The Jenner & Block Report
Updates on US Law for the Japanese Legal and Business Communities
: Patent Law: Recent Trends
White Collar Defense & Investigation
/ Editors' Note
2017 FCA 2016 Escobar FCPA
Welcome to our first 2018 edition of the Jenner & Block Report, a digest of updates about legal developments in the United States that we believe are noteworthy to our valued clients and other leaders in the Japanese legal and business communities.
This month's Featured Development article focuses on the steady levels of False Claims Act enforcement and recovery in 2017, as well as the evolving legal atmosphere for bringing certain FCA claims following the Supreme Court's landmark
Escobar decision in 2016. We also discuss a variety of recent developments in Foreign Corrupt Practices Act (FCPA) enforcement and activity. Other highlights focus on US international trade policy (including economic sanctions), the US Department of Justice's efforts to combat cyber theft and a recent decision bearing implications for patent infringement liability.
We hope that you find these summaries of interest and we thank you for taking the time to read the Jenner & Block Report.
Regards, The Jenner & Block Team
/ Featured Development
12 DOJ FCA 2017 201610120179 30 2017 2016 Escobar FCA
DOJ 2017 FCA 37 DOJ 2017 9 14500 15500 qui tam
DOJ10 DOJ 2017 125FCA 2017674FCA FCA FCA 544 47 FCA FCA DOJ
FCA 20166 Health Services, Inc. v. United States ex rel. Escobar Escobar FCA
1 Escobar FCA
False Claims Act Enforcement Actions, Total Recovery Steady in 2017
By Paul B. Rietema and Matt D. Basil
In December, the Civil Division of the Department of Justice (DOJ) released statistics on its recoveries and enforcement activities under the False Claims Act (FCA or the Act) for fiscal year 2017 (October 1, 2016 September 30, 2017). The report shows steady levels of enforcement and recovery in 2017, continuing multi-year highs in government and private activity under this critical statute. These results came among a still-evolving legal atmosphere for bringing certain FCA claims following the Supreme Court's landmark Escobar decision in 2016.
Steady Highs in Enforcement and Recovery
The DOJ recovered more than $3.7 billion in settlements and judgments in FCA cases in 2017. As in prior years, the large majority of the department's recoveries continued to come from qui tam actions (i.e., actions initiated by a private-party relator on behalf of the government) in the health care space, including major recoveries in 2017 against drug and medical device makers ($900 million), nursing facilities ($145 million) and health care records providers ($155 million).
New enforcement activities by the DOJ and independent relators also remained near ten-year highs. The department initiated 125 new FCA matters in 2017; relators initiated another 674. In the last 30 years, more new matters were initiated under the Act in only three other years (2013, 2014, and 2016). 544 of the new FCA matters related to health care spending and 47 related to defense spending. Companies in the health care industry, in particular, and the defense, housing and financial industries should expect another year of robust FCA enforcement activity. Defendants facing FCA actions should also expect a year of increased emphasis on recoveries from culpable individuals, consistent with the wider DOJ focus on individual accountability.
Evolving Legal Standards
The Supreme Court's last major FCA decision was issued in June 2016. That decision, Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), addressed the "implied false certification" theory of FCA liability that had previously divided circuit courts.
Over the last year and a half, lower courts across the country have worked to apply the "familiar and rigorous" materiality standard articulated in the Escobar decision. Although open questions remain, the results have been generally, but not universally, favorable for defendants, with courts willing to critically consider the importance of the statutory, regulatory or contractual requirement that allegedly was not followed, and dismiss cases that do not allege facts or develop evidence showing an impact on the government's payment decisions. Courts will continue to weigh in on and refine this important area of FCA jurisprudence over the coming year.
: / Patent Law: Recent Trends
20158Akamai v. LimelightAkamai V Travel Sentry v. TroppTravel Sentry Akamai V
Akamai V (1) (2)
Travel Sentry TSA
Travel Sentry TSA Travel SentryTSA TSA TSA TSATravel Sentry
Akamai V 1 TSA Travel SentryTSA Travel SentryTSA TSA
2 Akamai V
Federal Circuit Finds Issues of Fact on Divided Infringement Defense
Patent infringement liability from multiple parties performing steps of a method claim was an evolving puzzle until the Federal Circuit's August 2015 decision in Akamai v. Limelight ("Akamai V"). But the Court's recent decision in Travel Sentry v. Tropp may have made it more difficult for defendants to obtain summary judgment of noninfringement under the Akamai V divided infringement test.
In Akamai V, the Federal Circuit held a party may be responsible for infringement due to another's activities when (1) that entity directs or controls the other's performance; and (2) when the actors form a joint enterprise. The Court determined this test may be satisfied when the other party receives a benefit upon performance of the method step, and the party establishes the timing or manner of that performance.
Travel Sentry focused on divided infringement of a patent claiming a method for use of a luggage lock that includes both a combination for the owner, and a master key for TSA agents inspecting bags at the airport. The claimed steps require actions by both Travel Sentry (providing the lock) and the TSA (using a master key to open the lock). While Travel Sentry had a Memorandum of Understanding ("MOU") with the TSA regarding its locks, the MOU provided no obligation to the TSA, no liability for the TSA for damaged locks, and no consequences for the failure to comply with the MOU. The district court granted summary judgment of no infringement finding no evidence that "Travel Sentry had any influence whatsoever" on the steps performed by the TSA.
Applying Akamai V, The Federal Circuit disagreed and found material facts precluded summary judgment. The Court first found that the TSA's "benefit" may be the ability to open luggage without breaking the lock, and then found that Travel Sentry "conditions" the benefits to the TSA on the TSA's performance of the method steps. The Court also found a reasonable jury could find Travel Sentry established the manner or timing of the TSA's actions because Travel Sentry provided the master keys and how to identify the Travel Sentry locks.
Whether intended or not, the Federal Circuit's opinion may allow plaintiffs to more easily defeat summary judgment on divided infringement issues. Indeed, the Federal Circuit analyzed the facts in a manner creating factual issues, and appears to have broadened when two or more actors may be found to form the required "joint enterprise." Patentees will surely follow the Federal Circuit's opinion and raise similar factual issues to challenge summary judgment in future disputes
/ Trade Secrets
201710 J DOJ DOJ 8 10
DOJ FBI 2009 43 201683
2017524 DOJ 7 DOJ 1
201711 DOJ 3
9 3 5
Trade Secret & Computer Fraud Claims Persist
In October 2017, Deputy Attorney General Rod J. Rosenstein delivered remarks at the Cambridge Cyber Summit, addressing the DOJ's efforts to combat cyber theft. In his talk, Mr. Rosenstein mentioned a recent DOJ prosecution involving China and a theft of wind turbine technology. The theft allegedly caused $800 million in losses -- ten times the largest bank robbery in history, he noted.
The Department of Justice has also reported growth in its FBI Economic Espionage Unit along with the percentage of indictments involving foreign nationals and firms. In 2009, cases involving a defendant providing stolen secrets to a foreign entity comprised 43% of trade secret cases. By 2016, that number jumped to 83%. A majority of cases has involved parties from China.
On May 24, 2017, the DOJ announced charges against seven defendants for conspiring to steal trade secrets relating to the manufacturing of marine technology from a leading engineering firm. The DOJ alleges one of the defendants, a Chinese manufacturer, incorporated a company in the US and enticed local engineers to divulge trade secrets, offering cash bonuses and high paying positions.
In November 2017, the DOJ indicted three Chinese individuals for hacking several corporations for commercial advantage. The defendants allegedly sent companies e-mails with malicious attachments or links to malware. Simply opening an attachment or clicking a link granted persistent, unauthorized access to the recipient's computer.
Soon after President Trump executed a memo on August 14, 2017 enquiring whether to investigate China's alleged IP theft under Section 301 of the Trade Act of 1974, China announced a campaign to crack down on trade secret violations and other IP rights. Currently, Chinese law mandates most companies doing business in China to form joint ventures with Chinese firms, resulting in the sharing of sensitive information with local firms. Misappropriation has been common. The US can impose tariffs and other restrictions if they do decide to conduct a formal investigation.
Cases have also included US citizens selling secrets to foreign governments. In September, a Los Angeles engineer was sentenced to a five-year prison term for misappropriating his employer's satellite technology and selling it to someone he believed was a Russian agent.
/ White Collar Defense & Investigation
20171024 Statoil Gulf Services LLC SOX Lamont v. Statoil Gulf Servs. LLC, No. 4:17-3219 (S.D. Tex. Oct. 24, 2017) 1 15 Occupational Safety and Health Act
Sox Retaliation Complaint Filed By Former Accounting Employee Against Statoil
On October 24, 2017, a former accountant at Statoil Gulf Services LLC filed a complaint against the company in federal court, alleging that she was fired in violation of Sarbanes-Oxley after repeatedly raising inconsistencies in Statoil's financial statements to her superiors. See Plaintiff's Original Complaint, Lamont v. Statoil Gulf Servs. LLC, No. 4:17-3219 (S.D. Tex. Oct. 24, 2017). Statoil informed the accountant that she was being terminated for "bad behavior" and lack of alignment with company values after working as a joint-venture employee for approximately 15 months, but the accountant claims those rationales were pretextual. The accountant details several examples of the conduct that she alleges led to her firing, including asking in-house counsel a question during an employee training about what the accountant believed was an illegal method of calculating and paying royalties, and raising concerns with Statoil's auditors while they were conducting a departmental training. In a statement, Statoil called the accountant's claims "baseless." The accountant said she had also filed an OSHA complaint on the same subject matter.
20171129 DOJ FCPA 2 2 200 40 50
DOJ (1) (2)
DOJ Charges Two In Plot To Bribe African Officials To Benefit Chinese Oil And Gas Company
On November 20, 2017, the Department of Justice, with the US Attorney's Office for the Southern District of New York ("SDNY"), announced criminal charges for FCPA violations against the head of a non-governmental organization based in Hong Kong and Virginia and the former Foreign Minister of Senegal. The criminal complaint alleges the two individuals participated in a multimillion-dollar scheme to bribe "the highest levels of government" in Chad and Uganda in order to obtain business advantages for a Chinese oil and gas company. Some of the alleged bribes were disguised as charitable contributions.
According to the allegations in the complaint, the defendants engaged in two bribery schemes to pay high-level officials of Chad and Uganda in exchange for business advantages for the Shanghai-based energy conglomerate. They allegedly facilitated a $2 million bribe in exchange for valuable oil rights from the Chadian government. The complaint alleges that the former Foreign Minister of Senegal "played an instrumental role in the scheme" by, among other things, conveying the bribe offer to the President of Chad, for which he received $400,000 "via wires transmitted through New York." The complaint also alleges a $500,000 bribe was paid, via wires transmitted through New York, to an account designated by the Minister of Foreign Affairs of Uganda, who had recently completed his term as the President of the UN General Assembly.
The Department's announcement emphasized two facts that may have piqued the SDNY's interest in the case and provided an important jurisdictional hook: (1) the defendants used the US banking system to pay the alleged bribes, and (2) they had discussions in the halls of the United Nations in New York in furtherance of the alleged scheme. As the Department put it, the defendants "didn't realize that using the US banking system would be their undoing."
SEC Charles Cain FCPA
Kara Brockmeyer SEC
Telia Company ABFCPA
SEC Names New Head Of FCPA Unit
The SEC announced that it has installed Charles Cain at its new Chief of the Enforcement Division's FCPA Unit. Cain acted as the Unit's Acting Chief since April 2017, when the former Chief, Kara Brockmeyer, left the SEC for the private sector. After joining the SEC as a Senior Counsel in 1999, Cain served as a Deputy Chief of the FCPA Unit before coauthoring the SEC/DOJ Resource Guide to the US Foreign Corrupt Practices Act. The guide outlines the FCPA in detail and examines the SEC and DOJ approach to FCPA enforcement. Cain also served in lead roles in various FCPA investigations, including those that resulted in charges against Dutch telecommunications provider VimpelCom Ltd. in 2016 and against Sweden-based telecommunications provider Telia Company AB earlier this year.
20171129 DOJ FCPA FC PA FCPA20164 FCPA FCPA FCPA DOJ FCPA FCPA DOJ DOJ
DOJ Formalizes FCPA Enforcement Policy
On November 29, 2017, the Department of Justice (DOJ) announced a new Foreign Corrupt Practices Act (FCPA) enforcement policy that formally adopts the enforcement principles outlined in the Fraud Section's "Foreign Corrupt Practices Act Enforcement Plan and Guidance," commonly referred to as the "FCPA pilot program," issued by then-Fraud Section chief Andrew Weissmann in April 2016. The original FCPA pilot program sought to encourage corporations to voluntarily disclose FCPA violations by promising that if they did so, they would face a more lenient resolution, possibly including a complete declination of prosecution, as long as they also fully cooperated with DOJ, remediated their controls and compliance programs, and disgorged any illicit profits resulting from the violation. The new policy, which will be inserted into the US Attorney's Manual as official DOJ policy, draws its structure and much of its language from the pilot program, continuing to provide the promise of beneficial treatment for companies meeting the requirements.
For additional analysis of the new policy, please see the linked Client Alert from Jenner's Investigations, Compliance and Defense practice group: DOJ Formalizes FCPA Enforcement Policy Reinforcing Incentives for Disclosure and Cooperation Under the FCPA Pilot Program and Creating a "Presumption" in Favor of a Declination of Prosecution for Companies that Voluntarily Disclose Misconduct, authored by David Bitkower, Gayle Littleton, Nicholas Barnaby, Keisha Stanford and Natalie Orpett.
2017 DOJ FCPA 7 201711 2 FCPA5
1. FCPADOJ DOJ
2. DOJ DOJ
3. FCPA DOJ United States v. Allen2 DOJ 2
4. FCPA FCPA 2017 DOJ
Key Lessons from Seven Recent FCPA Plea Agreements and Indictments
In the fall of 2017, the Department of Justice (DOJ) announced charges and guilty pleas involving seven individuals relating to violations of the Foreign Corrupt Practices Act's (FCPA) anti-bribery provisions. In November 2017, two former oil services executives pled guilty to charges connected with bribery schemes involving officials of the Brazilian state-owned oil company. Additionally, court documents were unsealed revealing charges against five individuals for allegedly violating the FCPA by paying bribes to foreign officials on behalf of Rolls-Royce. Here are four key lessons from these charges:
1. The DOJ's rhetoric about focusing on individuals in FCPA cases is on point. The DOJ believes that pursuing individual prosecutions is essential to deter corporate crime, and the DOJ will continue to prioritize such cases. Companies facing criminal investigations should bear in mind that prosecutors will still likely view individual accountability as a touchstone for a successful resolution of a corporate investigation.
2. DOJ enforcement activity often remains ongoing even when it is not publicly visible. This is especially the case where criminal charges are used as a means of developing potential witnesses against more senior defendants down the line. Companies should be aware that even where there are few outward signs of investigation, below the surface the DOJ may be continuing to pursue traditional investigative efforts to bring FCPA charges.
3. International cooperation remains an important source of evidence in making FCPA cases. DOJ officials emphasize the importance of cooperation with foreign authorities in investigating and prosecuting foreign bribery cases. But a recent Second Circuit Court of Appeals decision in United States v. Allen casts some doubt on the ability of US authorities to rely on a defendant's testimony that was compelled under foreign law. The DOJ's announcements do not diminish the importance of the Second Circuit's holding, but do indicate that cross-border information sharing has continued. The Rolls-Royce cases relied in part on information gathered by foreign law enforcement agencies.
4. Counting cases leaves an incomplete picture of enforcement trends. FCPA and other complex criminal cases often have long gestation periods, making the use of resolution-counting a problematic way to compare the vigorousness of FCPA enforcement across administrations. Cases brought in 2017 often reflect substantial work done in past years. Rather than relying solely on the number of cases brought or resolved, it can often be more informative to add a focus on qualitative factors, such as how enforcement actions fit into DOJ's articulated policies and priorities, or compare with past enforcement precedent.
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