The American legal system struggles with the conflicting values of competition and intellectual property protection. Antitrust laws promote competition among businesses, while patent laws protect the exclusivity of one’s intellectual property. Problems develop when attempts to foster competition violate patents, which give the patent holder exclusive rights to his or her invention—a monopoly for a limited period of time. Read More
Over the past eight years, manufacturers have been forced to contend with a series of burdensome and damaging regulations, from unwise union rules, to counterproductive worker safety policies, to reckless environmental plans. The National Association of Manufacturers’ (NAM) Manufacturers’ Center for Legal Action (MCLA) has fought back in court, using our expertise and the power of our legal community to stop harmful actions and make important progress. And today, it’s clear that we’re not only succeeding but also inspiring others in Washington to take up the charge.
Last week, the Trump administration released its Unified Agenda of Regulatory and Deregulatory Actions, which provided an up-to-date forecast on the work that administrative agencies are doing to reform regulations across the government. The news was encouraging for manufacturers. On a variety of fronts, the administration is marching in lockstep with the NAM’s advocacy efforts. And at three agencies in particular—the Department of Labor (DOL), the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA)—the Trump administration is tackling issues that the MCLA has long been working to address in court.
At the DOL, we’re seeing increased efforts to enact smart, commonsense reform along the lines we’ve advocated. Leadership is expected to review issues around the “persuader” rule, which required employers to report to the DOL anytime they consulted with labor relations experts on union-organization efforts—a clear violation of manufacturers’ constitutional rights and the subject of the NAM’s successful litigation in Associated Builders & Contractors v. Perez. We expect the DOL to publish a Request for Information about the expensive and problematic “overtime” rule, which the NAM challenged and stopped in Plano Chamber of Commerce v. Perez—a case that the DOL examined before deciding to take action. In both cases, the administration is building on the MCLA’s efforts in court.
We’re also hearing promising news from OSHA. In the coming days, the agency will issue a proposal to reconsider, revise or remove provisions of the “injury and illness rule”—a rule that harms workplace safety by restricting employer safety incentive programs and drug testing programs. OSHA will also be addressing beryllium exposure standards that apply to construction and shipyard operations in a move that we hope will pave the way for similar work on fair beryllium regulations for manufacturing. And while the OSHA agenda doesn’t address the new “silica” rule, which halves the permissible exposure limit and mandates costly engineering controls, we’re optimistic that OSHA will consider reasonable modifications to the current silica standard. Addressing these issues, which the NAM has litigated in Texo ABC/AGC, Inc. v. Perez, Airborne v. OSHA and North America’s Bldg. Trades Unions v. OSHA, will make workers safer, processes more efficient and manufacturers better able to succeed and thrive.
Finally, the EPA is making significant strides in rolling back harmful regulations and streamlining unruly processes. The EPA, along with the Department of Defense, intends to review and rescind or replace the “Waters of the United States” rule, wading through issues that the NAM has litigated in American Farm Bureau Federation v. EPA, Murray Energy Corp. v. EPA and NAM v. U.S. Dep’t of Defense. The EPA has also proposed to withdraw the Clean Power Plan—a set of regulations that the NAM challenged in West Virginia v. EPA—and to address implementation requirements for the 2015 National Ambient Air Quality Standard for ozone, which the NAM argued in Murray Energy Corp. v. EPA would be difficult and expensive for manufacturers.
The Ongoing Fight
These are important strides forward. At the NAM, we’re excited about the progress we’ve made, and we’re pleased to have partners in the Trump administration who are dedicated to our priorities. But we’re not about to get complacent or rest on our laurels. It will be up to manufacturers and the MCLA to defend the progress we’re making when outside organizations and interest groups try to stand in our way by launching litigation of their own. We must be ready—and well-funded—for that fight. We intend to redouble our efforts in court—to protect your interests, to advance your priorities and to stand up for manufacturers across America.
The 2nd Circuit Court of Appeals has interpreted securities laws as requiring disclosure of information about uncertain future conditions, which potentially subjects many public companies, particularly manufacturers, to increasing and unwarranted civil suits. Because of these concerns, the National Association of Manufacturers (NAM) filed an amicus brief in November 2016, asking the U.S. Supreme Court to review the 2nd Circuit’s decision in Leidos, Inc. v. Indiana Public Retirement System. After the Supreme Court agreed to hear this case, the NAM filed another amicus brief addressing the merits of the case on June 28.
This case concerns liability for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 based on a failure to disclose adverse “trends” and “uncertainties,” which requires management to use its judgment in describing known trends and uncertainties that are “reasonably likely” to occur. This is part of necessary disclosures of many reports required of publicly traded manufacturing companies under federal securities laws, including quarterly and annual reports. The 2nd Circuit’s decision calls for far more disclosure than a pure materiality standard, and it calls for disclosure of purely “soft” information, all of which makes it easily susceptible to hindsight pleading.
The Supreme Court needs to resolve this issue because there is an express circuit split between the 9th and 3rd Circuits, on the one hand and the 2nd Circuit on the other. The 9th and 3rd Circuits hold that not disclosing a “trend” or “uncertainty” does not give rise to 10(b) liability, while the 2nd Circuit has held that it does. The 2nd Circuit’s holding will open up a significant new category of securities fraud claims, and, contrary to earlier Supreme Court decisions, it subjects companies to securities fraud liability for omitting disclosures, even when the “omitted” information is not necessary to make any affirmative statement not misleading. This represents a dangerous precedent and exposes issuers to ever-increasing litigation, and the hindsight problem is exacerbated by the fact that it concerns disclosures of “soft information” that are often subjective.
If the 2nd Circuit’s ruling is allowed to stand, plaintiffs might start pleading everything as a “trend” or “uncertainty” that should have been disclosed. Public companies could be exposed to “fraud-by-hindsight” litigation if shrewd plaintiffs allege that an event was known to management as being reasonably likely to occur, including knowledge of “soft information.” This issue is a slippery slope where manufacturers may be subject to private suits for securities fraud for failing to disclose information that may not be material.
Because the 2nd Circuit’s ruling introduces more uncertainty into an area that demands certainty and predictability, the logical outcome for companies is to over-disclose potential “trends and uncertainties” so that they might mitigate the increased likelihood of being sued for securities fraud. As the Supreme Court first anticipated more than 40 years ago, such a rule of law will “lead management simply to bury the shareholders in an avalanche of trivial information—a result that is hardly conducive to informed decision-making.” A win in this case would significantly limit public company exposure to liability for securities fraud as well as provide clarity regarding disclosure obligations.
The Manufacturers’ Center for Legal Action filed an amicus brief on June 22 urging the U.S. Supreme Court to consider a decision out of the 3rd Circuit involving qui tam pleading standards for the False Claims Act (FCA). The standard set by the 3rd Circuit is the most lenient of those adopted and would require the pleading party to show nothing more than an opportunity for fraud by a business. Such a standard would lead to increased litigation and abuse of the FCA harming businesses, their employees, their owners, shareholders, the public at large and even the government.
In the underlying case, Customs Fraud Investigations, LLC (CFI) filed a reverse false claim against Victaulic Co. as a qui tam relator. A reverse false claim occurs when a party creates false records or statements to avoid payment obligations to the government, and a qui tam relator is a private person bringing FCA actions on behalf of the government with the potential benefit of a monetary award. Pleading standards for a qui tam relator’s complaint are governed by Rule 9(b), which requires a party pleading fraud to “state with particularity the circumstances constituting fraud. . . ” However, in this case, the 3rd Circuit established an overly lenient pleading standard that effectively eliminates Rule 9(b)’s particularity requirement and allowed CFI’s fraud claims, largely based on reviews of eBay image postings, to proceed. By setting a standard that requires relators show nothing more than the opportunity for fraud, the 3rd Circuit allows Victaulic to be subject to an unfounded lawsuit and opens other businesses up to the same potential harms.
The National Association of Manufacturers argued that resolving the circuit split and establishing a strict, consistent pleading standard would ensure appropriate application of Rule 9(b) and prevent speculation and forum shopping by outsider relators—relators with no insider knowledge of the company. Strict enforcement of Rule 9(b) ensures that outsider relators will not use the system to their advantage in pleading speculation, not facts, and helping themselves to discovery that is costly to businesses, the judiciary and the government.
The 3rd Circuit reasoned in its opinion that concerns regarding discovery could be mitigated through “controlled discovery” in which the courts use tools and discretion to curb discovery abuse; however, these tools cannot take the place of Rule 9(b) requirements. Controlled discovery can still be burdensome, and utilization of controlled discovery in place of dismissal principally violates pleading requirements in general. Furthermore, in qui tam cases, before a court decides on a Rule 9(b) issue, the government has already conducted its own statutorily-mandated investigation of the complaint using “discovery tools” to decide whether to intervene in the action. In cases where the government has declined to intervene following the conclusion of its own investigation of a business, the court should consider it inappropriate to apply the relaxed Rule 9(b) standard.
The courts are expected to act as gatekeepers preventing non-particularized and meritless claims from proceeding; unfortunately, the courts cannot effectively fulfill this role under toothless standards like that established by the 3rd Circuit. The Supreme Court should end the confusion within the circuit courts and decide the appropriate Rule 9(b) standard as applied to the FCA.
The U.S. Supreme Court’s June 12 ruling in Microsoft v. Baker is an important victory for manufacturers because it could prevent certain types of class-action lawsuits and expensive piecemeal litigation.
In the underlying case, owners of Microsoft’s Xbox 360 sought to file a class-action lawsuit alleging a design defect in the game console. The District Court’s order said that class allegations could not be included in the complaint against Microsoft, and the 9th Circuit Court of Appeals denied the plaintiffs’ request to appeal that order. This meant that while Xbox 360 owners could not bring a class-action suit against Microsoft, they were free to pursue their individual claims. The Xbox owners decided to voluntarily dismiss their claims against Microsoft with prejudice and only challenge the District Court’s order that prevented them from pursuing a class-action suit.
The 9th Circuit Court of Appeals ruled that it had jurisdiction to hear the appeal challenging the striking of class allegations even though the order from the District Court was not a final decision by a lower court, as understood by Congress. As a result, the case was dismissed, effectively eliminating a controversy.
Congress granted federal courts of appeal authority to review a lower court’s decision when that decision was final. Said another way, Congress did not give the federal courts the authority to hear all disputed decisions of lower courts. The National Association of Manufacturers (NAM) has long argued for the faithful adherence to this general rule in order to avoid a backlog of piecemeal litigation at the federal courts on every matter taken up by lower courts. The NAM’s Legal Center filed amicus briefs in this matter urging the Court to affirm longstanding congressional intent.
The Supreme Court agreed, and Justice Ruth Bader Ginsberg in her majority opinion stated, “Congress chose the rulemaking process to settle the matter, and the rulemakers did so by adopting Rule 23(f )’s evenhanded prescription. It is not the prerogative of litigants or federal courts to disturb that settlement.” Furthermore, Ginsburg explained that a plaintiff could not transform an order into a final judgment simply by dismissing his or her claims with prejudice.
The Supreme Court’s ruling is exactly what the Legal Center called on the Court to do in its briefs: It preserves adherence to jurisdictional statutes enacted by Congress and prevents the development of multiple, piecemeal appeals from a single district court proceeding. We applaud Microsoft for fighting this case in the High Court and helping to preserve efficiency in the court system.
This month, a federal court concluded the National Association of Manufacturers’ (NAM) legal challenge to one problematic provision requiring disclosure of supply chain information about the use of “conflict minerals” in manufactured products.
The NAM has had a long history of defending the rights of manufacturers against government-compelled speech that violates the First Amendment. Restrictions on commercial speech are carefully reviewed by the courts to ensure that they are narrowly tailored to achieve a substantial government interest, such as preventing fraud or deceptive sales campaigns. But the speech that was mandated by the government under this law imposed an additional burden—requiring affirmative research, investigation and analysis, recordkeeping and finally reporting to the Securities and Exchange Commission (SEC).
After several years of litigation, the federal appeals court in the District of Columbia ruled—twice—that the disclosure requirement is unconstitutional. Being forced to label a product as “conflict free” or not ethically taints and stigmatizes companies, many of which simply cannot determine the ultimate source of trace minerals from smelters around the world. Neither the government nor Amnesty International appealed this ruling to the Supreme Court, and on April 3, the trial court closed the case, declaring Sec. 1502 of the Dodd-Frank Act and the SEC regulation on conflict minerals unconstitutional “to the extent that the statute and the rule require regulated entities to report to the Commission and to state on their websites that any of their products have not been found to be ‘DRC conflict free.’”
Our victory in this case has been and will continue to be used to help the NAM challenge other government-mandated speech, such as shop floor poster requirements, misleading product labeling laws and excessive disclosures of third-party allegations. And yet, the closing of this case and the subsequent determination by the SEC Division of Corporation Finance that it will not recommend enforcement action to the SEC if companies file conflict minerals reporting disclosures under certain provisions do not go far enough. The NAM continues to strongly urge the SEC to consider implementing a full suspension of the conflict minerals rule.
The Environmental Protection Agency’s (EPA) new Risk Management Program (RMP) rule, published on January 13, 2017, revised an existing rule designed to reduce chemical hazards and related accidental releases. The rule imposes various recordkeeping, auditing, disclosure and mitigation mandates under the Clean Air Act on companies that handle various chemicals, which include many manufacturing companies. The new requirements were not adequately evaluated or justified by the Obama administration, and we have been working with the EPA under the Trump administration to improve some of these problems.
For example, the rule raises significant security concerns from required disclosures of hazardous material information and compliance issues that will cause irreparable harm to manufacturers by requiring them to make available sensitive information that could expose plant vulnerabilities. The rule also imposes costly audit requirements for “each covered process” without justification, and the agency failed to conduct an adequate assessment of the costs and benefits.
On February 28, the NAM and other industry associations submitted to the EPA a petition for reconsideration of the RMP, and the agency agreed to meet with us the following week to listen to our concerns.
The NAM and industry groups also filed a lawsuit on March 13 in the U.S. Circuit Court of Appeals for the District of Columbia, asking the court to review the validity of the Obama administration’s action implementing changes to the RMP rule under the Clean Air Act. Later that same day, EPA Administrator Scott Pruitt issued a 90-day delay of the effective date of the RMP rule. This will give the agency time to review our concerns and will temporarily suspend the compliance burden.
We are pleased that the EPA listened to manufacturers’ issues with the new rule and that it agreed to delay the effective date. This delay gives the EPA time to reconsider and review the rule’s requirements, without imposing unnecessary confusion and compliance costs on manufacturers.
The Manufacturers’ Center for Legal Action will continue to monitor developments affecting manufacturers and provide regular updates. Please do not hesitate to contact NAM Associate General Counsel Leland Frost at email@example.com with any questions.
Co-authored by Patrick Forrest, NAM Vice President of Litigation and Deputy General Counsel
Manufacturers in the United States are deeply disappointed by an international panel decision that ruled in Canada’s favor purely on a threshold issue, sidestepping core investment and intellectual property (IP) issues at the heart of the case. In so doing, the panel failed to provide relief from Canada’s actions that undermine innovation and IP protection to the detriment of U.S. manufacturing and jobs. Read More
This afternoon, the U.S. Supreme Court granted certiorari to the National Association of Manufacturers’ (NAM) petition in the challenge to the Environmental Protection Agency’s (EPA) Waters of the United States regulation. We have asked the Supreme Court to review a decision from the U.S. Court of Appeals for the 6th Circuit, where many suits challenging the WOTUS rule have been consolidated. The panel’s decision conflicts with decisions in similar cases by other federal appeals courts, which concluded that such challenges should be heard at the district court level. The NAM outlined in detail why 33 U.S.C. Section 1369(b) does not allow courts of appeals to hear this challenge. The 6th Circuit’s decision put challengers to the EPA rule in an untenable position—if that court does not actually have jurisdiction to hear the case, any action it takes could thereafter be overturned on appeal, without even considering the merits of the challenge, and we would have to start the case over at the trial court level. This would be a tremendous waste of resources for manufacturers and other parties affected by the rule, the administration and the courts. Delaying review of the jurisdictional question, which must ultimately be resolved in any case, makes no sense, so we are very pleased that the Supreme Court decided today to resolve this issue.