321(g); 21 U.S.C. 321(h).
21 CFR 1271.10(a).
21 CFR 1271.15.
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014, 8 (9th Cir. September 27, 2024).
United States v. Cal. Stem Cell Treatment Ctr., Inc., 624 F. Supp. 3d 1177, 1185 (C.D. Cal. 2022).
Ibid, 1189.
Ibid, 1187.
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014, 11 (9th Cir. September 27, 2024).
Ibid, 12.
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014, 14 (9th Cir. September 27, 2024).
Ibid,14.
Ibid, 14.
Ibid, 15.
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 122 (2000).
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014, 16 (9th Cir. September 27, 2024).
United States v. Cal. Stem Cell Treatment Ctr., Inc., 624 F. Supp. 3d 1177, 1187 (C.D. Cal. 2022).
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014, 11 (9th Cir. September 27, 2024).
United States v. Cal. Stem Cell Treatment Ctr., No. 22-56014 (9th Cir. September 27, 2024); United States v. US Stem Cell Clinic, LLC, 998 F.3d 1302 (11th Cir. 2021); and United States v. Regenerative Sciences, LLC, 741 F.3d 1314 (D.C. Cir. 2014).

IFLR1000 Recognizes Cooley Across Asia

Thu, 31 Oct 2024 18:49:27 Z

Singapore, Hong Kong, Beijing and Shanghai – October 31, 2024 – Cooley has been recognized in the 2024 edition of the IFLR1000 guide covering the Asia market. IFLR1000 evaluates law firms and lawyers based on the legal innovation and sophistication of their work, challenges navigated, and impact on the market.

The firm was recognized for its work in mergers and acquisitions, private equity, and investment funds:

Leading practices

Hong Kong

Private Equity Funds*

Singapore (Foreign Firms)

M&A*

China (Foreign Firms)

Private Equity
M&A+

* indicates new ranking
+ indicates improved ranking

Additionally, seven firm lawyers were acknowledged across three covered jurisdictions based on their work in capital markets, investment funds, mergers and acquisitions, and private equity. In Hong Kong, the IFLR1000 recognized Pang Lee, Will Cai and Michael Yu. In Singapore, Ferish Patel was recognized, and in mainland China, Ruomu Li, Yiming Liu and Michael Shen were recognized.

â€˜More Transparent and Efficientâ€™: SFC and HKEX Release Joint Statement on Enhanced Time Frame for New Listing Application Process

Thu, 31 Oct 2024 17:42:23 Z

Key points/Q&A

Over the years, the Securities and Futures Commission (SFC) and the Stock Exchange of Hong Kong Limited (HKEX) have made continuous efforts to enhance the application process for new listing[1] applications, offering guidance, clarity and transparency to the market. To further elevate Hong Kong’s attractiveness as the leading international listing venue, the SFC and the HKEX issued the Joint Statement on Enhanced Timeframe for New Listing Application Process (Joint Statement) on October 18, 2024, announcing an enhanced time frame for the new listing application process (Enhanced Application Time Frame).

Based on our understanding of the Joint Statement, we have briefly summarized and commented on the noteworthy points therein in the form of Q&A for reference.

1. When will the Enhanced Application Time Frame take effect?

According to the Joint Statement, the Enhanced Application Time Frame will be applicable to new listing applications filed after the date of the Joint Statement (i.e., after October 18, 2024). Please note that the Enhanced Application Time Frame was issued in the form of a “joint statement” and is not currently reflected in the Listing Rules or guidance issued by the SFC and the HKEX. At this stage, it is more akin to the policies, principles and objectives relating to the listing approval practices of the SFC and the HKEX.

The SFC and the HKEX have been exploring a more transparent and enhanced listing approval process, especially after their adoption of the new sponsor regime in 2013.

2. In what ways is the Enhanced Application Time Frame transparent and efficient?

Although the condition of “Applications Fully Meeting Requirements” is attached, this is the first time that the SFC and the HKEX formally and explicitly introduced the concepts of “a maximum of two rounds of regulatory comments” and “40 business days” for vetting and approval. Taking into account the estimated times given in the table below, “1 – 2 – 40 – 60” can be used as a benchmark for assessing the vetting process and time.

From date of filing listing application	First comment letter (1CL)	Response to 1CL	Second comment letter (2CL)	Response to 2CL	HKEX’s HBL/SFC’s no comment letter	Response to HBL	Total
HKEX	15 business days		15 business days		10 business days		40 business days
SFC	20 business days		10 business days		10 business days
Response from applicant/ sponsor		25 business days		25 business days		10 business days	60 business days

1: First, “a condition precedent” must be satisfied – that is, whether a new listing application and related materials submitted by an applicant and its sponsor can be regarded as an “Application Fully Meeting Requirements”, i.e., whether such materials meet all applicable requirements and guidance under the Securities and Futures Ordinance (SFO), the Securities and Futures (Stock Market Listing) Rules (SMLR) and/or the Listing Rules.
2: Next, the SFC and the HKEX will, after close communication to avoid duplication of comments, individually assess and indicate any material regulatory concerns (regulators’ assessment) after a maximum of two rounds of regulatory comments.
40: In this scenario, the time taken by each of the SFC and the HKEX to confirm whether there are any material regulatory concerns will be no more than 40 business days. The SFC’s “no comment letter” and the HKEX’s “hearing bundle letter” (HBL) are two new concepts. A no comment letter should mean exactly what it says. According to the Joint Statement, an HBL is intended to “set out the matters to be dealt with or addressed by the applicants and their sponsors to finalise the disclosure in the listing document”. In light of current vetting practice, an HBL may be used as a marker to confirm that there is “no material regulatory concern,” and to address disclosure amendments requiring further follow-up from the issuer by the HKEX prior to the hearing (usually “disclosure issues” other than “major issues”).
60: The applicant and its sponsor are expected to take a total of around 60 business days to satisfactorily address regulators’ comments. Subject to obtaining approvals from the Listing Committee and other authorities or regulators, the application process would be completed within the six-month application validity window.

3. What is meant by ‘the time taken by each regulator to confirm whether there are any material regulatory concerns will be no more than 40 business days’?

There are usually two types of issues raised by the HKEX in reviewing a listing application. One type are “major issues”, which mainly include listing eligibility and suitability issues – such as the applicant’s business model, profitability path, financial sustainability, material non-compliances, etc. The other type are “disclosure issues”, which, as the name suggests, are mainly related to disclosure details in the prospectus.

First, the “40 business days” mentioned in the Joint Statement refers to the time required for the review to “confirm whether there are any material regulatory concerns”. We understand that this mainly includes the time taken to review and deal with the “major issues”, and that some additional time may be needed to address any piecemeal disclosure issues. Therefore, it is not yet possible to interpret such time period directly as the time between the submission of the listing application and the hearing.

Second, it is stated in the notes to the Joint Statement that the “40 business day” period only includes the number of business days in the hands of the regulators and excludes the response time of the applicant and its sponsor. As disclosed in the HKEX’s Listing Committee Report 2023, it takes an average of 12 business days from the date of case acceptance to the date of first comment letters issued (which is close to the 15 business days as set out in the Joint Statement). The Joint Statement has, on the one hand, publicly reflected the average length of time needed in the HKEX’s previous regulatory practice and, on the other hand, also provided an expectation on the SFC’s review time, both of which add more predictable certainty to the timeline for reviewing new listing applications.

Third, based on the projections in the Joint Statement, the applicant and its sponsor may need approximately 25 business days to respond to each round of regulatory comments, and then 10 business days to respond to the HBL, for a total of 60 business days, plus the aforementioned “40 business days” for the HKEX/SFC review, totaling 100 business days (approximately five months). If the applicant can follow this indicative response timeline, the review would be completed within the six-month application validity window, which will help to improve the situation of “need to re-file the listing application if listing is not possible within six months”. It should be noted that 25 business days may not be sufficient for some applicants if there would be any extra audited financial information covering a longer reporting period needs to be provided together with the response to the HKEX’s regulatory comments.

Finally, the “40 business days” does not include the time required for filing with the China Securities Regulatory Commission.

4. Is there any change in the division of functions between the SFC and the HKEX under the existing regulatory framework?

No. To summarize:

Regulator	Role/strong>	Normative documents administered	Primary functions
SFC	Statutory regulator	SMLR and SFO	Reviewing all new listing applications. Engaging in targeted intervention in more serious listing matters that fall within the scope of the SMLR or the SFO.
HKEX	Frontier regulator	Listing Rules	Making decisions under the Listing Rules on matters such as determining suitability for listing. The Listing Committee considers and decides whether to approve new listing applications, and – where appropriate – raises comments on eligibility and suitability for listing, as well as on material listing document disclosures.

The Joint Statement not only clarifies the division of functions between the SFC and the HKEX, but also emphasizes the efforts of the two regulators to improve efficiency in two ways. First, they will communicate closely to avoid duplication of comments, and second, if the SFC shares the same regulatory concerns as those included in the HKEX’s second comment letters, it will issue a letter via the HKEX to notify the applicant through its sponsor, which will be counted as one round of comments from the SFC.

5. Is there any possibility of accelerating the Enhanced Application Time Frame?

It is possible if the applicant is an eligible A-share listed company, the time frame may be accelerated, which will help high-quality A-share listed companies take advantage of the issuance window in a timely manner and get access to the international capital markets more quickly.

For an applicant to be considered an “eligible A-share listed company”, the applicant will need to meet the following criteria when submitting a new listing application:

It is expected to have a minimum market capitalisation of HK$10 billion, calculated with reference to:
- The A-share market capitalisation based on the average A-share closing price for the five business days immediately preceding the date of the new listing application.
- The expected H-share market capitalisation at the time of listing on the HKEX.
It can confirm, with the support of legal advisers’ opinions, that it has complied with all laws and regulations, in all material respects, applicable to its A-share listing throughout the two full financial years immediately preceding the new listing application and up to the date of submitting the new listing application.

If an eligible A-share listed company submits an Application Fully Meeting Requirements, the Regulators’ Assessment will be completed after one round of regulatory comments. In this scenario, each regulator will take no more than 30 business days to complete the Regulators’ Assessment (Accelerated Time Frame).

6. Under what scenarios will the application take longer to complete?

The timeline of the application process may be lengthened under the following scenarios:

The SFC and/or the HKEX have material regulatory concerns regarding an applicant’s compliance with the SFO, the SMLR and/or the Listing Rules. If the SFC and/or the HKEX indicate that they have material regulatory concerns over the new listing application of an eligible A-share listed company, the Accelerated Time Frame will no longer apply.
Poor quality of listing document preparation.
New material developments of the applicant.
Incomplete responses to regulators’ comments.

7. What measures will the regulators take if the scenarios in Question 6 arise?

The SFC and the HKEX will proactively engage with the applicant and its sponsor to enhance their understanding of the relevant regulatory concerns. Possible measures include:

After issue of the first comment letter (1CL), the SFC and/or the HKEX will, where necessary, engage with key representatives of the applicant and its sponsor, as well as other advisers, to facilitate their understanding of the material regulatory concerns and outline the regulators’ expectations on their subsequent response.

This communication mechanism is being formalized for the first time (although it already happens in practice). It may mean that the SFC and HKEX reviewers will discuss the regulatory concerns with the applicant and its sponsor by telephone. This approach is expected to be very useful in helping the SFC and the HKEX to understand the applicant’s situation (e.g., industry specifics, new business model), and in helping the applicant and its sponsor to understand the regulatory disclosure requirements, which will minimize “misunderstandings” and the time spent on repeated clarifications, thus improving efficiency and shortening the time taken for the listing review.
If any subsequent responses to the regulatory comments are materially incomplete, the SFC and/or the HKEX will inform the applicant and its sponsor of the deficiency and suspend the vetting process until a complete and satisfactory reply is received.

In order to minimize the frequency of comments to achieve the regulatory objectives, it is possible that the SFC and the HKEX may – upon receipt of the response to a particular round of regulatory comments – request the applicant and its sponsor to continue to provide additional responses to some of the comments, instead of directly conducting a new round of regulatory comments.
If the applicant and its sponsor do not adequately address the material regulatory concerns raised by the SFC and/or the HKEX after two rounds of regulatory comments (or one round under the Accelerated Time Frame for eligible A-share listed companies), the SFC and/or the HKEX will issue a direct requisition letter under the SMLR (SMLR letter) and/or a major concerns letter (MCL), as appropriate. The progress of the application will then be subject to the applicant and its sponsor satisfactorily addressing the material regulatory concerns set out in the SMLR letter and/or the MCL.

8. How to ‘save’ time?

Assuming that the regulators’ concerns, commenting methods and disclosure requirements remain the same, how can we “save” time under the Enhanced Application Time Frame? We understand that some enhancement of process details (e.g., avoiding duplication of comments, consolidation of second-round comments) and communication (e.g., more phone calls or clarifications between the listing reviewers and the applicant and its sponsor) would certainly be very helpful. At the same time, efforts to improve the quality of listing document preparation (especially the prospectus) by professional parties to the listing are necessary, and achieving improved efficiency also will require brainstorming among the various players.

In a nutshell, we believe that the Joint Statement and the Enhanced Application Time Frame will make the Hong Kong listing application process more transparent and efficient. In addition, they will provide greater certainty to listing applicants and various professional parties by giving clearer objectives to all parties involved in the listing project, which is conductive to a more comprehensive evaluation of listing in Hong Kong as a major business decision by all stakeholders. We look forward to the opportunities that the Enhanced Application Time Frame will bring to the industry and welcome companies interested in listing in Hong Kong to seek our professional guidance and advice.

[1] “New listing” has the meaning ascribed to it (but excluding any new listing of interests in a real estate investment trust or any reverse takeover of a listed issuer that is deemed a new listing under the Listing Rules) in Rule 1.01 of the Listing Rules.

CFPB Finalizes Section 1033 Rule on Personal Financial Data Rights

Thu, 31 Oct 2024 17:24:12 Z

On October 22, 2024, the Consumer Financial Protection Bureau (CFPB) released its long-awaited final rule implementing Section 1033 of the Consumer Financial Protection Act (CFPA) concerning personal financial data rights. The final rule largely tracks the CFPB’s October 2023 proposal, although the CFPB did make material changes, for example, with respect to the entities covered and the types of data that must be shared under the rule, as well as the deadlines for compliance with the final rule.

Mere hours after the CFPB issued the final rule, a group of industry participants filed a lawsuit challenging its validity, creating uncertainty with respect to both the rule’s scope and ultimate timeline for implementation.

Who is covered and what is required under the final rule?

The final rule governs the practices of data providers, third parties authorized to access consumer data and data aggregators.

Data providers subject to the rule

A “data provider” generally includes any “covered person” under the CFPA that controls or possesses information concerning a “covered consumer financial product or service,” which means one of the following:

Regulation E accounts.
Regulation Z credit cards.
The facilitation of payments from a Regulation E account or Regulation Z credit card, excluding products or services that merely facilitate first-party payments (transfers initiated by the payee or an agent acting on behalf of the underlying payee, including payments initiated by loan servicers).

Importantly, digital wallet providers are considered data providers subject to the rule, but institutions maintaining electronic benefit(s) transfer (EBT) accounts, for now, are not.

Data required to be provided

Under the final rule, data providers are obligated to provide consumers and authorized third parties with access to “covered data,” which includes:

Transaction information.
Account balances.
Information required to initiate a payment to or from an account subject to Regulation E, which can be provided as a tokenized account number (TAN).
Terms and conditions.
Upcoming bill information.
Other basic account verification information.

However, data providers are not required to provide access to:

Confidential commercial information, including algorithms that may be used to derive credit scores or other risk scores or predictors.
Information collected for the sole purpose of preventing fraud or money laundering or detecting or reporting other unlawful conduct.
Information required to be kept confidential by any other provision of law.
Information that it cannot retrieve in the ordinary course of its business.

Means through which data must be made available

Under the final rule, data providers are required to establish and maintain consumer and developer interfaces to facilitate consumer and third-party access to covered data in a standardized and machine-readable format.

In addition, developer interfaces must:

Meet specific performance standards.
Apply an information security program that satisfies the Gramm-Leach-Bliley Act (GLBA) or, if not subject to the GLBA, the Federal Trade Commission (FTC) Safeguards Rule.

Importantly, data providers cannot satisfy their developer interface obligations by merely allowing a third party to engage in “screen scraping,” an access method prevalent in the market that uses consumer credentials to log in to consumer accounts to retrieve data.

The final rule also prohibits data providers from interfering with access to consumer data, rendering shared data unusable, discouraging the consumer or an authorized third party from accessing covered data, and charging fees for consumers or authorized third parties to access covered data.

Third-party collection, use and retention of covered data

Under the final rule, in order to access a consumer’s covered data, a third party must:

Provide the consumer with a comprehensive authorization disclosure that:
- Certifies to the consumer (within the authorization disclosure) that the third party agrees to limit the collection, use and retention of covered data.
- Obtains the consumer’s “express informed consent” signed by the consumer electronically or in writing.
- Certifies that the entity will limit the duration of the collection of covered data to a maximum of one year.
Provide the consumer with a method to revoke their authorization that is as easy to access and operate as the initial authorization.

An authorized third party must obtain the authorization to collect data at least once every 12 months. Third parties that fail to obtain the consumer’s affirmative reauthorization are prohibited from continuing to collect the consumer’s covered data. However, authorized parties are permitted to continue to use covered data beyond one year and without reauthorization for:

Uses that are specifically required under other provisions of law.
Uses that are reasonably necessary to protect against or prevent actual or potential fraud, unauthorized transactions, claims, or other liability.
Servicing or processing the product or service that the consumer requested.
Uses that are reasonably necessary to improve the product or service that the consumer requested.

In addition to obtaining proper authorization, third parties seeking to access consumer data must:

Establish and maintain written policies and procedures reasonably designed to ensure that covered data is accurately received from a data provider and accurately provided to another party.
Apply an information security program to their collection, use, and retention of covered data, which satisfies the GLBA or, if the third party is not subject to the GLBA, the FTC’s Safeguards Rule.
Only collect, use and retain data as reasonably necessary to provide the consumer with the requested product or service.

With respect to the “reasonably necessary” standard, the CFPB is effectively prohibiting third parties from using covered data obtained from a data provider for targeted advertising, cross-selling products and services, or selling consumer data absent separate authorization from the consumer. In commentary accompanying the final rule, the CFPB also takes an expansive view of what constitutes the “sale” of data, aligning closely to the controversial definition of “sale” under the California Consumer Privacy Act, which defines data sales as “selling, renting, releasing, disclosing, disseminating, making available, transferring, or otherwise communicating personal information for monetary or other valuable consideration” (emphasis added).

Use of data aggregators

Authorized third parties may use a “data aggregator” to access covered data if:

The authorization disclosure, which, as referenced above, must be presented by a third party to the consumer to facilitate the third party’s access to covered data, identifies the data aggregator.
The data aggregator certifies to the consumer – either as part of the authorized third party’s disclosure or separately – that they agree to comply with the final rule’s data access conditions and restrictions.

The authorized third party, however, is ultimately responsible for compliance with the final rule’s authorization procedures.

Consensus standards

The final rule reflects that compliance with several of its requirements will be assessed using “consensus standards” established by “standard-setting” bodies that are formally recognized by the CFPB.

Together, this final rule and the industry standard-setting rule finalized in June 2024 identify the attributes that entities must have in order to receive CFPB recognition as a “standard-setting” body, as well as the steps entities must take to receive such recognition.

The CFPB has published two applications of organizations seeking recognition by the CFPB as a standard-setting body, but to date, no entity has been formally recognized as such.

What are the compliance deadlines?

The CFPB’s final rule establishes five compliance deadlines for data providers based on asset size, as outlined in the table below.

Compliance deadline	Asset size
April 1, 2026	For depository institutions that hold at least $250 billion in total assets and nondepository institutions that generated at least $10 billion in total receipts in either 2023 or 2024.
April 1, 2027	For depository institutions that hold at least $10 billion in total assets but less than $250 billion in total assets or nondepository institutions that did not generate $10 billion or more in total receipts in both 2023 and 2024.
April 1, 2028	For depository institutions that hold at least $3 billion in total assets but less than $10 billion in total assets.
April 1, 2029	For depository institutions that hold at least $1.5 billion in total assets but less than $3 billion in total assets.
April 1, 2030	For depository institutions that hold less than $1.5 billion in total assets but more than $850 million in total assets.

Depository institutions with less than the size standard set by the US Small Business Administration (SBA), presently $850 million in assets, are excluded from the aspects of the rule that require data providers to make covered data available by providing interfaces and responding to requests for consumer data. This is a notable departure from the proposed rule, which instead would have exempted entities if they did not have a consumer-facing interface.

What’s next?

Although the final rule is scheduled to take effect 60 days after publication in the Federal Register, the lawsuit challenging the rule under the Administrative Procedures Act makes its fate uncertain. The plaintiffs in that suit contend that in issuing the final rule, the CFPB:

Exceeded its authority by requiring banks to broadly provide their customers’ financial information to “authorized” third parties.
Designed the rule in a way that increases security risks to consumer information.
Inappropriately gave authority to third parties to set compliance standards.
Unreasonably prohibited data providers from charging reasonable access fees to third parties or data aggregators.
Incorporated unreasonable deadlines for compliance, in particular given that the third parties who will be responsible for setting compliance (or consensus) standards – and, thus, those compliance standards – have not yet been determined.

The final rule reflects the broader trend, globally and domestically, of requiring companies to provide individuals with increased control over their data, including through data portability. While this final rule represents a marker in the domestic move toward data portability, the pending litigation, the need to designate third parties to set compliance standards, and even the upcoming US election, leave open key implementation questions that will only be resolved with the passage of time.

Register now to join Cooley’s financial services and cyber/data/privacy teams on Thursday, November 7, 2024, at 1:00 pm EST for a one-hour webinar discussing the final rule and its potential impacts on your business.