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Lessons from Microsoft's transfer price tax case How GCs should guide boards on AI A new era of accountability Patent portfolio best practices Managing trade secrets COVID-19 contagion care developments And more...
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Editor’s Desk
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Microsoft's $28.9B Tax Battle Highlights Rising Transfer Pricing Risks for GCs
By Paul Sutton The risks are not confined to ultra-large corporates. Every business with cross-border operations should assess transfer pricing risks and put in place appropriate systems to manage them.
10 Guiding the Board: The GC's Role in Navigating AI Strategy and Compliance By Noga Rosenthal General counsel must ensure board members are well-informed about AI initiatives, which is vital given the board’s fiduciary duties.
12 Key Considerations for In-House Counsel under the Corporate Transparency Act By Lydia Duynstee 74% of U.S. businesses subject to these new regulations are unaware of these obligations and unsure how they will comply with the new rules. LITIGATION
JANUARY 2024 Volume 20/Number 10
COLUMN: WORKPLACE ISSUES
20 What Companies Need to Know About California’s Workplace Violence Prevention Law By Kacey R. Riccomini A new California law requires a prevention plan, incident log, and annual training. COLUMN: CAREER COMPASS
22 How Lawyers Ascend to GC Roles– Survey Reveals Insights, Surprises, and the Gender Gap By John Gilmore BarkerGilmore surveyed hundreds of general counsel to understand their path to the seat. THOUGHT LEADERSHIP
24 Supreme Court Ruling Could Be a GameChanger for Whistleblower Retaliation Standards By Christopher Robertson and Owen Wolfe Employers and HR departments may need to revamp their whistleblower policies, training programs, and internal investigation procedures.
14 Examining the Ripple Effects of California Supreme Court Ruling on “Take-home COVID” By Jonathan J. Brown and Corinne D. Spencer No duty of contagion care to employees’ families.
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16 Diving into the Trade Secrets Debate: The Listing Predicament
26 Five Ways to Make Your Global Patent Prosecution Strategies More Efficient
By David Pardue List your trade secrets and update the list frequently.
By Chris K. Miller Best practices for assessing a global patent portfolio and filing practices.
18 Breaktime Balancing Act: Navigating Attorney-Witness Discussions in Depositions By Brian R Iverson Learn about the delicate balancing act of attorneywitness talks during deposition breaks.
28 From Surrendering Souls to Rogue Vegetable Gardens, Looking at Bizarre and Overlooked Terms in Everyday Contracts By David Parks Contract Logix has scoured through some of the most common legal agreements and handpicked some of the weirdest, scariest, and most hidden terms. JANUARY 2024
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EDITOR’S DESK
T
he dawning of a new year is often a time of reinvention and renewal — that is certainly the case at Today’s General Counsel. You will probably notice that this issue is bigger than usual. That’s because we are ramping up our editorial strategy with a focus on thought leadership and expert commentary from general counsel and legal leaders. Over the past few months, we’ve seen a significant uptick in the quality of submissions. We want to deliver as many of these insightful articles to you as we can. To that end, all of the articles in this issue have already appeared on our beautifully redesigned website under the Thought Leadership heading. We have also promoted these stories on our social media accounts on LinkedIn and X. Please follow those accounts to stay up to date on everything we are publishing. This cover story in this issue analyzes a pending Supreme Court ruling that could reshape the standard for whistleblower retaliation claims under the Sarbanes-Oxley Act (SOX). “Depending on how the Court rules, employers and HR departments should be ready to revamp their whistleblower policies, training programs, and internal investigation procedures,” explain authors Christopher Robertson and Owen Wolfe of Seyfarth Shaw LLP. This story performed exceptionally well on our site, indicating strong reader interest in this topic. Other stories gaining traction on our website include an article about how general counsel should navigate the Corporate Transparency Act and another about how in-house counsel should guide their boards on AI strategy and compliance. As we expand the range of our thought leadership content, our company is evolving in other ways as well. I’d like to take this opportunity to introduce you to another of our new initiatives, which caters to the law firm community and its unique interests and needs. Our new platform, Today’s Managing Partner, offers a weekly newsletter, website, and resource page. It delivers best practices, news, insights, and solutions to help attorneys and operations officers excel in their careers. In 2024, we will be expanding our offerings, including the launch of the Today’s Managing Partner Webinar Series in January. We hope you are as excited as we are about the future of Today’s General Counsel and Today’s Managing Partner. We welcome your feedback and suggestions and look forward to hearing from you. Wishing you a happy and prosperous 2024!
Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com
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Microsoft’s $28.9B Tax Battle Highlights Rising Transfer Pricing Risks for GCs By PAUL SUTTON
I
n October, Microsoft announced that it had received a demand for $28.9 billion in back taxes from the IRS, plus penalties and interest. The demand relates to a long-running transfer pricing dispute concerning the use of regional centers in Singapore, Dublin and Puerto Rico to distribute software, reducing Microsoft’s effective tax rate. Microsoft has stated that it will
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contest the IRS’s demands, arguing that its existing provisions for tax contingencies are adequate. Nevertheless, the announcement shows the scale of transfer pricing risks and raises the question of how general counsel should help mitigate those risks. Other high-profile groups affected by large transfer pricing liabilities include Coca-Cola, which faces a $12 billion tax bill if a 2020 ruling of the
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U.S. Tax Court in favor of the IRS is not overturned. There is also the case of McDonald’s which, in 2022, agreed to pay €1.245 billion in back taxes and fines to the French tax authorities, in connection with intra-group franchise fees. Transfer pricing risks are not confined to ultra-large corporates. Every business with cross-border operations should assess transfer pricing risks and put in place BACK TO CONTENTS
appropriate systems to manage them. As a minimum, this should involve documenting the legal and economic substance of related-party transactions through appropriate intercompany agreements. This is an area that requires cooperation between legal and tax functions.
WHAT IS TRANSFER PRICING? Transfer pricing (TP) refers to the international set of tax rules that determine the level of intercompany charges (e.g. service fees, royalties, prices for goods, loan interest, etc.) which may be ‘properly’ paid (from a tax perspective) between associated entities, and which in turn affect where profits are made and taxed. The Organisation for Economic Co-operation and Development (OECD) has adopted the arm’s length principle as the international standard for determining “proper” transfer prices for tax purposes. According to that principle, transactions between associated enterprises have to be priced as if the enterprises were independent entities engaging in comparable transactions under similar circumstances. In other words, tax authorities can review an entity’s transactions with a related party and tax the entity on the profits it would have made, had that transaction been negotiated between independent third parties. This creates a risk of double taxation, because a TP adjustment demanded by one tax administration may not be approved by the jurisdiction(s) at the other “end” of the transaction. Significant interest and penalties can also apply. The starting point for TP analysis is to identify the “actual transaction,” including functions performed, assets contributed, BACK TO CONTENTS
and the contractual allocation of risk between the parties. Many tax administrations expect intercompany agreements to be entered into in advance, not after the event. Some countries (such as Germany) go further, and expressly state that the arm’s length principle is to be applied on the date when the relevant intercompany agreements are concluded, not when the relevant services, etc. are performed. Intercompany agreements are often among the first documents requested in a TP audit. If related party transactions are not documented by appropriate intercompany agreements – and if those agreements are not aligned with TP policies – the taxpayer is exposed to unnecessary tax liabilities, as well as the risk of protracted inquiries, audits and disputes. This was the situation in the Coca-Cola litigation mentioned above: the group’s TP policies were directly contradicted by the terms of its intercompany agreements, specifically regarding the ownership of IP rights.
KEY TAKEAWAYS FOR GENERAL COUNSEL: General counsel are accustomed to prioritizing and managing risks. The following key steps are suggested to manage TP risks arising from defective intercompany agreements:
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3. Carry out a sample review of existing agreements, entities and transactions, to identify any gaps in coverage of intercompany transactions, and any non-alignment between agreements and TP policies. 4. Create a plan to fix gaps and to re-align agreements and policies as needed. 5. Confirm ongoing roles and responsibilities for maintaining intercompany agreements. This should include, as a minimum, an annual review of agreements to reflect any changes in the group and its TP policies.
Paul Sutton is a partner with LCN Legal, a firm that specializes in the legal implementation of transfer pricing compliance policies, working alongside transfer pricing and international tax professionals. He is the author of ‘Intercompany Agreements for Transfer Pricing Compliance – A Practical Guide’ which is published by Law Brief Publishing. He can be contacted at paul.sutton@lcnlegal.com.
1. Ensure that all group entities (including branches/ establishments) have been correctly identified. 2. Ensure that the group’s intercompany agreements are stored in a comprehensive central, online repository. This may be “owned” by the tax, legal or compliance function, as appropriate. JANUARY 2024
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COMPLIANCE
Guiding the Board: The GC’s Role in Navigating AI Strategy and Compliance By NOGA ROSENTHAL
G
iven the increasingly widespread use of generative artificial intelligence in corporate environments, it’s likely that most general counsel have already intervened and established company policies to regulate AI use. The next crucial task is ensuring board members are well-informed about AI initiatives, which is vital given the board’s fiduciary duties. To manage this effectively, general
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counsel should adopt a clear, stepby-step approach, guiding boards to understand AI’s complexities and balance its benefits against potential risks.
EDUCATION IS KEY General counsel should ensure board members have a basic grasp of AI, including machine learning, deep learning, and “good” data sets. This foundational knowledge enables
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the board to provide informed guidance on AI governance. Real-world demonstrations of AI tools can further reinforce this understanding, such as showcasing a chatbot trained on historical customer service answers.
CONSIDER ADDING NEW EXPERTISE Advocating for the inclusion of new board members, advisory groups or BACK TO CONTENTS
committees with AI expertise may be necessary, especially for companies focusing heavily on AI technology. Backgrounds in privacy, security, or technology can be valuable additions to the board.
PRESENTING ADVANTAGES AND RISKS General counsel should explain how AI benefits the organization, highlighting increased productivity, cost reduction, and innovation. They should link AI initiatives to the company’s strategic goals, demonstrating its positive impact on metrics like customer service and experience. For example, the advantages of a chatbot are that it can respond to a high volume of questions at any time using consistent responses. The chatbot can also gather information from these chats to help the company improve its products and services. General counsel can then chart how AI is tied to a company’s strategic goals such as improved customer service and experience. This presentation will likely include outlining the company’s investments in AI tools, staffing, and training. General counsel should next present a detailed overview of the risks associated with using AI, as the board of directors is responsible for overseeing these corporate risks. Covering data privacy and security matters is crucial because AI systems often handle sensitive information. Ethical concerns and their impact on customers and employees are also significant. For instance, one risk is customers becoming upset when realizing they are chatting with a bot rather than a human. This can affect customer trust and satisfaction. Additionally, companies must comply with a regulatory landscape BACK TO CONTENTS
that is rapidly evolving, posing a challenge in ensuring ongoing legal compliance. General counsel should help their boards understand the risks tied to an evolving —and inconsistent— regulatory landscape. General counsel also understand that companies must uphold ethical and social standards when using or developing AI in regions or industries where regulations have yet to catch up with the technology.
DEVISE MITIGATION STRATEGIES After spotting these risks, general counsel should outline how the company plans to manage or mitigate them. General counsel must ensure that the proposed use of AI aligns with the company’s documented core values such as integrity, diversity and inclusion, and transparency. This can include making sure that their organization is transparent with their customers and lets them know they are talking to a chatbot and not a real person. Referring to existing company policies, such as procurement procedures for new vendors, can help mitigate risks as well. For example, most companies can point to procurement policies and procedures that require a security or privacy review of a new vendor and how these vendors process company data. Moreover, general counsel should commit to regularly updating the board on the AI strategy. This involves providing ongoing reports on compliance efforts, strategic adaptations of AI, and monitoring the effectiveness and impact of AI within the organization. Such updates will ensure that the board remains well-informed and can
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make decisions that align with both the company’s goals and ethical standards, thereby effectively overseeing the responsible use of AI technologies.
EXAMINE COSTS Collaborating with management, general counsel should review the costs of AI tools or development with the board. This includes considering the impact on the workforce or hiring needs. This evaluation ensures a comprehensive understanding of the financial implications of AI initiatives.
PROACTIVE APPROACH AND ONGOING COORDINATION General counsel should help management and boards take a proactive approach to AI tools, anticipating the impact of changing regulatory landscapes and fast-paced technology changes. The board should rely on general counsel to coordinate responses to incoming questions and concerns, identify and address new challenges, and ensure ongoing compliance with core company values.
Noga Rosenthal is a seasoned privacy compliance and data ethics professional specializing in the technology sector. She has developed and managed global privacy programs for companies such as Xaxis, Epsilon and Ampersand. Rosenthal serves as a trustee for the Practicing Law Institute and an adjunct professor at Fordham Law School. LinkedIn profile
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COMPLIANCE
Key Considerations for In-House Counsel under the Corporate Transparency Act By LYDIA DUYNSTEE UNDERSTANDING THE CORPORATE TRANSPARENCY ACT
I
n recent years, there has been a growing focus on corporate transparency and the need to combat illicit activities, such as money laundering and terrorism financing. In response to these concerns, on January 1, 2021, Congress enacted the Corporate Transparency Act (CTA or the Act), as part of the National Defense Authorization Act. The Act will take effect on January 1, 2024. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the group in charge of implementing the law, estimates that approximately 32.6 million existing companies will be impacted in 2024, with an additional five million new reporting companies impacted every year thereafter. In October 2023, Wolters Kluwer, a global leader in compliance,
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released the results of its survey on the new beneficial ownership information (BOI) reporting rule under the Act. The findings show that 74% of U.S. businesses subject to these new regulations are unaware of these obligations and unsure how they will comply with the new rules. Furthermore, 46% of law firms and certified public accountant firms responded they are unaware of the new BOI reporting requirements. The CTA brings about significant operational considerations for corporate law departments, necessitating a proactive approach to compliance and entity management. By understanding the Act’s BOI reporting rules, corporate law departments can adapt their procedures and leverage technology to thrive in an evolving regulatory landscape.
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The CTA aims to create a comprehensive federal beneficial ownership registry, requiring certain corporations, limited liability companies, and other similar entities to disclose information about their ultimate beneficial owners. Reporting companies created in the United States before January 1, 2024 must report company and BOI details to FinCEN by January 1, 2025 within its secure “BOSS” database. Reporting companies created on or after January 1, 2024 and before January 1, 2025 must submit the report to FinCEN within 90 calendar days of receiving notice of their creation. Starting January 1, 2025, the reporting window is reduced to within 30 calendar days of receiving notice of creation. (Reporting companies formed under the law of a foreign country and registered to do business in the United States are also required to file a report, however this article is dealing with domestic reporting companies only).
IDENTIFYING COVERED ENTITIES One of the initial tasks for in-house counsel is to determine whether BACK TO CONTENTS
their organization is a covered entity under the Act. The Act applies not only to corporations and LLCs but to other entities created by filing a document with the Secretary of State (or similar office) under state law— whether they engage in interstate commerce or not-- a broad category encompassing most businesses. However, there are 23 exemptions to being a reporting company. For example, if these companies meet certain criteria, such as having more than 20 employees in the United States, gross annual receipts or sales of more than $5 million, and a physical presence in the U.S., they may be exempt from BOI reporting under the CTA. Beneficial owners are individuals who directly or indirectly either own or control at least 25% of the entity’s ownership interests or exercise substantial control over the entity. Legal teams should assess the organization’s ownership structure and the decision-making authority of the individuals in the organization to ensure accurate classification and compliance.
COLLECTING BENEFICIAL OWNERSHIP INFORMATION In-house counsel must establish robust mechanisms for collecting, verifying, and maintaining beneficial ownership information. This information should include details about individuals who own or control the entity that will need to report, including their name, date of birth, residential address and a unique number from a document such as a driver’s license or passport. (Your report will also have to include an image of the document). Accurate records are crucial to meeting the Act’s reporting requirements. BACK TO CONTENTS
DATA SECURITY AND PRIVACY In-house counsel should prioritize data security and privacy when handling sensitive personal information. Implementing robust cybersecurity measures, access controls, and encryption is crucial to protect this data from unauthorized access or breaches. Compliance with data protection regulations, such as GDPR, may also be necessary.
COMPLIANCE PROGRAMS AND TRAINING Developing comprehensive compliance programs and training is essential to ensure that any individuals who may be considered as beneficial owners are aware of their obligations under the CTA. Regular training sessions can help these individuals recognize the importance of accurate reporting and the consequences of non-compliance.
REPORTING AND FILING REQUIREMENTS Understanding the reporting and filing requirements under the CTA is essential. Legal teams should ensure that the required reports are submitted to FinCEN within the specified timeframes and in the prescribed format. Errors or omissions in reporting can result in penalties, so thorough attention to detail is critical.
RECORD KEEPING AND DOCUMENT RETENTION In-house counsel should establish record-keeping and document retention policies to maintain compliance with the Act. Maintaining records of beneficial ownership information and submitted reports is crucial for audits and due diligence processes.
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PENALTIES AND ENFORCEMENT Counsel should be well-versed in the potential penalties and enforcement actions under the Act. Failure to comply can result in civil and criminal penalties, including fines and imprisonment. Knowing the consequences of non-compliance is vital to mitigating risks.
CONCLUSION The CTA ushers in a new era of corporate accountability and transparency. In-house counsel play a pivotal role in ensuring their organizations comply with this legislation. By understanding the Act, identifying covered entities, collecting and securing beneficial ownership information, implementing compliance programs, and staying aware of penalties and enforcement, legal teams can navigate the complexities of the CTA and safeguard their organizations from potential legal consequences.
Lydia Duynstee is a transactional business consultant for CT Corporation, a Wolters Kluwer business, serving law firm and corporate clients. She helps develop strategies and solutions for corporate compliance issues arising in finance, M&A, real estate deals, and corporate reorganizations. Lydia.Duynstee@wolterskluwer.com
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LITIGATION
Examining the Ripple Effects of California Supreme Court Ruling on “Take-home COVID” By JONATHAN J. BROWN AND CORINNE D. SPENCER
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he Supreme Court of California has provided much-needed clarity on the issue of “take-home COVID” liability. More specifically, the Court ruled in July that the employer does not owe a duty of care to prevent the spread of COVID-19 to their employees’ household members. In Kuciemba v. Victory Woodworks, Inc., the Court acknowledged the evolving nature of the COVID-19 situation and hinted that the calculus
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might change in the future. Perhaps the Court was signaling that its public policy analysis could shift in favor of employees should the severity of the virus’s symptoms increase, while the volume of cases dissipates. The decision also raises the question of how the Court will address future illnesses and pandemics.
THE “TAKE-HOME COVID” BACKSTORY Following the 2022 decision in See’s
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Candies, Inc. v. Superior Court, which found that workers’ compensation exclusivity does not necessarily bar a “take-home COVID” civil suit, employers became concerned about potential liability when COVID-19 spreads from the workplace to their employees’ households. The exclusive remedy doctrine, rooted in the 1917 California Workers’ Compensation Act, shields employers from civil liability in exchange for no-fault workers’ BACK TO CONTENTS
compensation liability. However, the limits of this doctrine have been tested by California courts over the years with a particular focus on the derivative injury doctrine, which covers claims that are collateral to or derivative of a workers’ compensation claim. The first take-home COVID case, See’s Candies, Inc. v. Superior Court, came before the California Supreme Court in 2022. It involved an employee who contracted COVID-19 at work and transmitted it to her husband during quarantine, resulting in his death. The Court found parallels with Snyder v. Michael’s Stores, Inc., likening take-home COVID scenarios to a mother passing on toxic substances to her unborn child. Similarly, the See’s Court drew comparisons with Kesner v. Superior Court of Alameda County, where family members were permitted to bring a civil claim when exposed to asbestos fibers carried home on an employee’s clothing. The See’s Court, however, deferred its opinion on the duty of care to prevent the spread of COVID to employees’ family members, awaiting the Kuciemba v. Victory Woodworks, Inc. decision, which presented circumstances similar to See’s.
THE HOUSEHOLD SPREAD CONCERN Corby Kuciemba contracted severe COVID-19 from her husband, an employee of Victory Woodworks, and claimed that the employer was negligent in its response to a COVID outbreak at the workplace. In addition to the question of exclusivity, the Court questioned whether an employer owes a duty of care to prevent the spread of COVID-19 to their BACK TO CONTENTS
employees’ household members. Using Kesner, Snyder, and See’s as precedents, the Kuciemba Court ruled that the derivative injury doctrine does not bar a spouse’s negligence claim against the employer. The Court reasoned that because the spouse does not need to prove the employee actually fell ill, the claim is not derivative. However, the analysis for the duty of care issue was more complicated. The Court recognized that
For risk management, employers must evaluate their risk exposure and implement strategies to mitigate it. a virus outbreak is foreseeable, and employers are in a superior position to identify and implement safety measures. The court also considered the potentially detrimental consequences of holding employers responsible for third-party COVID cases, such as slowing essential business operations and opening the floodgates to litigation.
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safety measures are up to date, revising HR policies, and ensuring compliance with the Division of Occupational Safety and Health in California (Cal/OSHA) guidelines to reduce the risk of virus transmission. Employers should be mindful that Cal/OSHA’s COVID-19 Prevention Plan mandate remains in effect through at least February 3, 2025. Mitigating risks and preventing COVID transmission within the workplace should remain a top priority. Regular training and communication with the workforce can significantly reduce transmission risks as well. While the Kuciemba case provided some clarity on take-home COVID liability, the situation continues to evolve. Employers, general counsel, and human resources professionals should remain vigilant, prioritize safety, and adapt to changing circumstances.
RAMIFICATIONS OF THE CASE Kuciemba v. Victory Woodworks, Inc. clarified the questions of exclusivity and the duty of care in the era of take-home COVID cases, highlighting the balance between protecting public health and the potential economic repercussions. However, it left employers asking how these legal developments impact their roles and responsibilities. For risk management, employers must evaluate their risk exposure and implement strategies to mitigate it. This may include ensuring workplace
jjb@4pbw.com
Jonathan J. Brown is a Senior Associate at Pearlman, Brown & Wax, LLP. He represents employers in all aspects of employment law.
Corinne Spencer is a Partner and Chair of the Labor and Employment Practice Group at Pearlman, Brown & Wax, LLP. She counsels clients in employment-related matters. cds@4pbw.com
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LITIGATION
Diving into the Trade Secrets Debate: The Listing Predicament By DAVID PARDUE this group argued, the list will never be complete or current because trade secrets are complex and constantly evolving.
SOMETHING WE CAN ALL AGREE ON
T
o list or not to list. That is the question. At least it was the question during a trade secrets summit earlier this year in Boston, where I found myself in the middle of a captivating debate. As essentially the only lawyer there who primarily defends trade secrets lawsuits, here’s the stand I took: The defense will attack your company’s sufficiency of establishing
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a trade secret no matter what, so you’re better off having a list of your trade secrets than not. On the other side of this debate, counsel for some large technology companies argued that creating a list leaves the chance of inadvertently missing something. This group’s position was that failure to properly list the trade secrets could lead to a loss at trial — so why take the risk of a list? Plus,
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Even with these fundamental differences, both sides agreed that trade secrets need to be actively managed to be protected and to maximize the intellectual property of the business. Trade secrets often are what distinguishes one company from its competitors. Think of a trade secret like a company’s secret sauce. The last thing a company wants is for an employee to leave for a competitor and walk out the door with the sauce recipe. Yet, few companies are doing a good job of managing their trade secret portfolio. So, when an employee does leave and an alleged trade secret or proprietary information goes with them, it is my experience that companies are often caught flat-footed. At the core of the debate are some big-time consequences.
SECRETS IN THE SKY Look no further than a recent jury verdict in a years-long court case involving the manufacturers of airplane wing parts. One aircraft parts manufacturer accused the other of allegedly stealing its information BACK TO CONTENTS
after its employees left for the other company. The plaintiff claimed over $87 million in losses at trial because it lost its biggest customer to the defendant. But at the end of the case, the jury decided that the plaintiff didn’t even own the allegedly stolen trade secret information. The plaintiff got nothing, after eight years and countless millions
The defense will attack your company’s sufficiency of establishing a trade secret no matter what, so you’re better off having a list of your trade secrets than not. in fees on the case. That’s a disaster any way you look at it. The verdict was a stark warning for companies to better identify and manage their trade secrets. If not properly managed, companies can find themselves in court and see business losses pile up to tens of millions of dollars. But what does a well-managed trade secret program look like? Back to our debate.
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process. It does not have to be all-consuming. Companies can easily include language in their trade secret portfolio to explain to others that the list is not and cannot be a true representation of all its trade secrets. It is not, in other words, exhaustive or final. Yet another reason to list trade secrets is for insurance purposes. Trade secrets are insurable, but it will be nearly impossible to insure them unless they are clearly identified. If anything, the debate about listing serves as a good reminder for company leaders to sit down and think about a core question: What are the company’s trade secrets, what are they worth, and what would happen if the competition got possession of them?
David Pardue is a partner in the Atlanta office of law firm Parker Poe where he assists clients with their intellectual property needs. davidpardue@parkerpoe.com
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BEST PRACTICES It’s helpful to think about the benefit of creating a list in terms of loss mitigation. A company that can create a list demonstrates that it has a grasp on what brings it value. Trade secrets are never the same day to day. Cell phones, for example, go through regular updates. A list, then, should be viewed by companies as a snapshot in time. The creation of a list is an ongoing BACK TO CONTENTS
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LITIGATION
Breaktime Balancing Act: Navigating Attorney-Witness Discussions in Depositions By BRIAN R IVERSON
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ttorneys and witness-clients are frequently tempted to discuss testimony during deposition breaks. The recent increase in remote depositions during the COVID-19 pandemic has made it even more tempting to communicate during the deposition, for example, by exchanging text messages. However, attorneys and litigants are often surprised to learn that the rules governing these
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communications vary greatly by jurisdiction. Here are several common approaches and communication guidelines counsel should consider when conducting depositions in federal proceedings.
NO-CONSULTATION RULES “No-consultation” rules first appeared in the 1980s. The strictest versions prohibit attorneys and their
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witness-clients from engaging in any private, off-the-record conferences during deposition breaks, except for the purpose of deciding whether to assert a privilege. The primary rationale is that depositions are meant to record a witness’s testimony as to the facts. The attorney’s job is to frame the facts in a manner favorable to the client, not to coach the witness on how to testify. Penalties for violating no-consultation rules include BACK TO CONTENTS
monetary sanctions and waiver of the attorney-client privilege.
CRITICISM OF NO-CONSULTATION RULES No-consultation rules have been criticized for going further than necessary to address witness coaching. Existing ethics rules already prohibit coaching, and critics argue that no-consultation rules impinge on a civil litigant’s right to hired counsel. There are many appropriate reasons for an attorney to communicate with a witness-client, such as to ensure the client understands a question. Additionally, attorneys are ethically required to take remedial measures for false testimony, and the first step under the American Bar Association’s Model Rules of Professional Conduct is “to remonstrate with the client confidentially, advise the client of the lawyer’s duty of candor to the tribunal and seek the client’s cooperation with respect to the withdrawal or correction of the false statements or evidence.” No-consultation rules prohibit an attorney from fulfilling this ethical obligation if the witness testifies incorrectly.
FEDERAL COURTS TAKE VARIOUS APPROACHES Federal courts have taken a wide range of approaches to regulate private, off-the-record conferences. District court orders on the issue are rarely challenged on appeal, and the authority is becoming more splintered over time. The U.S. Court of Appeals for the Seventh Circuit is the only federal appellate court to address the issue directly, holding that it was “not appropriate or professional” for an attorney to engage in private conferences with the BACK TO CONTENTS
witness during a deposition break. Nonetheless, the Seventh Circuit found that the district court did not abuse its discretion in declining to impose sanctions for the misconduct. District courts in the Third Circuit usually follow the strict no-consultation approach. District courts in the Ninth Circuit typically apply a less restrictive rule, under which an attorney may discuss the testimony with a witness-client during a recess the attorney did not request, provided the discussion does not involve coaching. Still, even in these circuits, the authorities are not uniform and district courts in other circuits have taken a wide variety of other approaches to address private, offthe-record conferences.
GUIDELINES FOR ATTORNEY AND WITNESS-CLIENT COMMUNICATIONS Unless uniformity develops through appellate decisions or an amendment to the Federal Rules of Civil Procedure, outside and in-house counsel should consider four guidelines for private, off-the-record conferences during deposition recesses: 1. An attorney and witness-client may not communicate or request a break while a question is pending, except for the purpose of deciding whether to assert a privilege. Discussions regarding privilege are permitted even under the most restrictive no-consultation rules. 2. An attorney may not coach a witness by telling the witness what to say or how to testify, whether before a deposition or during a deposition recess. 3. An attorney should research the
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key authorities governing private, off-the-record conferences during deposition recesses in the applicable jurisdiction before defending a deposition. 4. The same restrictions on communicating with a witness-client during an in-person deposition will apply to communications by text message, instant message, email, or other means during a remote deposition. Although it is natural for an attorney and witness-client to want to discuss the testimony during deposition recesses, doing so can expose the attorney and client to sanctions in some jurisdictions. By following these four guidelines, attorneys can minimize the risk to themselves, their law firms, and their clients.
Brian R. Iverson is a Member of the Washington, DC office of Bass, Berry & Sims PLC, where he represents businesses in a wide range of civil litigation matters. Iverson wrote additional analysis relating to private, off-the-record conferences between an attorney and a witness-client in this article.
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COLUMN: WORKPLACE ISSUES
What Companies Need to Know About California’s Workplace Violence Prevention Law By KACEY R. RICCOMINI
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alifornia Governor Gavin Newsom signed Senate Bill 553 on September 30, 2023, following a spike in organized flash mob robberies that are often violent and target retail stores. Effective January 1, 2024, the law will require California employers to take certain steps to prevent workplace violence. Specifically, employers will be required to:
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Identify names, titles, and roles of persons responsible for implementing the workplace violence prevention plan.
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Enact a workplace violence prevention plan to protect employees from aggressive and violent behavior in the workplace.
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Implement timely procedures to correct workplace violence hazards.
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Establish procedures to refer employees to wellness centers or employee assistance programs, and to conduct post-incident debriefing immediately after the incident.
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Record information about every violent incident, the response
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to the incident, and any injuries in a violent incident log. The information in the log should be based on statements from employees and others who witnessed the incident, as well as investigative findings. Specifically, the log should include: a. The date, time and location of the incident; b. What type of violence was involved; c. A detailed description of the incident; d. Whether the perpetrator was a client or customer, family or friend of a client or customer, stranger with criminal intent, coworker, supervisor or manager, partner or spouse, parent or relative, or other perpetrator; e. Details of the circumstances of the incident like whether the employee was completing usual job duties, working in poorly lit areas, rushed, working during a low staffing level, isolated or alone, unable to get help or assistance, working in a community setting, or working in an unfamiliar or new location; f. Details regarding the location of the incident such as
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whether it occurred inside or outside of the workplace; g. Details identifying the type of incident such as whether it was a physical attack with or without a weapon, the weapon used, whether the incident involved biting, choking, grabbing, hair pulling, kicking, punching, slapping, pushing, pulling, scratching, or spitting, whether the incident involved the threat of or actual sexual assault, including rape, attempted rape, physical displays, or any unwanted verbal or physical sexual contact, and whether the incident was an animal attack; h. What the response to the incident was, including involvement of security or law enforcement, and actions taken to ameliorate the threat. i. While the log must identify the name, job title, and date of the person completing the log, the log should not include personal identifying information that would allow identification of anyone involved in the incident, such as the person’s name, address, email, phone number, or social security number. BACK TO CONTENTS
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Establish a system to review, at least annually, the effectiveness of the workplace violence prevention plan.
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Provide training when the plan is first implemented and on an annual basis thereafter to employees to address and report workplace violence risks that employees might reasonably encounter in the performance of their job duties. If new hazards are identified, additional training must be provided to address it. Training records must be kept for a least one year and include the dates, contents of the training, names and qualifications of the trainers, and names and job titles of everyone who attended the training.
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Keep records of workplace violence hazard identification, evaluation, and correction for at least five years. BACK TO CONTENTS
In addition to imposing additional duties on employers, the new law also prohibits employers from: • Keeping policies that require employees to confront active shooters or suspected shoplifters, unless those employees are dedicated security personnel like security guards. • Retaliating against employees who report workplace violence or contact emergency services or law enforcement in response to a violent incident. Although individual employees could previously seek restraining orders, the new law allows employers and union representatives to seek temporary restraining orders on behalf of employees who have suffered violence or a credible threat of violence that might reasonably be carried out in the workplace.
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Given the complexities of the new law and the fact that workplace violence prevention plans will vary by industry, among other things, employers should work with their counsel to develop a workplace violence prevention plan and appropriate procedures to ensure compliance.
Kacey R. Riccomini is a partner practicing in business and employment litigation at Thompson Coburn LLP in Los Angeles, where she represents a wide range of clients, from Fortune 500s to smaller businesses. kriccomini@thompsoncoburn.com
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COLUMN: CAREER COMPASS
How Lawyers Ascend to GC Roles: Survey Reveals Insights, Surprises, and the Gender Gap By JOHN GILMORE
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ecoming a general counsel is the pinnacle achievement of an in-house legal professional’s career. BarkerGilmore surveyed hundreds of general counsel to understand their path to the seat. The 2023 General Counsel Succession Report provides insight into the road to success. Most of the general counsel we surveyed (71%) were recruited to the
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role from outside, while the others were promoted into the position from within (29%). The study found 69% of the internal general counsel successors were made aware of their successor status in advance; however, only 42% were informed of being a designated successor more than one year before. Hiring, developing, and retaining potential successors is a top priority for most legal leaders.
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In fact, one of the most attractive justifications for a job change is the opportunity to be designated as a potential successor coinciding with the commitment and mentorship from an accomplished sitting general counsel and/or resources to hire an external coach/advisor. Without communicating and establishing a development plan for general counsel succession, leadership runs a higher risk of the most capable BACK TO CONTENTS
talent becoming impatient and being recruited elsewhere. Surprisingly, the survey reveals a significant divide in terms of gender. Male lawyers were told earlier in their careers about successor status. Public companies were the biggest offenders with only 33% of women having more than a year’s notice compared to 45% of the men promoted. With so much pressure to diversify the leadership team, it does not make sense that more women and/or lawyers from other underrepresented groups are not part of a succession plan much earlier. There is room for significant improvement here. On a positive note, general counsel who were internally promoted received more deliberate professional development to prepare for the general counsel role than those recruited from outside. While promoted general counsel received professional development at higher rates, both groups received similar types of development including expanded scope of responsibilities (62% promoted, 55% recruited), increased C-suite and board exposure (59% promoted, 45% recruited), leadership training (53% promoted, 35% recruited), stretch assignments (52% promoted, 28% recruited), and executive coaching (43% promoted, 21% recruited). This signifies that those looking outside of their company for a general counsel role need to work harder to gain requisite leadership experience and prepare for the broad challenges of the position. According to the survey, one in four general counsel have worked with an executive coach and rated their experience as highly beneficial. Lawyers who have engaged with the BACK TO CONTENTS
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senior advisors at BarkerGilmore consistently call out the coaching experience as a career game changer. Finally, it is worth noting that approximately one-third of recruited general counsel learned about their position from an executive recruiter. If your goal is to become general counsel one day, it is vital to make connections with executive search consultants specializing in in-house counsel search. An experienced search consultant will provide an honest assessment of your potential, and if necessary, point out opportunities for growth and development or connect you with a coach who can fill any gaps. Since you never know when the right opportunity will present itself, being on the radar and staying informed of general counsel and general counsel succession opportunities is priceless. Whether climbing the corporate ladder from within or considering a new organization, the journey to general counsel is enriched by effective leadership, strategic networking, and a commitment to ongoing professional development.
John Gilmore is the co-founder and Managing Partner of BarkerGilmore and boasts more than three decades of experience in executive search. Under his leadership, BarkerGilmore has become a high-quality boutique in-house legal, compliance officer, and leadership advisory firm. A mentor and advisor to top global companies, he leads a high-performing team in sophisticated executive recruitment. jgilmore@barkergilmore.com
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23
THOUGHT LEADERSHIP
Supreme Court Ruling Could Be a Game-Changer for Whistleblower Retaliation Standards By CHRISTOPHER ROBERTSON AND OWEN WOLFE
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n October 10, 2023, the Supreme Court heard oral arguments in Murray v. UBS Securities, LLC. Employers and HR professionals throughout the United States should keep a close eye on the Court’s eventual decision, which is expected soon. The Court’s decision could reshape the standard for whistleblower retaliation claims under the Sarbanes-Oxley Act (SOX). Depending on how the Court rules,
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employers and HR departments should be ready to revamp their whistleblower policies, training programs, and internal investigation procedures. The case centers on Trevor Murray, who was formerly employed by UBS as a strategist in the bank’s commercial mortgage-backed securities (CMBS) business. Murray alleged that he complained to his supervisor that certain UBS CMBS
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traders were improperly attempting to influence his reports, in violation of applicable regulations. Murray further alleged that he was fired after reporting this conduct, which Murray asserted was retaliation in violation of SOX. UBS contended that it terminated Murray as part of a wider reduction of staff, rather than because of his whistleblowing activity. The case has progressed through BACK TO CONTENTS
a federal court in New York and the Second Circuit Court of Appeals. Most recently, the Second Circuit agreed with UBS, holding that the SOX anti-retaliation provision necessarily requires a showing of retaliatory intent. Murray has sought review of the Second Circuit’s decision by the Supreme Court. Several outside parties have submitted amicus briefs in support of Murray, including Senator Charles Grassley and Public Citizen. In support of UBS,
because of the whistleblowing activity. In the amicus brief we submitted for SHRM, we argued that HR professionals are often caught in a tug-of-war between the need for compliance with federal law and the need to make day-to-day employment decisions. SHRM noted that SOX added to the complexity facing human resource professionals because the standard for retaliation claims was unclear. SHRM argued that the
Depending on how the Court rules, employers and HR departments may need to be ready to revamp their whistleblower policies, training programs, and internal investigation procedures. our firm submitted an amicus brief on behalf of The Society for Human Resource Management (SHRM).
ARGUMENTS ON EITHER SIDE Murray has contended that SOX requires only that a whistleblower plaintiff show that the whistleblowing activity “tended to affect” the employer’s decision to fire the plaintiff. Murray argued that once a plaintiff makes this showing, the burden shifts to the employer to show that it would have taken the employment action it did when it did even without the whistleblowing activity. According to Murray, the employer’s motivation only becomes relevant once the burden shifts to the employer to demonstrate its affirmative defense. UBS argued that the Second Circuit’s decision was correct. UBS contended that the Supreme Court and other courts have interpreted similar statutes as requiring the plaintiff to show that the employer engaged in intentional discrimination BACK TO CONTENTS
Second Circuit’s decision added much-needed clarity. It contended that the Second Circuit’s decision was consistent with other anti-retaliation statutes and that this consistency was important so that employers would not have to struggle to figure out which legal standard applied in a particular situation. SHRM also asserted that without an intent requirement, the “contributing factor” standard would be nebulous and leave employers guessing as to what conduct is prohibited. Based on the questioning during the oral arguments, it appears that a majority of the Supreme Court is unlikely to agree with the Second Circuit, although it did not appear that they were fully in agreement with Murray’s arguments either. It appeared from questioning that the Court was inclined to forge a middle ground between the district court’s “tending to affect” instruction and the Second Circuit’s “retaliatory intent” holding. The importance of
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this holding lies in how it might affect how companies and HR professionals conduct internal investigations and make employment decisions. If the standard adopted by the Court aligns more closely with the plaintiff’s arguments, this could increase the need for specific investigative procedures and policies regarding termination decisions where an employee might raise an issue that implicates SOX. If the standard adopted by the Court aligns more closely with the defendant’s arguments, as argued by SHRM in its amicus brief, then existing policies may only need minor modifications to limit the liability risk with regard to potential SOX claims. Regardless, employers and HR professionals throughout the United States should brace for the Court’s decision and be ready to adapt depending on how the Court rules.
Christopher Robertson is a partner in the Boston office of law firm Seyfarth, and is chair of the firm's National Whistleblower Team. He is one of the attorneys who filed an amicus curiae brief in Murray v. UBS Securities, LLC before the U.S. Supreme Court, on behalf of the Society for Human Resource Management (SHRM), the world’s largest association devoted to HR management. Owen Wolfe is a partner in Seyfarth's New York office and also filed the amicus curiae brief on behalf of SHRM in the UBS case in the Supreme Court.
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THOUGHT LEADERSHIP
Five Ways to Make Your Global Patent Prosecution Strategies More Efficient By CHRIS K. MILLER
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eneral counsel know that it takes a lot of attorney time and expense to maintain a patent portfolio, so here are five best practices to consider when assessing a global patent portfolio and filing practices:
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Start with “Universal” Patent Application Disclosures Patents are tied to specific national jurisdictions and their rules, so
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prepare a “universal” application that addresses considerations of all jurisdictions where a company intends to file. Information prepared for this internal-use only application can then be massaged for national filings and will clarify what is important. Although functional language in an application describing how a device operates is useful, companies should not focus exclusively on functionality but should also describe the
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specific structure, features, compositions and steps required to solve the problem the invention addresses. Functional language should explain the interrelationship of the components of an invention so that it’s understandable. A universal application drafted in this manner should provide sufficient detail to meet requirements common to all jurisdictions. That foundation will make it easier to coordinate filings BACK TO CONTENTS
in various jurisdictions and increase the chances of successfully obtaining a patent.
especially if you must pay them multiple times throughout the patent’s life cycle.
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Take Advantage of the Patent Cooperation Treaty The international Patent Cooperation Treaty (PCT) application provides the benefit of a preliminary examination that may carry weight with national authorities later in the patent process. It also gives an objective view of the application’s strength and where and what features of the invention are most advantageous. Filing preserves a date for initial rights and then provides a delay of about 30 months to file nationally. This timeout in the filing process allows companies to look at their patent position in member nations, spread out filing costs, and continue testing the product and the market. The idea is to get a filing date for the application disclosure first and use the delay to form an international strategy.
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Know National Entry Formalities and Deadlines for Exam Fees There are differences in jurisdictions over how many claims are included in the filing fee for a patent application and whether they carry additional fees. It’s common to pay $100 or more for each claim over 20. However, if you have 100 claims and your claim strategy is not focused, this becomes quite expensive. If prior art dilutes the claim, move on to better claims, which should be supported by a well-drafted application disclosure. The formalities of each jurisdiction vary considerably, so cull and rephrase claims as needed to target cost efficiencies. A jurisdiction that charges exorbitant fees for claims can be expensive, BACK TO CONTENTS
Identify Jurisdictional Rules and Strategy for Continuing Applications Continuation and divisional applications are among the most valuable tools for developing an effective patent portfolio. With proper support from a well-drafted application disclosure, they essentially allow patent holders to add or modify claims to the original patent following the evolution of technology and changes in business strategy.
The bottom line is to pursue a patent strategy of quality, not quantity. Generally, continuing applications can be filed as long as one patent application in a family is pending. This is a relatively inexpensive way for a company to maintain its grip on a product or technology. However, what it means for an application to be “pending” varies considerably by jurisdiction and is a key factor in formulating an effective continuation and divisional strategy.
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to invalidity. Depending on the jurisdiction, fees may be controlled in various ways through abandonment, claim cancellations and refocusing claim strategy. It is critical to have a process for tracking whether the information in a patent portfolio is relevant to current or future product development. Changes in staff over the years, mergers, the sale of portfolios and heavy workloads may create a situation where a legal department does not know the details of what it is maintaining. Instituting a process for tracking and evaluating all aspects of a global portfolio yields cost savings over time as well as insights into how to position a portfolio’s assets.
Chris K. Miller is a principal in the Dallas office of Harness IP. He represents corporate legal teams, business owners and in-house counsel to obtain intellectual property protection in the United States and abroad. ckmiller@harnessip.com
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Watch Annuities and Maintenance Fees Chip away at the fees that are due on the patents in your portfolio, which are calculated and paid based on the national jurisdiction. The bottom line is to pursue a patent strategy of quality, not quantity. As markets and technology change, there will be patents that have marginal value because they have outlived their relevance or have become vulnerable JANUARY 2024
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THOUGHT LEADERSHIP
From Surrendering Souls to Rogue Vegetable Gardens, Looking at Bizarre and Overlooked Terms in Everyday Contracts By DAVID PARKS Contract Logix scoured through some of the most common legal agreements you’ll come across in your lifetime, and we’ve handpicked some of the weirdest, scariest, and most hidden terms you’ll agree to from high school to retirement. Some of the oddest findings in the data include:
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s legal practitioners and suppliers of goods and services to the legal industry, it’s very easy for us to forget that understanding – and even reading – terms and conditions is not necessarily the norm. It’s safe to assume that many American consumers rapidly click through and consent to legal terms and services conditions without ever reading them.
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Hippo Leasing examined terms and conditions related to purchasing and leasing cars and found that reading Volkswagen’s legal documentation would take 7 hours and 6 minutes. That is nearly the same amount of time it takes to read Shakespeare’s Hamlet- twice. Even worse? They found that tech legal documents are 50% longer than those from car manufacturers.
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• Nissan’s privacy clause which gives the company permission to track and collect sexual activity, medical diagnoses and genetic data for targeted ads • UK retailer Gamestation temporarily changed its terms and conditions (T&C) to include a clause stating that users who accept the T&C would surrender their immortal soul to the company • Airlines’ “customers of size” policies requiring that you pay an additional fee to have a second seat or denying service because of what you’re wearing • Contract phrases that waive the right to a jury trial or class-action lawsuit • Homeowners association drones patrolling homeowners’ property BACK TO CONTENTS
for rogue vegetable gardens and the “wrong shade of eggshell” cream • Tiktok using cookies and pixels to track online activity even when they don’t have the app While some of these may seem silly, they do raise the importance of helping our clients and customers understand the value of contract data and the risk involved in signing a legal document without understanding the terms and conditions. A general rule is to encourage others to read the fine print and understand that if something seems too good to be true, it generally is.
CONTRACTS AT EVERY STAGE OF LIFE We encounter terms and conditions at every stage of our lives. The teen years will likely be the first time consumers are asked to sign documents acknowledging consent. But these often are confusing social media privacy terms and conditions with language teenagers may not understand. Consumers in their forties may be managing renting, buying, selling, or improving their living spaces and dealing with related contract requirements. The 50+ set are facing all the terms and conditions that come with planning for retirement. Now is the time of year to review what we’ve signed in our personal lives, sometimes unknowingly. Review and update privacy settings across any social media and financial accounts as well as on your devices, look at life insurance and beneficiaries, and put new limits on the amount of data external companies collect about you, including using privacy- protecting browser BACK TO CONTENTS
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extensions, updating browser’s privacy settings, and using more private browsers. Look for any confusing language and make sure you understand what words like “subject to the following terms” or “arbitration” or indemnify” mean in the context of which you are signing.
Now is the time of year to review what we’ve signed in our personal lives, sometimes unknowingly.
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Understanding T&C agreements is more important than ever. The implications of ignoring the devil in the details can be significant.
David Parks manages Contract Logix's overall marketing strategy and initiatives including product marketing, demand gen, digital, content, and public relations. Parks has over two decades of experience working with Ciena, Progress, Lucent, Cascade Communications and Yankee Group.
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