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
2United States v. AT&TOhio v. American Express Co.
Welcome to the August 2018 edition of the Jenner & Block Report, a digest of updates about legal developments in the United States which are noteworthy to our valued clients and other leaders in the Japanese legal and business communities.
This edition's Featured Development focuses on the recent enactment of the California Consumer Privacy Act of 2018. The scope of the Act imposes several new requirements on California businesses that collect, use, or sell personal information. It is an important new law. The article discusses how businesses may be able to limit the burdens that the Act's new requirements will impose, as well as the need for them to establish internal policies and procedures for managing consumer requests and updating privacy policies and websites.
This report also includes analyses of two recent important antitrust-related cases, United States v. AT&T and Ohio v. American Express Co., both of which present significant market implications for those doing business in the United States.
Additional topics addressed are the Trump Administration's renewed focus on the United States' trade and investment relationship with Asia, a decision that would impact US Securities and Exchange Commission (SEC) enforcement and private securities fraud claims, and a ruling related to lost-profits damages in patent infringement cases, among other topics.
We hope that you find these summaries of interest and we thank you for taking the time to review the Jenner & Block Report.
Regards, The Jenner & Block Team
/ Featured Development
20186282018 202011 1
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Summary of the California Consumer Privacy Act
By Nancy C. Libin and Jonathan Alexander Langlinais
On June 28, 2018, California enacted the California Consumer Privacy Act of 2018 ("the Act"), which is scheduled to take effect on January 1, 2020 but is subject to amendment before then. The Act is expansive and more onerous than other federal or state laws that regulate online privacy. We therefore expect that there will be intense efforts over the next year and a half to amend the Act.
The scope of the Act is quite broad. It covers consumers who are located in California and generally applies to any business, wherever located, that meets one of the following criteria: (1) has annual gross revenues of more than $25,000,000, (2) trades in the personal information of 50,000 or more consumers, households, or devices, or (3) derives 50 percent or more of its annual revenues from selling personal information.
The Act's definition of "personal information" is more expansive than existing laws in a few notable respects. First, the definition includes unique identifiers and expressly covers IP addresses, cookies, beacons, pixel tags, and mobile ad identifiers. Second, the Act counts inferences drawn from a consumer's personal information as protected personal information.
I. Obligations for Businesses Under The Act
The Act grants several new privacy rights to consumers and imposes several new corresponding obligations on businesses. These obligations may be grouped into two main categories: (1) disclosure obligations, (2) opt-out obligations.
A. Disclosure Obligations
At or before the time of collection, businesses must inform consumers about the categories of information they will collect and the purposes for which they will use that information. The Act also requires businesses to make a number of disclosures in their online privacy policies and in any California-specific description of consumers' privacy rights.
B. Opt-Out Obligations
The Act gives consumers the right to request that businesses delete any personal information about a consumer that a business has collected from the consumer. This requirement applies only to information that the business has collected from the consumer. In addition, this requirement will not apply if the information is necessary to complete the transaction for which the information was collected or to provide a service, if retention is "reasonably anticipated within the context of a business's ongoing business relationship with the consumer," or if a business retains the information to "[o]therwise use the consumer's personal information, internally, in a lawful manner that is compatible with the context in which the consumer provided the information."
II. General Exemptions/Limitations
The Act applies to the collection, use, or sale of California consumers' personal information. However, the Act does not restrict:
The collection, use, or sale of de-identified information or aggregated consumer information. The collection or sale of personal information that takes place "wholly outside of California." A business's ability to comply with federal, state, or local laws; comply with investigations, subpoenas, or similar
proceedings; or cooperate with law enforcement.
A business that intentionally violates the Act will be liable for a civil penalty of up to $7,500 for each violation, though businesses must receive 30 days to cure any alleged violations. Under certain circumstances, a consumer whose personal information is compromised as a result of a business's failure to use reasonable security measures can sue for damages between $100 and $750 per incident or actual damages, whichever is greater.
Businesses generally are not liable for violations committed by service providers or vendors to whom they disclose personal information for business purposes, unless the business "has actual knowledge, or reason to believe, that the [service provider] intends to commit such a violation." This shield applies only if the business's contract with the service provider or vendor prohibits the service provider from selling the personal information or using it for purposes other than the business purpose for which it was disclosed.
The California Consumer Privacy Act of 2018 imposes several new requirements on California businesses that collect, use, or sell personal information. Businesses may be able to limit the burdens these requirements impose, depending on how it collects and uses personal information. However, the Act will require businesses to establish internal policies and procedures for managing consumer requests and update their privacy policies and websites to inform consumers about their rights. Moreover, many of these requirements are vaguely worded, and the California legislature has left the Attorney General a considerable amount of leeway to interpret and implement the Act's requirements.
Ohio v. American Express
Ohio v. American Express Co.2
AMEXVISA DOJ AMEXAMEX
2 AMEXAMEX 1 DOJAMEX AMEX
The Supreme Court's Decision in Ohio v. American Express
By Richard L. Stone and Thomas E. Quinn
In Ohio v. American Express Co., the US Supreme Court recently held that courts considering antitrust claims against companies operating two-sided transaction platforms must consider the economic consequences on both sides of the platform when defining the relevant market and assessing any impact on competition. The Court also clarified the high bar that plaintiffs and US antitrust enforcers must clear when challenging vertical restraints, such as distribution agreements.
The case began when the Department of Justice filed a lawsuit against Amex, Visa, and MasterCard, alleging that the card companies' non-discrimination provisions reduced competition by increasing merchant fees. The non-discrimination provisions, which the Supreme Court referred to "anti-steering provisions," discouraged merchants from "steering" customers to competitors' credit card networks by prohibiting merchants from offering customers discounts or incentives to
use credit cards with lower merchant fees. Amex responded that its rules were procompetitive because merchant fees helped fund premium card benefits, which Amex used to compete for cardholders on the other side of its business.
The Supreme Court held in favor of Amex. Invoking a substantial body of economic literature, the Court focused on the economic relationship between the components of two-sided platforms. Amex's credit cards, for example, are more valuable to holders when more merchants accept them, and more valuable to merchants when more holders use them. Because of that close economic relationship, the Court determined that both sides must be considered a single product market. The Court ruled for Amex because the DOJ had focused only on merchant fees and did not offer any evidence that Amex's rules harmed competition in the market as a whole--including competition among companies for cardholders.
The broadest impact of the Court's decision in Amex may be one unrelated to multi-sided platforms, but critical to any company that operates with vertical agreements between distributors or suppliers. The Court clarified that plaintiffs and US antitrust enforcers must prove the existence of a relevant market, rather than relying on price effects, when challenging vertical agreements or vertical mergers. Establishing a relevant market is often complex and, as demonstrated in Amex, outcome determinative.
The implications for market definition overall are less clear. Future courts analyzing market definition in "two-sided transaction markets"--such as ride sharing, e-commerce, or ticket exchanges--will likely consider both sides of the platforms. The analysis for two-sided platforms that are not "transaction markets" is less clear. The Supreme Court's heavy reliance on economic theory, however, suggests the Court's direction for analyzing market definition could extend to platform markets with distinct "indirect network effects," meaning the value of a platform to one side depends on the volume of participants on the other.
United States v. AT&T
AT&TDOJ612 DC TVMVPDDISHSlingTVDirectTV Now MVPDMVPD AT&TAT&T DOJ DOJMVPD
200411 299100 iTunes 20053FTC 5
AT&T AT&T AT&TDOJ
An Important Takeaway from United States v. AT&T
By Lee K. Van Voorhis and Nathaniel K.S. Wackman
On June 12, a federal district court judge in Washington, D.C., rejected the US Department of Justice's (DOJ) attempt to block the now-completed merger between AT&T and Time Warner. In ruling for AT&T, the judge was particularly persuaded by AT&T's argument that the market for video distribution was being fundamentally changed by "cord cutting" (discontinuing multichannel video programming distribution (MVPD) services from either a traditional distributor (e.g., cable or satellite TV services) or a virtual MVPD (e.g., DISH's SlingTV or DirectTV Now)) and "cord shaving" (switching to a virtual MVPD service). The judge found that DOJ underestimated the effect of cord cutting and shaving when it modeled the net consumer harm from the merger. This led DOJ to overestimate the number of people who would sign up for MVPD services from the new merged company as opposed to cutting or shaving the cord.
This case is certainly not the first time that the Government has decided to intervene (or not intervene) at the inflection point of revolutionary change coming to a market. A few historical examples illustrate that the Government has come to different conclusions on this decision:
Blockbuster-Hollywood Video: In November 2004, the largest video rental company in America, Blockbuster Video, announced that it would try to acquire the second-largest video rental company in America, Hollywood Video, for $991 million. Blockbuster argued that the merger was key to competing in the changing marketplace, citing competition from Netflix and download platforms such as iTunes. Months later, in March 2005, Blockbuster dropped its bid after the Federal Trade Commission planned to sue to enjoin the acquisition. Just five years later, Blockbuster filed for bankruptcy protection, citing competition from "rivals providing online and mail-based services."
Sirius-XM: In February 2007, the two largest satellite radio companies, Sirius and XM, announced plans to merge. DOJ approved the merger--in the face of opposition from consumer groups, broadcasters, and members of Congress--based on its judgment that the satellite radio market had arrived at an inflection point where robust competition from myriad sources, including iPods and internet radio, would prevent prices from rising post-merger.
This history--and the AT&T case--underline how important it is for merger advocates to aggressively describe the revolutionary market changes that often prompt these large mergers. At the very least, as in the AT&T case, they may one day be heard by a sympathetic judicial audience. As for the AT&T case, DOJ has appealed the judge's ruling. Jenner & Block will continue to monitor the case and provide any updates.
/ Firm News
Jenner & Block Releases Mid-Year Update to the 2018 Business Guide to AntiCorruption Laws
Jenner & Block recently published its Mid-Year Update to the 2018 Business Guide to Anti-Corruption Laws. This important Update analyzes the new enforcement matters and other key anti-corruption developments in the first six months of 2018, including, among other topics:
2018 First-Half FCPA Enforcement Activity: Anti-corruption enforcement continued in the first half of 2018 as it left off in the end of 2017, with several significant corporate resolutions, including the first declination under the US Department of Justice (DOJ) 2018 FCPA Corporate Enforcement Policy;
New DOJ Enforcement Guidance: DOJ announced its policy to avoid "piling on" of fines by multiple agencies for the same misconduct, and indicated that the FCPA enforcement policy could be used as guidance for certain cases outside the FCPA context; and
Enforcement of the UK Bribery Act (UKBA): The UK's Serious Fraud Office announced new UKBA investigations and hired a new, US-trained director who will likely continue to aggressively pursue foreign corruption. Meanwhile, the English High Court reinforced prior cases that held that companies could not rely on privilege to stop the production internal investigation materials.
The Update breaks down the first half of the year's corporate FCPA resolutions, with monetary sanctions totaling more than $679 million, including amounts paid to foreign authorities.
Click here for an electronic version of the Guide (in English). To request a complimentary hard copy, please contact Miwa Shoda.
The American Lawyer Names Jenner & Block to 2018 A-List
The American Lawyer has again named Jenner & Block to its A-List, which recognizes the 20 top-performing law firms in the United States based on a combination of financial and cultural factors. This is the seventh time the firm has appeared on the A-List since its debut in 2003 as a way to highlight "the most well-rounded firms the best of the best" in the United States.
/ International Arbitration
201865 SB 766
New Law Makes California Desirable Venue for International Arbitrations
By Brian Adesman
On July 20, 2018, California Governor Jerry Brown signed SB 766 into law, which permits out-of-state and non-US lawyers to participate in international arbitrations in California. This new law allows any "qualified attorney" to represent clients in an international arbitration in California, so long as the services rendered by the attorney have a sufficient nexus to the attorney's home jurisdiction, or if the attorney is associated with a California lawyer.
While California has been a geographically convenient location to resolve disputes throughout the Pacific Rim, California was widely disfavored by practitioners because state law forbid foreign attorneys from participating in international arbitrations without hiring local counsel. As a result, California was rarely chosen as an arbitration venue in international agreements. SB 766 law will come into effect January 1, 2019.
/ International Investment
TPP2 FTAKORUS KORUS9
TPP KORUSTPP 4TPP
Trump Administration Looks Again at Asia Pacific Investment Protection
By Patrick W. Pearsall
The Trump Administration is looking again at the United States trade and investment relationship with Asia, almost two years after it withdrew the United States from the Trans-Pacific Partnership. In particular, President Trump signaled a desire to revise and keep in place the US - Korea FTA ("KORUS") despite his critique of the deal in the past. Representatives of both countries have reportedly conducted a number of negotiations to discuss the new terms of the agreement. The Korean Trade Ministry said that the text of the new KORUS will be finalized this September.
So what does this renewed and constructive focus on the Asia-Pacific mean for Japan? As an initial matter, these developments may be a good sign for a return of the United States to the TPP. The revised text of KORUS, if acceptable to the remaining TPP parties, may provide a template for Asian Pacific economies to entice the United States back into a more comprehensive and beneficial agreement particularly in light of the recent trade war with China. Just this past April, President Trump stated that the administration is ready to look at the TPP again, with a caveat that the instrument would be substantially improved. Unclear what so-called "improvements" the United States may seek.
Turning to Japan specifically, the Trump Administration has suggested that it wants an FTA with Japan to harmonies trade relationships between the two countries, but Japan generally prefers to avoid bilateral agreements. Regardless, Japan has signaled that it wants to greatly increase its outward investment protection through an expended treaty-based regime similar to the recent efforts by China.
While there is no investment agreement between the United States and Japan, which would allow Japanese investors to directly protect their investments within the United States, several Japanese investors have made thoughtful decisions on how to structure their investments in a way that takes advantage of treaty protection. Moreover, Japanese investors are becoming increasingly sophisticated on how to structure investments to take advantage of the multiple treaties that exists for the protection of their foreign capital. We expect this trend to continue and grow in the year ahead.
: / Patent Law: Recent Trends
2018622WesternGeco, LLC v. ION Geophysical Corp. 271(f)(2)
271(f)(2)Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972)
10 12509340 271(a) 271(f)
2 2 271(f)(2)
Supreme Court Allows Lost-Profits Damages for Infringement Outside the United States
By Nick G. Saros
On June 22, 2018, the US Supreme Court held in WesternGeco, LLC v. ION Geophysical Corp. that US patent-holders may recover lost-profits damages for infringement occurring outside the United States under 35 U.S.C. 271(f)(2)--rejecting a bright-line rule precluding lost profits damages for foreign conduct.
Section 271(f)(2) imposes liability for suppliers of components that are "especially made or especially adapted" for use in a patented invention that will be combined outside of the United States. Congress enacted Section 271(f) in response to Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972) where the US Supreme Court held that exporting components for assembly abroad was not an act of patent infringement.
At trial, WesternGeco proved that it had lost ten survey contracts outside the United States due to ION's infringement after ION sold a competing ocean floor surveillance system assembled abroad. The jury awarded $12.5 million in royalties and $93.4 million in lost profits. On appeal, the Federal Circuit vacated the lost-profits award as an improper extraterritorial application of the Patent Act. The court reasoned that because it had previously held that Section 271(a), which covers infringements within the United States, does not allow for lost-profits damages from foreign sales, Section 271(f) should be interpreted the same way.
The Supreme Court reversed, invoking a two-step framework for determining when a statute may be applied extraterritorially. It resolved the case using step two, which asks whether the conduct relevant to the statutory focus in the case is domestic. The Court found that Section 271(f)(2) focused on domestic conduct, specifically, "the domestic act of `suppl[ying] in or from the United States.'" Therefore, it reasoned, patentees who prove infringement under 271(f)(2) are entitled to lost foreign profits under Section 284, which authorizes damages "adequate to compensate for infringement."
Although lost-profits damages based on foreign conduct will likely remain relatively rare under the current case law, WesternGeco resolves an important question on the scope of damage recovery for patent-infringing exports, and some believe may open the door for further arguments to expand the remedies available to US patent holders for foreign conduct.
/ White Collar Defense & Investigation
Lorenzo v. SEC, 17-1077SEC
SEC Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011)
SEC 10b-5(b) SEC10b-5(a)(c)
SEC Lorenzo v. SEC
US Supreme Court to Review Ruling on SEC's Ability to Recast Misstatement Claims as Fraudulent Scheme Claims in Lorenzo v. SEC, 17-1077
By Brandon D. Fox and Eugene Lim
Last month, the US Supreme Court agreed to review a decision that could considerably impact SEC enforcement and private securities fraud claims. As a result, the Court will consider whether someone who merely passes on a false statement made by another person can be liable for participating in a fraudulent scheme. The Supreme Court previously ruled that such a person is not liable for making false statements in Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011).
The case involves Francis Lorenzo, an investment banker at Charles Vista, LLC. In 2013, the SEC claimed Lorenzo committed fraud for forwarding two emails at his boss's direction to two potential investors. The emails allegedly misrepresented the financial health of Waste2Energy Holdings, Inc. by, among other misstatements, failing to mention the company's recent drastic devaluation.
An appellate court held that Lorenzo had not violated SEC Rule 10b-5(b), which covers liability for false statements, because Lorenzo's boss was the "maker" of the untrue statements. But the appellate court ruled that Lorenzo still violated SEC Rules 10b-5(a) and (c), which cover liability for willful engagement in a fraudulent scheme, because Lorenzo knew the emails were false or misleading when he forwarded them to potential investors.
A ruling in favor of the SEC would grant it broad powers against individuals who are acting at the direction of their supervisors. Such a ruling could also have a tremendous impact on individuals' exposure to securities actions brought by private plaintiffs.
A ruling in favor of Lorenzo would reduce the ability of the SEC and private actors to bring claims against individuals who merely pass on false information. The Court is expected to hear arguments for Lorenzo v. SEC later next term, which begins this fall.
 See California Consumer Privacy Act 1798.140(c).
 See California Consumer Privacy Act 1798.140(o)(1), (x).
 See id. 1798.100(b).
 See 1798.130(a)(5).
 Id. 1798.105(a).
 See id. 1798.105(d)(1).
 Id. 1798.105(d)(9).  See id. 1798.120(a).  See id. 1798.135(a)(1).  See id. 1798.140(h).  Id. 1798.145(a)(6).  See id. 1798.145(a)(1)-(3).  Id. 1798.155(a)-(b).  See id. 1798.150(a).  Id. 1798.130(w)(2)(B).  See id. 1798.130(w)(2).  https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-fulfilling-promise-u-s-korea-free-tradeagreement-national-security/  https://insidetrade.com/daily-news/korus-deal-expected-be-finalized-september-technical-discussions-continue  https://www.nytimes.com/2018/07/05/business/china-us-trade-war-trump-tariffs.html  https://www.reuters.com/article/us-usa-trade-china-tpp-explainer/trump-says-u-s-could-rejoin-tpp-if-deal-improvedhow-hard-would-it-be-idUSKBN1HN0TW  Id.  https://www.reuters.com/article/us-usa-trade-japan/japan-finance-minister-aso-says-must-avoid-bilateral-fta-with-u-sidUSKBN1H604W?il=0
Terrence J. Truax Managing Partner [email protected]
Brent Caslin Partner [email protected]
Miwa Shoda Special Counsel [email protected]
Donald E. Batterson Partner [email protected]
Louis E. Fogel Partner [email protected]
Brandon D. Fox Partner [email protected]
Gabriel A. Fuentes Partner [email protected]
Brian Adesman Brandon D. Fox Jonathan Alexander Langlinais Nancy C. Libin Eugene Lim Patrick W. Pearsall Thomas E. Quinn Nick G. Saros Richard L. Stone Lee K. Van Voorhis Nathaniel K.S. Wackman
Brian Adesman Associate [email protected] Amy Inagaki Associate [email protected] 2018 Jenner & Block LLP. Attorney Advertising. Jenner & Block is an Illinois Limited Liability Partnership including 2018 Jenner & Block LLP. Attorney Advertising. Jenner & Block is an Illinois Limited Liability Partnership including professional corporations. This publication is not intended to provide legal advice but to provide information on legal matters and firm news of interest to our clients and colleagues. Readers should seek specific legal advice before taking any action with respect to matters mentioned in this publication. The attorney responsible for this publication is Brent E. Kidwell, Jenner & Block LLP, 353 N. Clark Street, Chicago, IL 60654-3456. Prior results do not guarantee a similar outcome.