Today's General Counsel, Spring 2020

SPRING 202 0 VOLUME 1 7/ NUMBER 1 TODAYSGENER ALCOUNSEL.COM

When you run afoul of money laundering and antiterrorist regs

Discovery in Japan and Germany

When transaction counsel acts as trial counsel

New anti-corruption law in France

When the CLO/GC isn’t the Legal GRC When the CLO/GC doesn’t partner with the CISO When you’re liable for a catastrophic construction failure When there’s marijauna in the workplace When you bar marijuana from the workplace

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New wage code in India

IP highlights of 2019 New workplace regulations

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TODAY’S GENER AL COUNSEL SPRING 2020

Editor’s Desk

Not so long ago general counsel often found themselves shut out of business decisions.

You’re too focused on risk, they were told. Things have gotten riskier since then, and in this issue of Today’s General Counsel, some risks — and the opportunities they create for legal officers who focus on them — are the subject of an article about the evolving role of the GC/Chief Legal Officer, by Bobby Balachandran. He highlights the new corporate reality in which the GC/CLO has become a key figure in formulating and implementing business strategy, largely because that office has responsibility for managing legal governance, risk and compliance efforts.

Clearly, an ongoing risk lies in the area of cybersecurity. In their article, Thomas Yohannan, Paul Lanois and Brett Williams highlight the emerging role of the Chief Information Security Officer. They suggest that wise CLOs partner with the CISO to their mutual benefit.

These new titles and changing positions in the corporate hierarchy reflect how central risk management has become to business strategy.

One reason lawyers are good risk managers is the high level of risk to which their profession exposes them. For example, bad actors routinely try to use client accounts to move dirty money into the financial system and exploit the shelf companies that attorneys create to obscure the source of cash. A protocol that protects against violations of money laundering and antiterrorist regulations is the subject of an article by Timothy Stone and Martin Foncello. In another article, Mark Wilson and Gerald Klein discuss yet another kind of risk, one that may arise when your transaction firm litigates lawsuits that stem from those transactions. Attorney/client privilege and the possibility that a transactional attorney might be called as a trial witness are just two of the issues they reference.

The trade war has been prompting a gradual shift of business operations out of China and into India, a trend that accelerated with the onset of the coronavirus. Vijita Verma’s article discusses an act of the Indian Parliament, the 2019 Code on Wages, that will impact all businesses on the sub-continent.

Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com

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SPRING 202 0 TODAY’S GENER AL COUNSEL

Contents 1

|

Editor’s Desk

6 | Executive Summaries

COLUMNS

26 | Workplace Issues Managing Law Departments with Lower Budgets Problems compound in a downturn.

By Scott Forman 28 | Privilege Place Whistleblowing to In-House Counsel You’re the attorney, but who is the client?

By Todd Presnell

38

2 30 | The Antitrust Litigator The Antitrust Analysis of “Tying” Two products sold as one.

By Jeffery M. Cross 48 | Back Page Front Burner Business Risk and the Evolving Role of the CLO “Governance, risk and compliance.”

By Bobby Balachandran

FEATURES

32 | Liability for Catastrophic Construction Failures Contractor, designer or owner?

By Robert C. Epstein and Jacqueline Greenberg Vogt 36 | Problems When Transactional Counsel Act as Trial Counsel Potential conflicts and malpractice issues.

By Mark B. Wilson and Gerald A. Klein 38 | Negotiated Resolution of Criminal Cases in France Deferred prosecution with a Gallic twist.

By Nicolas Brooke and Camille Gravis 42 | Cross-Border Discovery and Witness Considerations in Germany and Japan Obstacles to obtaining documents and testimony.

By Sara Alexandre 44 | Protecting Electronic Devices at the Border Back up, encrypt, and leave what you can at home.

By Punam S. Rogers

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EDITOR-IN-CHIEF Robert Nienhouse

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Sara Alexandre Erika Harmon Arner Bobby Balachandran Courtney Bolin Nicolas Brooke Jeffery Cross Robert Epstein Martin Foncello Scott Forman Jacqueline Greenberg Vogt Paul Lanois

Bradley Presnell Jennifer Prior Punam Rogers Mark S. Spring Timothy Stone Vijita Verma Philip Voluck Brett Williams Mark Wilson Thomas Yohannan

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TODAY’S GENER AL COUNSEL SPRING 202 0

Contents

L ABOR & EMPLOYMENT

10 | India’s New Code on Wages Clarifies a Chaotic Situation Easier to do business, but cost of non-compliance is up.

By Vijita Verma 13 | 2020 Brings New Workplace Requirements Significant changes in some key states.

By Mark S. Spring 16 | Marijuana in the Workplace You can’t keep it out, but be careful about letting it in.

By Philip R. Voluck and Jennifer L. Prior 24 5 INTELLEC TUAL PROPERT Y

COMPLIANCE

18 | Recent IP Law Highlights Constitutional law, sovereign immunity and some racy reading in the Trademark Official Gazette.

By Erika Harmon Arner and Courtney Bolin

24 | Money Laundering and Anti-Terrorist Risk Management for Lawyers Easy mistakes and how to make them.

By Timothy C. Stone and Martin J. Foncello

CYBERSECURIT Y

22 | GC Should Lead Security Management and Risk Get to know your CISO.

By Thomas Yohannan, Paul Lanois and Brett Williams

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Executive Summaries L ABOR & EMPLOYMENT

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India’s New Code on Wages Clarifies a Chaotic Situation

2020 Brings New Workplace Requirements

Marijuana in the Workplace

By Vijita Verma Infosys Limited

By Mark S. Spring Carothers DiSante & Freudenberger LLP

With the ongoing trade war between China and the United States, a number of U.S. companies are gradually shifting their business operations to set up branch offices and working centers in India.

The 2019 Code on Wages will affect U.S. companies who currently have operations in India, and those who intend to start new operations there. It does away with multiple filing requirements and affects cash flows by relaxing/restructuring social security contributions by employers.

The Wage Code came into effect in August 2019, and repeals several previous labor laws.

Some of the key changes are abolition of wage ceiling and economic sector distinctions; uniform applicability of the provisions of timely payment of wages to employees in the organized sector as well as certain unorganized workers; a single definition of “wages”; a new concept of “floor wages” fixed by the central government, bringing consistency across different state governments and employers; and a mandatory bonus in the event the employee is drawing a minimum amount of wages and has worked for 30 days in an accounting year, irrespective of whether the employer has any allocable surplus during the previous accounting year.

The Code has been welcomed by employees across India by addressing issues of gender-based disparity, ensuring fair and timely payment of wages and settlement post termination or resignation. It is seen as a definite positive step towards labor reform, one that has been long awaited.

Only time will determine its true merit.

Several states, led by California, have enacted significant employment laws in 2019. These new statutes will likely require employers to make significant changes to their practices and/or policies to ensure compliance.

The California Legislature enacted AB 5 in 2019. By adopting the restrictive ABC test for independent contractor qualification aimed at gig workers, this bill makes it much more difficult to label workers as independent contractors. Nevada became the first state to prohibit pre-employment drug screening for marijuana. Laws restricting drug testing for marijuana are likely to be considered in the next year or two by other states where marijuana has been legalized.

New Jersey joined many other states when it enacted Assembly Bill 1094, banning private employers from inquiring about a job applicant’s salary history, benefits and other compensation during the hiring process. Illinois and Connecticut expanded employer obligations relating to sexual harassment training and notice requirements.

In the United States, most employment regulation traditionally occurs at the state level. In addition, in the last decade we have seen more and more employment laws/requirements being enacted at the city/municipal level. This makes it very challenging for multi-location employers to try to remain in full compliance of all applicable laws and ordinances. It is very important to keep up with the changes and take the necessary steps to ensure that your policies and practices are consistent with the applicable law and are being kept up to date.

By Philip R. Voluck and Jennifer L. Prior Kaufman Dolowich & Voluck

Businesses are confronting escalating drug use in the workplace by their employees.

Underlying this problem is the use of marijuana lawfully prescribed by physicians for medical issues, and the conflict between state and federal law. These inconsistencies have created confusion for employers — and not just in states where it is legal in some form — regarding issues such as drug testing and how to handle positive results, and making reasonable accommodations for medical marijuana users with disabilities. It will not be resolved anytime soon, leaving employers in a quandary regarding their ability to control the use of marijuana by employees during working hours.

Maine and Nevada have legalized both medical and recreational marijuana.

They prohibit employers from discriminating against applicants or employees based on purely off-duty marijuana use.

As of January 1, Nevada became the first state to prohibit employers from discriminating against employment applicants on the basis of a positive marijuana test.

Businesses can benefit by implementing well-crafted drug use and possession policies. They should clarify positions that are not protected by state medical marijuana laws, such as federal contract employees and safety-sensitive positions; exclude preemployment drug screening for marijuana unless required by federal law, yet allow for post-hiring drug screening in the event of reasonable suspicion or an accident; and create a process for employees certified to use medical marijuana to provide notification to the employer prior to a potential positive drug test.

TODAY’S GENER AL COUNSEL SPRING 2020

Executive Summaries INTELLEC TUAL PROPERT Y

CYBERSECURIT Y

COMPLIANCE

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Recent IP Law Highlights

GC Should Lead Security Management and Risk

Money Laundering and Anti-Terrorist Risk Management for Lawyers

By Erika Harmon Arner and Courtney Bolin Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

In 2019 the Supreme Court and the Court of Appeals for the Federal Circuit grappled with IP cases turning on constitutional law, sovereign immunity and administrative law. In AVX Corporation v. Presidio Components Inc., the Federal Circuit dismissed AVX’s appeal on the grounds that AVX failed to prove standing as required by the Constitution. Among its findings, the statutory estoppel provision found in 35 U.S.C. § 315(e) does not provide sufficient “injury” for Article III standing.

In Regents of the University of Minnesota v. LSI Corporation, the University appealed the PTO’s decision to maintain IPR petitions against patents owned by the University, alleging that the petitions were improper because states enjoy sovereign immunity from IPR proceedings. The Federal Circuit disagreed, holding that state sovereign immunity did not apply to IPR proceedings. In 2020, the Supreme Court will issue an opinion in Allen v. Cooper, a copyright infringement case relating to sovereign immunity in federal court.

In Iancu v. Brunetti, the PTO rejected a trademark application for the mark FUCT under the immoral or scandalous bar. The applicant appealed. The Federal Circuit held that the bar was unconstitutional because it violated the applicant’s right to free speech. The Supreme Court affirmed. In 2020 the Trademark Official Gazette (a weekly publication about applications and registrations) published by the PTO will likely raise eyebrows as applicants begin to seek registration for marks that would have previously been barred as immoral or scandalous.

By Thomas Yohannan, Aon Cyber Solutions; Paul Lanois, Fieldfisher; and Brett Williams, IronNet Cybersecurity

General Counsel are leaders in enterprise risk management and should therefore have a central role in the company’s information security methodology. The GC is broadly aware of an organization’s risks and objectives, maintains a good understanding of its clients and its internal stakeholders, has a normative legal framework and a sense of how to provide risk mitigation.

A Chief Information Security Officer’s value may only be fully realized when a cyber incident occurs. The CISO can become a crucial driver of not only digital transformation but also risk management, as effective information security practices are vital both in preventing a successful incident and responding to one. Legal professionals understand risk management, and its related urgency. Not being aware of statutory requirements can prove costly to the companies, not to mention the harm to reputation that may follow. Again, a clear argument for promoting the GC/ CISO alignment.

Successfully meeting risk mitigation obligations is a cooperative effort. A partnership must exist across the enterprise between the GC, IT, and security organizations to establish the proper controls and enlist executives to meet these obligations.

Given the continually changing skills required in each of those domain areas, the GC is in a position to lead this collaborative effort. Reporting to the GC may provide the foundation for what CISOs should be focusing on next: moving beyond the security silo to play a central role in overall business leadership.

By Timothy C. Stone and Martin J. Foncello Exiger

In the world of anti-money laundering and counter-terrorist financing (AML/CTF) compliance, U.S. lawyers are not held to the same exacting regulatory standards as bankers. Nevertheless, it sometimes behooves lawyers to act a bit more like bankers. In 2019, the Financial Action Task Force (FATF), the independent intergovernmental body that develops policies to combat money laundering and terrorist financing, issued updated risk management guidance for lawyers. It lays out building blocks for a robust AML/CTF framework founded directly on principles of risk management.

As the FATF guidance recognizes, a risk assessment is the starting point for operational risk management. Risk assessments should be adapted to the size, nature and complexity of a legal practice, adding structure, documentation and an input for considering money laundering and terrorist financing risk. For a large firm that facilitates transactions across markets at high risk for corruption and other criminality, a risk assessment might involve not only individual assessments of risk when on-boarding a new client but also an annual firm-wide assessment of aggregate inherent and residual risk, tied to an informed judgment about the effectiveness of the firm’s AML/CTF controls.

In a profession where reputation is everything, lawyers have a compelling reason to understand and mitigate their financial crime exposure. FATF’s recent guidance outlines best practices for lawyers in identifying and managing AML/ CTF risks.

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Executive Summaries FEATURES

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Liability for Catastrophic Construction Failures

Problems When Transactional Counsel Act as Trial Counsel

Negotiated Resolution of Criminal Cases in France

By Robert C. Epstein and Jacqueline Greenberg Vogt GreenbergTraurig

By Mark B. Wilson and Gerald A. Klein Klein & Wilson

By Nicolas Brooke and Camille Gravis Signature Litigation

Catastrophic construction failures such as the April 2019 collapse of a construction crane on a Seattle office building that killed four people generate headlines and stun the public. Such disasters are examples of construction projects that were defectively designed and/or built, leading to construction defects and catastrophic failures. Construction defects can be obvious or latent.

Defects such as under-strength concrete or coatings failures usually are apparent during construction, when liability is clear and the cost of correction is minimal. A latent defect is undetected until the structure and its systems are in use. Construction defects also can result from a product failure.

Adhesives fail, boilers explode, sprinklers sometimes do not sprinkle.

The construction contractor is responsible to perform the work to complete the project. The contractor’s obligations are defined by the construction contract, which provides the basis for liability. Construction site safety is the contractor’s responsibility. For example, the investigation of the Seattle crane by Washington State authorities collapse blamed the contractor, concluding that the crane toppled in a wind gust because the workers who were disassembling it prematurely removed pins securing sections of the mast, contrary to the manufacturer’s instructions.

Construction defects can affect completed projects in ways ranging from poor aesthetics to catastrophic collapse. When a defect, failure or collapse occurs, the contractors, designers and owner all may be exposed to liability, depending upon how each one carried out its responsibilities during the design and construction processes.

When disputes arise involving a contract that your company’s law firm drafted, does it make sense to have that firm litigate the case? The answer is often no.

It is common for issues to arise after parties sign a contract that no one considered during the drafting process, and the parties’ lawyers may become trial witnesses. In California, it is unethical for lawyers to be trial counsel and trial witness on substantive issues without informed written consent. Even with consent, it’s almost always a bad idea.

While legal malpractice may have nothing to do with the cause of the transactional dispute, a potential malpractice claim may cloud issues surrounding the transaction, and the judgment of trial counsel if they or members of their firm drafted the transactional documents. Therefore, it is critical for clients to hire an outsider to the underlying transaction to advise the client candidly about its chances for success in the litigation, whether there is a malpractice issue, and what steps are required to preserve the statute of limitations.

When transactional attorneys testify at trial, attorney-client privilege issues can arise. Clients may decide to waive the attorney-client privilege, but it is much easier to begin the waiver process than it is to end it.

Many companies seek smaller firms to provide trial expertise and marry them to larger firms to provide litigation support.

In the coming years, this paradigm may become the rule, rather than the exception.

In December 2016, France adopted a new anti-corruption law known as Sapin II. France equipped its prosecutorial authorities with a new instrument, the convention judiciaire d’intérêt public (CJIP), directly inspired by U.S.-style deferred prosecution agreements. CJIPs suspend the prosecution of companies in exchange for their cooperation with law enforcement authorities, the payment of a fine and the implementation of remedial measures. The number of CJIPs concluded thus far remains relatively low, however.

Cooperating with law enforcement authorities rather than defending one’s case every step of the way is not an obvious decision to make from a French perspective.

The reputational impact of an indictment is considered less damaging in France than it is in the U.S. There is also a point of comparative criminal law. French prosecutors have the burden of proving that someone vested with the power to represent the company committed a crime on behalf of the company. Although the French courts have displayed a tendency to construe this article more and more broadly over recent years, there are still many cases where misconduct committed by employees will not trigger criminal liability for the company.

It remains to be seen whether CJIPs will become the usual way of resolving corporate criminal matters in France in the future. But in the meantime, the practice certainly appears to be developing steadily and becoming more and more consistent with the approach and methodology of other law enforcement authorities around the world.

TODAY’S GENER AL COUNSEL SPRING 2020

Executive Summaries PAGE 42

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Cross-Border Discovery and Witness Considerations in Germany and Japan

Protecting Electronic Devices at the Border

By Sara Alexandre Swift, Currie, McGhee & Hiers, LLP

Products are an inextricable component of life, but it is only when something goes wrong that an action is filed and the design and manufacturing comes under scrutiny.

Often, key documents and witnesses connected to products in dispute are situated within three manufacturing giants: the U.S., Germany and Japan. Parties conducting transnational litigation out of the U.S. court system face a plethora of obstacles and restrictions when seeking to obtain documents and testimony from other countries, including Germany and Japan.

Discovery as contemplated within the U.S. does not exist in Germany. Before judgment, the court uses its discretion as to the evidence it will permit, and the witnesses it will allow to offer testimony.

Private litigants and their legal counsel are precluded from engaging in evidence taking, as it is considered a public judicial function.

Japan’s legal system is modeled after Germany’s. Pre-trial discovery is considered superfluous. Only the court has the power to direct the collection of evidence.

The Consular Convention between Japan and the U.S. facilitates the taking of evidence but does not entitle U.S. attorneys to obtain testimony or evidence; they must rely on the willingness of witnesses to voluntarily offer information. A court will not grant evidentiary status to information obtained without the court’s involvement; and should the Japanese court decide a U.S. attorney’s method of evidence collection has exceeded what the Consular Convention allows, the court is authorized to refuse enforcement of any judgment.

By Punam S. Rogers Constangy, Brooks, Smith & Prophete

New guidance allows Customs and Border Patrol officers to continue conducting warrantless basic searches of electronic devices. This policy directive, coupled with the administration’s Executive Order on Enhanced Vetting, significantly increased electronic device searches by CBP. In June 2019, the government began collecting social media data of all visa applicants, including their usernames and the social media platforms used in the past five years.

The privacy implications go beyond foreign national travelers and can extend to U.S. citizens and residents whose data may be inadvertently shared and stored on a device the government can now access.

Two federal courts of appeals have held that border searches of digital information require individualized suspicion.

In Riley v. California (2014), the Supreme Court held that the police had to obtain a probable cause warrant to search the cell phone of an individual under arrest.

In March 2018, the Eleventh Circuit addressed whether Riley’s reasoning extends to a search of a traveler’s cell phone at the border. In United States v. Vergara, a divided panel held that forensic searches occurring at the border, not as searches incident to arrest, do not require a warrant or probable cause.

The simplest solution is to minimize the data you carry when traveling. Inform officers if your device contains sensitive data, information protected by attorney-client privilege, confidential trade secrets or the like. According to CBP policy, privileged and/or confidential materials are subject to higher standards than general information.

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Labor & Employment

India’s New Code on Wages Clarifies a Chaotic Situation

By Vijita Verma

10

W

ith the ongoing trade war between China and the United States, a number of U.S. companies are gradually shifting their business operations to set up branch offices and working centers in India.

Manufacturing hubs and units of U.S. companies that were based in China are also shifting to India. The U.S. government has imposed restrictions on transfer of U.S.-origin physical goods, software and technical knowledge to Huawei and 114 global affiliates. The sanctions have largely affected U.S. and European companies that had large contracts with

Huawei for projects involving infrastructure and data warehousing. These are now shifting to Indian companies.

The Wage Code discussed below will largely affect U.S. companies that currently have operations in India, and those who intend to start or develop new operations there. It does away with multiple filing requirements and affects their cash flows by relaxing/ restructuring social security contributions by employers.

The 2019 Code on Wages is an act of Parliament that consolidates the provisions of four major Indian labor laws

concerning wage and bonus payments and makes universal provisions for minimum wages and timely payment of wages for all workers in India.

India had 44 labor statutes enacted by the central government. At least 17 are over 50 years old. A few even date to the pre-independence (1947) era.

The National Commission on Labor, an Indian statutory body created to recommend changes in the labor laws, recommended in 1999 that the existing labor laws should be classified into broader groups for easier compliance.

Under the administration of Prime

TODAY’S GENER AL COUNSEL SPRING 2020

Labor & Employment Minister Narendra Modi, the Central Ministry of Labor and Employment — one of the oldest and most important ministries of government — began considering a plan in 2015 to consolidate the 44 labor laws into four codes in order to improve ease of doing business in India. The Wage Code is the first of the proposed codes. The other three are the Occupational Safety, Health and Working Conditions Code; the Code on Industrial Relations; and the Code on Social Security.

THE 2019 CODE ON WAGES

The Wage Code is the first to be enacted and approved by the Parliament. It came into effect in August 2019 after receiving the consent of the President of India and repeals several previous labor laws.

Some of the key changes brought by this Wage Code are: • Abolition of wage ceiling and economic sector distinctions. Previously the law only applied to employees who draw salary below a particular statutory stipulated limit. The Wage Code mandates uniform applicability of the provisions of timely payment of wages to all employees, irrespective of the wage ceiling. It applies to the organized sector as well as to certain unorganized workers, such as agricultural workers.

State governments may add more employment sectors to this list and mandate minimum wages for those jobs as well. The Wage Code mandates that minimum wages be paid for all types of employment — irrespective of whether they are in the organized or the unorganized sector.

• Wage redefined. The different definitions of “wage” across the 44 labor laws previously in effect led to a great deal of litigation in addition to difficulty in implementation. The Wage Code has brought a single definition to be used across all labor law, thus bringing clarity and consistency. The definition includes (1) basic pay, (2) dearness (greater expense or some other factor that increases value) allowance, and (3) retaining allowance. It excludes components such

as conveyance allowance, house rent allowance, overtime allowance, gratuity payments, and so forth.

Further, the Wage Code introduces a special methodology for computation of wages; and in certain circumstances, various components of wages that were ordinarily understood to be excluded from the definition will instead be considered as part of it. These changes have increased the work of the Compensation and Benefits team of employers and has a significant impact on employers. They must now be very careful in devising employees’ salary structure.

• Concept of floor wage. The Wage Code introduces a new concept of “floor wages,” wherein the rates will be fixed by the central government, taking into account the minimum living standards of a worker. The minimum wage rates fixed by the state government cannot be less than floor wage. However, if the existing minimum wages fixed by the appropriate government is higher than the floor wage, they cannot reduce the new minimum wages.

Further, minimum wage rates will be reviewed and revised by the appropriate government in intervals not exceeding five years. This change

has worked for a period of 30 days in an accounting year, irrespective of whether the employer has any allocable surplus during the previous accounting year. In the event the employer has allocable surplus, the employees will be entitled to receive a bonus up to a maximum of 20 percent of their annual wage. Under the old labor laws, a bonus was paid or not paid at the discretion of the employers, who could use the excuse of not having sufficient surplus.

The Wage Code empowers employers to choose the “mode” and period of payment of wages by introducing “electronic mode” as against the existing old methods of payment by coins, bank transfer or check. Employers can also fix the wage period at their discretion, anywhere from daily to monthly. Further, to ensure fair working conditions, the Wage Code provides that dismissal from service due to conviction for sexual harassment would be considered grounds for disqualification for receipt of a bonus.

The Wage Code has amalgamated the different overtime rates and prescribes that such a rate will not be less than twice the normal rate of wages. It goes a step further and prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature (work for which the skill, effort, experience and responsibility required are the same). This has been highly appreciated by female employees across India, where female employees earn roughly 45 percent less than male employees in the same occupation.

Manufacturing hubs and units of U.S. companies that were based in China are shifting to India. has been welcomed by employees.

It aims to bring consistency across geographies as well as different state governments and employers all over India.

• Additional obligations on employers.

The Wage Code has empowered employers and imposed additional obligations. Employers have an obligation to pay a mandatory bonus in the event the employee is drawing a minimum amount of wages and

• Compliance reliefs for employers.

One of the greatest examples of compliance relief brought by this Wage Code is that it consolidates the requirement of multiple registers under previous laws and provides for a single register containing details with regard to persons employed, muster roll, wages, and so forth.

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Labor & Employment This will lead to easing out periodical compliance checks. The form of the register is yet to be prescribed.

Further, the “inspector” under the previous regime has been replaced with an “Inspector-cum-Facilitator,” who has the additional duties of guiding and advising employers and employees on

right to any amount or right to bonus due him shall be null and void insofar as it purports to remove or reduce the liability to pay such amount under the Code.

Lastly, the provisions of the Code shall have effect notwithstanding any inconsistency contained in any other law in force, or in the terms of any

The Wage Code has amalgamated the different overtime rates and prescribes that such a rate will not be less than twice the normal wage rates.

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effective implementation. Inspections are now possible through a web-based inspection scheme and electronic summoning of information. This will ease compliance burdens for employers, and be in sync with current trends towards digitalization.

• Penalties and offences. The Wage Code contemplates three kinds of contravention: payment of an amount that is less than what is due the employee, improper maintenance of records, and any other contravention of the Code.

The penalty for non-compliance has been substantially enhanced, which may foster a compliance culture by acting as a deterrent. It further allows the employers to rectify noncompliance within a certain time to avoid prosecution. Combining of offences is provided by the Wage Code at any time before or after initiation of the prosecution. Offences can be combined for a sum of 50 percent of the maximum fine prescribed.

However, once combined, another combination will not be permitted within a period of five years of the commission of a similar offence.

Finally, the Wage Code clearly prescribes the burden of proof in claims of non-payment or deficient payment of wages or bonus to be on the employer. It provides that any contract or agreement whereby an employee relinquishes the

award, agreement, settlement or contract of service.

The Code has been welcomed by employees across India by addressing issues of gender-based disparity, and ensuring fair and timely payment of wages and settlement post termination or resignation. It is seen as a definite positive step towards labor reform, one that has been long awaited. Only the test of time will determine its true merit.

What is clear is that the Wage Code increases the cost of non-compliance.

Gone are the days when employers could evade payment of overtime due to laws that hardly provided a deterrent, so paltry were the fines. At the same time, the Code makes it easier to do business, and in some cases provides an opportunity to rectify a breach and avoid prosecution.

Vijita Verma is a Corporate Counsel with Infosys Limited.

She currently works with the Europe Legal Contracts Team and is based in Germany.

Previously she handled commercial contracts for the Asia Pacific and Middle East Regions. vijita_verma@infosys.com

TODAY’S GENER AL COUNSEL SPRING 2020

Labor & Employment

2020 Brings New Workplace Requirements

By Mark S. Spring

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very year, United States employers must address new state and federal laws governing the workplace. Very few changes have taken place at the federal level over the last several years, as it has been rare that the President and Congress can agree when it comes to federal employment law legislation. This pattern continued in 2019, and we saw very little significant legislative developments in the employment law arena.

However, several states, led by California, have enacted significant employment laws in 2019. These new statutes will likely require employers to make significant changes to their practices and/or policies to ensure compliance.

The most important changes affecting

California enacted an outright, very broad ban on no rehire clauses in settlement agreements. the American workplace in 2020 are summarized below.

Increase in Federal Salary Test: For the first time in almost two decades, the federal salary test for exempt professional, executive and administrative workers was raised. The minimum salary

to qualify for these exemptions was increased from $455 to $684 a week. This change makes all professional, executive and administrative employees who earn less than $35,568 annually — over one million workers nationally — eligible for overtime pay under the Fair Labor Standards Act. Standards Act: Several states have higher salary minimums to qualify for overtime exemption under applicable state law. Many other states are also increasing their minimums. For example, in 2019, Pennsylvania enacted a new law that gradually increases the salary test from $35,568 in 2020 to $45,500 in 2022, with automatic increases beyond 2023 based on an index. California pegs its salary test at two times the minimum

SPRING 2020 TODAY’S GENER AL COUNSEL

Labor & Employment wage. Each time the state minimum wage increases, so does the salary test.

For 2020, California’s minimum salary for exempt qualification is $54,080.

Independent Contractor Qualification in California: Codifying a recent California Supreme Court decision, the California Legislature enacted AB 5 in 2019. By adopting the restrictive ABC test for independent contractor qualification aimed at gig workers, this bill

pre-employment marijuana screening as a condition for employment.

Banning Mandatory Arbitration in California: In the fall of 2019, California passed AB 51, which outlawed new mandatory arbitration agreements requiring binding arbitration of many employment-related claims in California, effective January 1, 2020. This law was patterned after a similar, but narrower, 2018 law enacted in New York that bans

This change makes over one million workers nationally eligible for overtime pay under the Fair Labor Standards Act.

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makes it much more difficult to label workers as independent contractors in the Golden State. In fact, unless the worker qualifies for one of the exemptions provided by AB 5, by law any worker who performs work that is part of the ordinary business of the hiring entity must be classified as an employee.

It’s imperative for California employers to review their independent contractor agreements under AB 5 to ensure that the workers continue to qualify as contractors. Misclassification of workers as independent contractors in California comes with steep penalties, including significant wage and hour exposure and, if found to be done intentionally, a requirement that companies disclose the misclassification on their website.

Pre-Employment Drug Screening in Nevada: With Assembly Bill 132, Nevada became the first state to prohibit preemployment drug screening for marijuana.

There are exceptions to the new law that allow pre-employment marijuana screening for firefighters, employees who operate vehicles and other employees where banning such screening could cause safety issues.

Laws restricting drug testing for marijuana are likely to be considered in the next year or two by many other states where marijuana has been legalized.

In fact, New York City already passed such an ordinance in 2019. Its ban will go into effect for city employers in May. The law prohibits employers from using

mandatory arbitration of sexual harassment claims.

However, in January, the Federal District Court for the Eastern District of California in Sacramento issued an injunction prohibiting the enforcement of AB 51 on the grounds that it conflicts with, and is preempted by, applicable federal laws promoting arbitration. It remains to be seen what the courts will ultimately do with this bill.

Salary History Ban in New Jersey/ New York: Effective January 1, 2020, New Jersey joined a plethora of other states when it enacted Assembly Bill 1094, banning private employers from inquiring about a job applicant’s salary history, benefits and other compensation during the hiring process. The New York law is even broader. It prohibits all employers, both public and private, from asking prospective or current employees about their salary history and compensation. It also prohibits businesses from seeking similar information from other sources.

Within the last two years, more than 10 states and a number of municipalities have passed similar laws. Expect this trend to continue as the movement to eliminate the gender pay gap continues to gain momentum.

Lactation Accommodation in California: California enacted broad legislation increasing the burdens on California employers to accommodate employees who are lactating. In addi-

tion, the state now requires employers to publish written policies addressing lactation accommodation.

Settlement Agreements in California/ Oregon: Oregon’s Workplace Protection Act, which becomes effective October 1, 2020, of this year, prohibits employers from entering into settlement agreements or any agreements that contain a nondisclosure provision, non-disparagement provision or any other provision that has the “purpose or effect of preventing the employee from disclosing or discussing conduct” related to discrimination and harassment on the basis of any protected category under Oregon law. There is an exception to this prohibition. In cases where it is the employee’s (or applicant’s) preference to have such provisions, and the individual is provided at least seven days to revoke the agreement after signing, these provisions are still permitted.

California enacted an outright, very broad ban on no rehire clauses in settlement agreements. The new California prohibition, which took effect in January of this year, provides that any agreement to settle an employment dispute may not contain a provision that prohibits, prevents or otherwise restricts a settling party that is an aggrieved person, as defined, from working for the employer against which the aggrieved person has filed a claim, or any parent company, subsidiary, division, affiliate or contractor of the employer.

Sexual Harassment Training in Illinois/Connecticut: Illinois passed new laws requiring employers to implement sexual harassment training and to complete certain training of both supervisory and non-supervisory employees by December 31, 2020. The Illinois Department of Human Rights is developing a model sexual harassment prevention training program for use by employers.

Connecticut also recently expanded employer obligations relating to sexual harassment training and notice requirements. Connecticut employers with three or more employees are now required to provide sexual harassment training to all employees by October 1, 2020. Previously, the law only required employers to provide such training to supervisory employees. Sexual harassment training

TODAY’S GENER AL COUNSEL SPRING 2020

Labor & Employment requirements differ widely by state/jurisdiction. The laws are constantly changing in this area. For example, new training requirements in California were scheduled to become effective in 2020, but the state delayed the implementation of these training requirements until 2021.

Multi-state employers are advised to attempt to keep up with the laws in this area to adequately ensure that their employees and supervisors received the mandated training required in the jurisdiction in which they are employed.

Paid Family Leave in Multiple States: Paid leave is on the rise with more and more leave rights emerging. In 2019, Washington State passed legislation that provides eligible employees with 18 weeks of paid family leave annually, effective January 1, 2020. Washington, D.C. passed legislation that provides eligible employees with up to eight weeks of annual paid family leave depending on the reason: to care for one’s own health condition, two weeks; to care for the serious medical condition of a family member, six weeks; or to bond with a new child, eight weeks. The D.C. law becomes effective July 1, 2020.

California lengthened its paid leave period from six to eight weeks. Effective January 1, 2020, Nevada requires private employers with 50 or more employees in the state to provide certain employees working in the state with up to 40 hours of paid leave per year to be used for any purpose, including non-medical, personal reasons.

In 2019, Maine became the first state to pass legislation requiring employers to provide paid leave for any reason. The law, called the Act Authorizing Earned Employee Leave, will go into effect on January 1, 2021. It is mandatory for all employers with more than 10 employees and provides that employees working for such employers must be provided with up to 40 hours of paid personal leave per calendar year. Under the Act, employees will accrue one hour of paid leave for every 40 hours worked.

In addition to the legislation by the two Washingtons, Maine, Nevada and California, the federal government has enacted legislation providing for paid family leave for federal employees.

Ivanka Trump continues to push for the expansion of this bill beyond federal employees. Look for more states to enact paid family leave legislation and continued pressure for such legislation at the federal level.

Equal Pay for Equal Work in Colorado: Colorado enacted broad equal pay legislation last year. The provisions of this bill will not take effect until January 1, 2021; but it is important for Colorado employers to begin looking at this sweeping legislation during this calendar year to ensure compliance and minimize risks.

Organ Donation Leave in California/ Oregon: California expanded its existing leave laws for organ and bone marrow donation and doubled the amount of available leave from 30 business days to 60 business days (half of it paid). Oregon enacted legislation for the first time that requires employers to provide paid leave for organ donors.

In the United States, most employment regulation traditionally occurs at the state level. In addition, in the last decade we have seen more and more employment laws/requirements being enacted at the city/municipal level. This makes it very challenging for multilocation employers to try to remain in full compliance with all applicable laws and ordinances. It is very important to keep up with the changes and take the necessary steps to ensure that your policies and practices are consistent with the applicable law and are being kept up to date.

Mark S. Spring is the Managing Partner of Carothers DiSante & Freudenberger LLP’s Sacramento office, and Chair of the firm’s Traditional Labor Law Practice Group. mspring@cdflaborlaw.com

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SPRING 2020 TODAY’S GENER AL COUNSEL

Labor & Employment

Marijuana in the Workplace

By Philip R. Voluck and Jennifer L. Prior

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usinesses across the country are confronting escalating drug use in the workplace by their employees. Underlying this problem is the use of marijuana lawfully prescribed by physicians for medical issues, and the conflict between state and federal law. It will not be resolved anytime soon, leaving employers in a quandary regarding their ability to control the use of marijuana by employees during working hours.

Marijuana, regardless of its medical or recreational purpose, remains illegal under the Federal Controlled Substances Act; but 33 states plus the District of Columbia have legalized it for medical use, and 11 states plus the District of Columbia have legalized it for recreational use as well. These inconsistencies have created confusion for employers — and not just in states where it is legal in some form — regarding issues such as drug testing and how to handle positive results, and making reasonable accommodations for medical marijuana users with disabilities.

The U.S. Equal Employment Opportunity Commission issued guidance tied to the Americans with Disabilities Act (ADA) some years ago, allowing an employer to require medical examinations at any stage in the employment process.

However, conflicts between federal and state law can arise when medical examinations reveal the applicant or employee’s use of marijuana in states that prohibit discrimination on the basis of legal marijuana use. The EEOC will likely issue new guidance once the full scope of the legal inconsistencies is revealed.

Another contradiction between federal and state law exists regarding an employer’s obligation to make reasonable accommodations for medical marijuana users. As marijuana remains illegal under federal law, employers are not required to make such accommodations under the ADA. Use of a controlled substance forfeits protection of qualified individuals with a disability.

Many state laws, like Pennsylvania’s Medical Marijuana Act, cover individuals

who use medical marijuana only if that individual has an underlying serious medical condition, which could warrant a reasonable accommodation regardless of marijuana use.

Conflicts in federal and state law can also create confusion for employers in states that have legalized medical and/or recreational marijuana use, yet remain subject to certain federal mandates. For example, the Drug-Free Workplace Act applies to entities that receive federal contracts of at least $100,000, or federal grants in any amount. The Act requires, as a condition of funding, maintaining a drug-free workplace where employees are prohibited from engaging in the “unlawful manufacturing, distribution, dispensation, possession, or use of a controlled substance,” including marijuana.

Similarly, under the Federal Commercial Motor Vehicle Operator Law, employers are required to drug test their employees during pre-employment, reasonable suspicion, random, returnto-duty, follow-up and post-accident testing. The Department of Transportation enabling regulations specifically requires employers to test employees for marijuana metabolites, and to immediately remove an employee who tests positive for marijuana from safetysensitive positions.

Certain state laws prohibit employers from taking an adverse employment action against an employee solely on the basis of the employee’s status as an individual who is certified to use medical marijuana. However, the Pennsylvania law provides some protection for employers. It prohibits employees from possessing or using medical marijuana while at work, allowing employers to discipline employees for being under the influence while at work “when the employee’s conduct falls below the standard of care normally accepted for that position,” and not requiring an employer to commit any act which would cause it to violate federal law.

TODAY’S GENER AL COUNSEL SPRING 2020

Labor & Employment Other states, like Maine and Nevada, which have legalized both medical and recreational marijuana, prohibit employers from discriminating against applicants or employees based on purely offduty marijuana use. As of January 1 of this year, Nevada became the first state to prohibit employers from discriminating against employment applicants on the basis of a positive marijuana test. If an employer in Maine seeks to drug test its employees, it must implement a drug test policy that has been approved by the Maine Department of Labor.

v. Ardagh Glass Packing, Inc., a federal court in New Jersey held that “neither the New Jersey Law Against Discrimination nor the New Jersey Compassionate Use Medical Marijuana Act require an employer to waive a drug test as a condition of employment for federallyprohibited substance.”

Even in states like California, where medical and recreational marijuana is legal, it remains common for employers to drug test their employees out of concern for opiate use, especially in safetysensitive positions involving the use of

Nevada became the first state to prohibit employers from discriminating against employment applicants on the basis of a positive marijuana test.

State and federal courts throughout the country have ruled inconsistently, depending on the level of marijuana legalization in the particular state. In January 2020, in Hager v. M&K Construction, an appeals court in New Jersey, where medical marijuana is legal, upheld a 2018 workers compensation judge’s ruling that an employer must reimburse its employee who sustained a spinal injury on the job for the cost of his medical marijuana and any related expenses.

Courts in Connecticut, New Hampshire and New Mexico have made similar rulings.

In February 2019, in Witmire v.

Wal-Mart Stores, Inc., a Wal-Mart employee in Arizona sued Wal-Mart for discriminating under the Arizona Medical Marijuana Act by suspending, then terminating her, based solely on her positive drug results. The employee was required to take a urine drug test as a result of a work accident that occurred two days prior. The court held that WalMart terminated her solely based on her positive drug results in violation of the state law, which prohibits an employer from terminating a medical marijuana user for positive test results, absent the employee’s use during work hours.

However, in August 2018, in Cotto

heavy machinery. Failing to screen for controlled substances can increase an employer’s liability in the event of workplace accidents and increase their workers’ compensation insurance premiums.

While employers in most states are legally permitted to subject their employees and applicants to drug tests, the accuracy and implications of drug test results remain in question. Experts on workplace drug screening have agreed that urine tests for marijuana fail to indicate the frequency of a job applicant’s marijuana use, and are not an accurate indicator of marijuana intoxication of current employees on the job. The reason for this lack of accuracy is that the chemical in marijuana responsible for most of its psychological effects can remain in the body for days, or even weeks following an individual’s marijuana use. Therefore, a positive test is neither indicative of intoxication, nor frequency of use.

What is an employer to do in the face of such confusion? It remains axiomatic that no federal or state law prohibits employers from disciplining or terminating employees who report to work impaired by any type of substance, whether medically prescribed or not. In North Dakota, where voters are considering placing the legalization of recreational marijuana on

the 2020 ballot, the issue has been raised to the state’s lawmakers that workers found to be under the influence of marijuana could be precluded from collecting workers’ compensation. Federal law also preempts state law, meaning employers subject to federal mandates have no choice but to comply, regardless of state legalization.

Considering the inconsistency in federal and state laws, businesses can benefit by implementing well-crafted drug use and possession policies that address an expanding array of circumstances. Such policies should clarify positions that are not protected by state medical marijuana laws, such as federal contract employees and safety-sensitive positions; exclude pre-employment drug screening for marijuana unless required by federal law, yet allow for post-hiring drug screening in the event of reasonable suspicion or an accident; and create a process for employees certified to use medical marijuana to provide notification to the employer prior to a potential positive drug test.

Marijuana in the workplace is a very fluid issue. For the time being, the federal government can be expected to assume a “hands off” policy and continue to allow states to craft their own laws and regulations governing marijuana use in the workplace.

Philip R. Voluck is co-chair of the Labor and Employment Practice at Kaufman Dolowich & Voluck. He concentrates his practice on employment discrimination, retaliation and wrongful discharge. pvoluck@kdvlaw.com Jennifer L. Prior is an associate at Kaufman Dolowich & Voluck.

She focuses her practice in the area of employment practices liability defense. jprior@kdvlaw.com

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SPRING 2020 TODAY’S GENER AL COUNSEL

Intellectual Property

Recent IP Law Highlights Administrative Law, Sovereign Immunity and More

By Erika Harmon Arner and Courtney Bolin

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TODAY’S GENER AL COUNSEL SPRING 2020

Intellectual Property

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n 2019, we saw many intellectual property attorneys pulling out their old law school textbooks, as many of the biggest IP cases involved issues other than traditional IP law. The Supreme Court and the Court of Appeals for the Federal Circuit grappled with IP cases turning on constitutional law, sovereign immunity and administrative law. These topics will continue to play a key role as IP issues continue to expand beyond their historical confines.

Below, we highlight several of the cases that we believe are the most significant cases from the past year.

Article III Standing: AVX Corporation v. Presidio Components Inc. In AVX Corporation, the Federal Circuit dismissed AVX’s appeal on the grounds that AVX failed to prove standing as required by Article III of the Constitution. As you likely remember from your constitutional law class, standing determines whether the party bringing the lawsuit is suffering sufficient injury to have a meaningful stake in the outcome of the litigation. To show standing, litigants must show that they have been personally injured, that the injury was caused by the opposing party’s behavior, and that the injury is likely to be righted by a ruling in the litigant’s favor.

In this case, AVX petitioned the Patent and Trademark Office (PTO) for an inter partes review (IPR) of a patent owned

by Presidio. The Patent Trial and Appeal Board (PTAB) instituted a review of the patent and found that some claims were proven unpatentable while others were not. AVX appealed, and Presidio argued that AVX did not have standing.

The Federal Circuit agreed, holding that AVX did not have Article III standing. Essentially, while anyone other than the patent owner can file an IPR in the PTO, 35 U.S.C. § 311(a) says a party must have Article III standing to appeal to a federal court. Standing requires injury in fact, which requires that the injury be “real” rather than “abstract.”

Here, the court rejected both of AVX’s arguments in support of its Article III standing. In reaching its conclusion, the court decided two related issues: (1) when considered alone, the IPR statutory

estoppel provision found in 35 U.S.C. § 315(e) does not provide sufficient “injury” for Article III standing; and (2) “competitor standing” does not provide Article III standing to a party that has no present or nonspeculative interest in engaging in conduct covered under the patent claims.

What does this mean in 2020? The Federal Circuit made it clear that a noncompetitor seeking to appeal from an IPR must show more than past injury or potential competitive harm.

Regents of the University of Minnesota v. LSI Corporation The doctrine of sovereign immunity provides that government parties, such as states, are generally immune from being sued in federal court without their consent. In Regents of the University of Minnesota, the University appealed the PTO’s decision to maintain IPR petitions brought against patents owned by the University. The University alleged that these petitions were improper because states enjoy sovereign immunity from IPR proceedings. The Federal Circuit disagreed.

In this case, the University owned multiple patents relating to semiconductor and “read channel” chip technology.

LSI petitioned for IPRs, alleging that the patents owned by the University were unpatentable based on prior art.

In response to each of LSI’s petitions, the

the history of IPR proceedings and the reasons that Congress created these proceedings: to allow the PTO to harness third-party resources to aid the agency in reconsidering a prior patent grant. The court explained that IPR proceedings are unlike court proceedings because the PTO ultimately decides whether or not to proceed, the petitioner and patent owner do not have to participate during the IPR for the PTAB to issue a decision, and IPR proceedings follow distinct procedures.

Weighed together, the Federal Circuit determined that IPR proceedings are not entitled to state sovereign immunity.

Interested in sovereign immunity? In 2020, the Supreme Court will issue an opinion in Allen v. Cooper, a copyright infringement case relating to sovereign immunity. This case will be distinct from Regents of the University of Minnesota because copyright infringement actions are filed in federal court and not through an administrative agency. The Court is expected to address whether Congress rightly abrogated state sovereign immunity via the Copyright Remedy Clarification Act. Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc. Under U.S. patent law, whoever invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof, may obtain a patent, subject to conditions and requirements of the patent statute 35 U.S.C. § 101. However, there are limitations to what is patent eligible within these categories — abstract ideas, laws of nature, and natural phenomenon (including products of nature) are excluded from patent protection (Alice Corporation Pty Ltd. v. CLS Bank International, 573 U.S. 208-2014).

In Endo Pharmaceuticals Inc., the patent owner appealed the lower court’s dismissal of its infringement action on the grounds that its patent was ineligible under § 101. The district court ruled

Standing requires injury in fact, which requires that the injury be “real” rather than “abstract.”

University filed a motion to dismiss based on state sovereign immunity. In response, the PTAB concluded that state sovereign immunity could apply to IPR proceedings, but that the University waived its immunity by filing a suit against the petitioners in district court. The University appealed to the Federal Circuit.

On appeal, the Federal Circuit held that state sovereign immunity did not apply to IPR proceedings. In reaching this conclusion, the court discussed

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TODAY’S GENER AL COUNSEL SPRING 2020

Intellectual Property that the claims were directed towards “the reaction of the human body” of a patient with kidney failure, which is “unquestionably natural law.” The disputed patent claimed a method of treating pain for patients with kidney impairment with a controlled-release dosing of oxymorphone to maintain an optimal level of the drug. According to Endo, its

claims at issue are “directed to” ineligible subject matter.

Here, the Federal Circuit found that the claims were not directed to ineligible subject matter because the claims were directed towards “a specific method of treatment for specific patients using a specific compound at specific doses to achieve a specific outcome.”

In 2019, the Supreme Court once again grappled with the constitutionality of the Lanham Act under the First Amendment. method improves treatment for patients by providing the “lowest available” dosage based on the patient’s pharmacokinetic response to oxymorphone.

The Federal Circuit reversed the lower court by applying the Supreme Court’s Alice framework for determining subject matter eligibility under § 101.

Under Alice, a court must apply a two-step framework to identify patents that merely claim ineligible subject matter.

First, a court must determine whether the claims at issue are directed towards a patent-ineligible step, such as a law of nature. If so, the court then applies the second step. Under the second step, the court must consider the elements of each claim, both individually and as an ordered combination, to determine whether the additional elements transform the nature of the claim into patenteligible material. Under this framework, if the court finds that the patent-in-question’s claims are not directed to patentineligible material under step one, the court does not have to apply step two.

Here, the Federal Circuit stopped after step one.

As previously mentioned, under the first step of this framework, the court must determine whether the claims at issue are directed towards a patent-ineligible concept. The Supreme Court has cautioned against an overly broad interpretation of what is patent ineligible, because “all inventions at some level embody, use, reflect, rest upon, or apply” an ineligible concept. Instead, the court must focus on whether or not the

Moving forward, patent applicants should carefully consider what it is that they are claiming. To avoid potential § 101 concerns, it is best to be specific in what is claimed to avoid language indicating that ineligible subject matter is being claimed.

Iancu v. Brunetti Under the Lanham Act, a trademark is generally eligible for registration if it is used in commerce; however, the law provides that the PTO should refuse registration for certain marks. For example, the PTO cannot register marks that are merely descriptive, create a likelihood of confusion, or contain the flag or insignia of any nation or state.

Until 2017, the PTO was prohibited by the Lanham Act, 15 U.S.C. § 1052(a), from granting registration to marks that disparaged individuals or groups. Then, in 2017, the Supreme Court invalidated the disparaging trademarks bar of the Lanham Act in Matal v. Tam. In that case, the Court determined that the disparaging marks bar violated the First Amendment because it discriminated on the basis of viewpoint.

In 2019, the Supreme Court once again grappled with the constitutionality of the Lanham Act under the First Amendment in Iancu v. Brunetti.

In Brunetti, the PTO rejected federal trademark application for the mark FUCT (pronounced as four letters, F-U-C-T) under the immoral or scandalous bar, 15 U.S.C. § 1052(a). The applicant of the mark appealed this rejection to the

Trademark Trial and Appeal Board, which upheld the decision. The applicant then appealed to the Federal Circuit, which held that the immoral or scandalous bar of the Lanham Act was unconstitutional because it violated the applicant’s right to free speech.

In response to the Federal Circuit’s holding, the PTO filed a writ of certiorari to the Supreme Court. The Court agreed to hear the case and affirmed the Federal Circuit’s decision, reasoning that, similar to the disparagement bar in Tam, the immoral or scandalous bar violated the First Amendment as unconstitutional viewpoint discrimination.

What does this mean in 2020? Perhaps the Trademark Official Gazette (a weekly publication about applications and registrations) published by the PTO will raise a few more eyebrows as applicants begin to seek registration for marks that would have previously been barred as immoral or scandalous.

Erika Harmon Arner is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP and leads the firm’s electrical and computer technology practice group. She focuses her practice on patent office trials, client counseling and litigation, with an emphasis on electronic technology, computer software and the Internet. erika.arner@finnegan.com Courtney Bolin is an attorney at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. She focuses on all aspects of patent litigations and prosecution, and client counseling. She works with a variety of technologies, including textiles, aerospace materials, consumer products, medical devices, and mechanical and electrical systems. courtney.bolin@finnegan.com

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SPRING 2020 TODAY’S GENER AL COUNSEL

Cybersecurity

GC Should Lead Security Management and Risk

By Thomas Yohannan, Paul Lanois and Brett Williams

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ybersecurity is a board-level issue.

A breach of almost any magnitude can put the survival of the business at risk. In 2014, the U.S. Securities and Exchange Commission wrote “boards that choose to ignore, or minimize, the importance of cybersecurity oversight responsibility, do so at their own peril.”

The Yahoo data breaches are a cautionary tale for any General Counsel’s office. Notably, as indicated in Yahoo’s Form 10-K filing, the in-house legal team at Yahoo was found to have not sufficiently pursued the investigation of a security incident that arose in 2014.

In particular, an independent committee of Yahoo found that it was up to the legal department to further inquire into security incidents, to pursue the investigation and analysis, and that failure from the legal department meant that the company was not correctly advised concerning legal and business risks.

This clearly suggests that the GC has a critical role concerning information security and, in this case, failed to execute that role. In fact, in connection with the alleged lack of action from the legal department, Yahoo subsequently accepted the resignation of its GC. As

further evidence of the impact of the breach, the acquisition value of Yahoo decreased by $350M from the time the breach was announced to when the merger with Verizon closed.

Enforcement actions taken under data protection laws also relate to cybersecurity issues. For example, the UK’s Information Commissioner Office (ICO) issued in July 2019 a notice of intention to fine British Airways $230 million and Marriott International $123 million, both under the General Data Protection Regulation (GDPR) for a data breach. The ICO criticized British Airways for its “poor security arrangements” and claimed that “Marriott failed to undertake sufficient due diligence when it bought Starwood and should also have done more to secure its systems.”

These are but two examples of the strategic importance that must be given to managing cyber risk.

ROLE OF THE CISO

“Data breaches” have become part of the vernacular. They affect a broad spectrum of society. In response, organizations are reevaluating how they handle and heighten information security and

management responsibilities. The Chief Information Security Officer (CISO) role represents a growing leadership focus. This is a positive and essential trend. One question is, how would an organization reach a level of maturity such that the CISO might have a more significant role in the business decisionmaking process? Creating a close relationship with the GC is a clear option.

A successful corporate strategy is not to have concentrated profit with miscalculated risk. A cyber incident is the best evidence of such a gross miscalculation of risk. The unfortunate truth is that a CISO’s value may only be fully realized when an incident occurs.

The CISO can become a crucial driver of not only digital transformation but also risk management. Effective information security practices are vital both in preventing a successful incident and responding to one.

Legal professionals understand risk management and its related urgency. Not being aware of statutory requirements can prove costly to the companies, not to mention the harm to reputation that may follow. Again, a clear argument for promoting GC/CISO alignment.

GC’S OFFICE OFFERS VISIBILITY

The GC is broadly aware of an organization’s risks and objectives and maintains a good understanding of its clients and internal stakeholders. Hugh TowerPierce, CSO at Oscar Health, believes that “reporting lines for CISO and CSO roles other than to the technology executive often carry a progressive perception.” When the security organization reports to executives such as the GC or the CFO, there is an inherently stronger alignment on risk management responsibilities. Security’s relationship with the company’s technology leadership will always be key to security success,

TODAY’S GENER AL COUNSEL SPRING 2020

Cybersecurity but a reporting line elsewhere will help level situations where technology and security have competing priorities.

The CISO may be able to exert stronger control outside of technology in areas such as employee cyber awareness and education, policy development and even programs of cultural change.

CEOs recognize the critical nature of cybersecurity and its regulatory demands and risks. While the GC’s office drives risk management strategy, a CISO can find himself or herself to be a well-regarded adviser as the legal department tends to be more engaged in cybersecurity on an episodic basis. The GC’s office also has less interest in security as an operational issue. The best way to handle matters related to information governance and compliance is through the GC, since she/he has an understanding of corporate direction and often serve as board secretary.

In addition, the GC gains a complete perspective of the organization’s overall risk management strategy by taking the lead on security. A CISO’s understanding of how information is protected is vital for organizations as they face security challenges. So, while lawyers can offer the bridge to deliver the message more effectively to the company and external parties, CISOs are best equipped to understand new threats and their attendant results.

AN ALTERNATIVE APPROACH

When it comes to managing cyber risk, there is a tendency to create a new process that is not part of the company’s existing risk management framework.

That is a mistake. Cyber risk should be managed similarly to other strategic business risks, while noting there are two key challenges.

First is the gap in language perception and understanding that exists between the typical business leader and most tech leaders. This makes it hard to talk about the risk-benefit tradeoffs of bringing in new technology. Second, organizations do not have the “actuarial” data to adequately estimate the costs to a business resulting from a successful breach — liability costs, intangibles like reputation loss, and increased oversight

and regulation. In most organizations, there is not a single leader or group with sufficient depth and breadth to manage cyber risk from a business level.

One way to approach this challenge is to create a cross-functional group whose responsibility it is to integrate cyber risk into the existing enterprise risk management framework. The group is responsible for reporting to the board on the company’s management of cyber risk.

The group should focus on developing metrics and reporting that clearly show how well the company executes against the following three cybersecurity value drivers: (1) Do we adequately understand the threat to our business? (2) Can our business survive a successful attack? (3) How do we know we are effectively and efficiently managing our cybersecurity spend?

The GC is an excellent choice to lead this group based on his/her already extensive role in risk management and routine interaction with the board. Key members of the group may include the CIO/CISO, major business unit representatives, HR, corporate communications and perhaps an outside consultant.

This approach drives two cultural changes. First, it makes key leaders across the organization dive in and become familiar with all aspects of managing cyber risk so they may learn the key concepts, terms and language around cybersecurity. Second, this group will naturally translate what they have learned into “business speak,” since most of them are not technology leaders. The result will be more effective communication with the executive team and the board, and a general improvement in dialogue about cybersecurity. This approach works, and it can drive cultural change around how the organization treats cyber risk. But as with any cultural change, tone at the top is critical. The CEO must drive this change until it becomes embedded in the company’s overall approach to risk management.

CISOs face a host of new and emerging challenges, including risks generated by the ubiquity of connected mobile devices, the drive toward cloud-centric services, complying with fractured regulations, the threat of state-sponsored

attacks and increasingly sophisticated global cybercriminals. Indeed, organizations are strengthening the role of the CISO so that they are better able to handle the protection of data and response to threats. While the GC will not be expected to understand how security is prosecuted, they do have the normative legal framework and a sense of how to provide risk mitigation.

Successfully meeting risk mitigation obligations is a team effort. A partnership must exist across the enterprise between the GC, IT, and security organizations to establish the proper controls and enlist the proper operating executives. Given the continually changing skills required in each of those domain areas, the GC is positioned to lead this collaborative effort. Reporting to the GC may provide the foundation for what CISOs should be focusing on next: moving beyond the security silo to play a central role in overall business leadership.

Thomas Yohannan is VP, Enterprise Sales for Aon Cyber Solutions focusing on security, forensics and cyber insurance. He serves as a Security Advisor to the U.S.-Israel Economic Mission as well as a contributing author for Thomson Reuters’ threevolume legal treatise, Cybercrime & Security. thomas.yohannan@aon.com Paul Lanois is a global privacy, data protection and information security professional and is currently a Director of Technology and Privacy at Fieldfisher.

Paul.Lanois@fieldfisher.com Maj. Gen. (Ret.) Brett Williams is a co-founder and the Chief Operating Officer at IronNet Cybersecurity. In his last active duty assignment, he was the Director of Operations for United States Cyber Command. brett.t.williams@icloud.com

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SPRING 2020 TODAY’S GENER AL COUNSEL

Compliance

Money Laundering and Anti-Terrorist Risk Management for Lawyers

By Timothy C. Stone and Martin J. Foncello

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n the world of anti-money laundering and counter-terrorist financing (AML/ CTF) compliance, U.S. lawyers are not held to the same exacting regulatory standards as bankers. Bankers must monitor clients for suspicious activity and file Suspicious Activity Reports with the Financial Crimes Enforcement Network when client activity engenders suspicion of financial crime. However, Congress has not seen fit to impose a comparable obligation on U.S. lawyers — who, after all, are bound by the duty of confidentiality and attorney-client privilege. Yet in the AML/CTF context at least, it sometimes behooves lawyers to act a bit more like bankers.

Lawyers, of course, can be an important conduit to the financial system, and bad actors can misuse lawyers to move and hide illicit gains, which poses money laundering and terrorist financing risk comparable to banks and financial institutions. An attorney’s client accounts, for instance, can be used to place tainted money in the financial system or to layer funds and obscure their source.

Lawyers create corporate structures such as shell and shelf companies, which can be exploited to retain control over illegally derived assets, and to prevent law enforcement from tracing the origin and ownership of assets. Attorneys play a central role in the transfer of real property, and criminals commonly invest the

proceeds of wrongdoing in real estate.

Lawyers have strong reason to look at their money laundering and terrorist financing exposure. The risks of not doing so are many. For example, although not subject to the Bank Secrecy Act, attorneys are certainly bound by criminal money laundering laws, and want to protect themselves from imprisonment at worst and career-derailing criminal liability at best. Lawyers can also breach economic sanctions if they deliberately or even inadvertently handle funds coming from or going to comprehensively sanctioned countries, or facilitate transactions by individuals or entities designated pursuant to the Office of Foreign Asset Control’s sanctions programs.

Ethical violations are yet another pitfall. The most recent and prominent cautionary tale was the Global Witness/60 Minutes sting case from 2016. Wearing a hidden camera while posing as a German adviser to a West African mining minister, a witness from the non-profit Global Witness met with lawyers from 13 New York law firms — including the then-president of the American Bar Association — asking the lawyers how to anonymously move large sums of money that he said derived from suspicious origins. In all but one case, the lawyers offered suggestions on how to get the money into the United States without detection. This fueled a stir in the New York legal community

and led to at least two instances of New York Bar authorities publicly censuring the attorneys involved.

Overlapping with each of the above risks is the hit to their reputation that attorneys take if they don’t consider AML/CTF issues in their enterprise risk management, and establish controls appropriate to their practice. The notorious and long- running 1Malaysia Development Berhad (1MDB) scandal is a case in point. As investigators unpeeled the case like a rotten onion, news reports cited financial transactions performed by key players in conjunction with five major U.S. law firms. A fraudster allegedly used one of those firms, which the DOJ named in a civil asset forfeiture filing, to launder (unwittingly, by all accounts) hundreds of millions of dollars pilfered from a Malaysian sovereign wealth fund through a law firm’s pooled account. The firm wired tens of millions of dollars to, among other places, casinos well known for money laundering opportunities.

Even assuming the legality of the attorneys’ conduct in that case, the firm found itself in the unenviable position of taking a blow to its reputation. The fact that a basic internet search for the name of a lawyer or firm yields news hits for money laundering is obviously something to be avoided at all costs.

From solo practitioners to multinational megafirms, lawyers can therefore take a page from the playbook of banks and other financial institutions by considering how enterprise risk-management techniques — including risk assessments and technology-enabled AML/CTF controls — can help identify, assess and mitigate exposure to financial crime, and potentially crippling damage to their reputations.

Nearly all banks and modern financial institutions use some form of enterprise risk management to identify and priori-

TODAY’S GENER AL COUNSEL SPRING 2020

Compliance tize nonfinancial risks that can impact the organization’s ability to operate. As the Wall Street Journal reported in July 2019, government agencies are getting into the enterprise risk-management game.

Faced with the often enormous impact of nonfinancial risks on public confidence in government, federal agencies are increasingly taking a cue from the corporate world by appointing chief risk officers, and instituting controls to identify and manage operational risks.

AML GUIDANCE FOR LAWYERS

Lawyers, too, can benefit from the structure and rigor of sound enterprise risk management, especially in the context of financial crime risk. In October 2014, recognizing the financial crime risk inherent in aspects of legal practice, the American Bar Association, in conjunction with the International Bar Association and the Council of Bars and Law Societies of Europe, issued AML guidance for lawyers that touched on the risk-based approach attorneys can apply in the AML/CTF context.

In June 2019, the Financial Action Task Force (FATF), the independent inter-governmental body that develops policies to combat money laundering and terrorist financing, issued updated risk management guidance for lawyers.

Expanding upon earlier guidance, the 2019 document, titled Guidance for a Risk-Based Approach for Legal Professionals, lays out building blocks for a robust AML/CTF framework founded more directly on principles of risk management.

As the FATF guidance recognizes, a risk assessment is the starting point for operational risk management. Risk assessments should be adapted to the size, nature and complexity of a legal practice, adding structure, documentation and an input for considering money laundering and terrorist financing risk.

In many cases, performing an AML/CTF risk assessment is not much different than what attorneys already do as a matter of course. For a solo practitioner, this can be as simple as memorializing the vetting of a client and taking on cases only within the attorney’s expertise.

For a large firm with a global foot-

print that facilitates transactions across markets at higher risk for corruption and other criminality, a risk assessment will need to be more nuanced. For example, it might involve not only individual assessments of money laundering/terrorist financing risk when on-boarding a new client but also an annual firm-wide assessment of aggregate inherent and residual risk, tied to an informed judgment about the effectiveness of the firm’s AML/CTF controls.

An AML/CTF risk assessment will naturally focus on the inherent financial crime risk of each client and its relationship with the lawyer or firm. FATF’s recent guidance covers certain well-trod ground in this area, such as the heightened risk from working with clients who are politically exposed persons and those closely associated with them.

Lawyers should also pay attention to client companies that operate a considerable part of their business or have major subsidiaries in countries posing higher risk for corruption and other financial crime, and clients that are cash-intensive businesses.

TECH LEVELS THE FIELD

For firms with limited time and resources to dedicate to compliance, performing due diligence to support robust risk assessments can seem daunting, but technology is leveling the playing field.

In this regard, FATF specifically urges legal professionals to “consider using reputable technology-driven solutions to minimize the risk of error and find efficiencies in their AML/CTF processes.”

Some of the same technology-enabled tools that banks use to identify and mitigate AML/CTF risk are available to lawyers. In particular, tools that employ artificial intelligence and machine learning can provide affordable, repeatable and auditable ways to gather and review customer information and to monitor changes in a client’s AML/CTF profile.

The FATF guidance also offers valuable examples of factors that may render a transaction or service a lawyer is asked to facilitate riskier with respect to money laundering and terrorist financing. Some of these are obvious, such as whenever a lawyer, effectively acting as an intermedi-

ary, handles the transmission of funds through accounts she/he controls to carry out a business transaction on behalf of the client.

The guidance provides examples of more nuanced red flags as well. Examples include the transfer of real estate or other high value goods or assets between parties in an unusually short time period with no apparent legitimate reason; the postponement of payment for an asset or service delivered immediately to a date far from the time at which payment would normally be expected, without appropriate assurances that payment will be made; unexplained establishment of unusual provisions in credit arrangements that do not reflect the commercial position between the parties; and acquisition of businesses in liquidation with no apparent legitimate purpose.

In a profession where reputation is everything, lawyers have a compelling reason to understand and mitigate their financial crime exposure. FATF’s recent guidance outlines best practices for lawyers in identifying and managing AML/ CTF risks through tried-and-true operational risk management techniques, the effectiveness and efficiency of which can be boosted through technology-enabled solutions.

Timothy C. Stone is a Director based in the New York office of Exiger, and a former Manhattan Assistant District Attorney. He oversees the drafting and submission of reports to the Department of Justice as well as U.S. and international regulators. tstone@exiger.com Martin J. Foncello, a former Manhattan Assistant District Attorney, serves as Assistant General Counsel at Exiger. mfoncello@exiger.com

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SPRING 202 0 TODAY’S GENER AL COUNSEL

WORKPLACE ISSUES

Managing Law Departments With Lower Budgets

By Scott Forman

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ith a possible global recession looming, signs of caution from corporate legal departments are emerging. For instance, in Altman Weil’s 2019 Chief Legal Officer Survey, 38 percent of respondents said they decreased their total budget last year, up from 29 percent in the 2018 survey; and only 36 percent plan to add in-house lawyers in the next 12 months, down from 42 percent in 2018.

These trends will almost certainly accelerate if broader economic worries turn out to be well founded. That’s grim news for in-house counsel who are already struggling with workloads and pressure to increase operational efficiency. The volume of legal work is not decreasing, so how will that work get done amid declining budgets and decreased in-house hiring?

This article considers two key management challenges for in-house labor and employment attorneys, both of which can be heightened for employers during an economic downturn: the stream of HR-related questions they must now manage on a daily basis and the continued rise of employment-related

Scott Forman is a shareholder with Littler.

He focuses on solutions for clients including Littler onDemand for employment law advice and counsel, and Littler CaseSmart for managing employment litigation. sforman@littler.com

litigation. It then focuses on two ways in-house legal departments can navigate these conflicting forces.

TECHNOLOGY AND DATA ANALYTICS

Combining the vast data an organization already has about its own business with available technology is one way to combat the pressure to operate more efficiently and effectively.

When it comes to managing employment-related questions and responding

to the myriad of issues that arise in the workplace, technology provides an opportunity to create a knowledge bank that can be harnessed to provide more consistent and high quality counsel.

Promptly answering each question that arises in the workplace in a one-off fashion uses up vast amounts of time and resources. However, capturing those questions, which often follow similar themes, and the answers provided in a single online platform creates a

TODAY’S GENER AL COUNSEL SPRING 2020

trusted knowledge bank of information to answer future queries. Drawing on such a platform not only saves in-house counsel time in the response process but also provides a way of storing institutional knowledge in a place where it can be accessed 24/7 across the company.

Gathering and centralizing this type of information also has the added benefit of being able to analyze the data to spot patterns and potential areas of risk.

With a growing list of responsibilities and legal issues to manage, it can be difficult for individual in-house attorneys to spot trends within their own companies.

For example, they might not realize that a certain employment policy or office is disproportionately involved in claims that escalate into lawsuits. With access to this type of insight, in-house counsel may decide to update specific policies or provide targeted employee training, potentially heading off problems before they balloon into larger issues or costly litigation.

Corporate legal departments see the potential and are eager to take advantage of data and technology to address these issues. More than two thirds of in-house counsel surveyed by Littler recently said they were interested in analyses of their own data to help monitor trends, identify areas of risk and guide decision making.

USING SCALE TO INCREASE EFFICIENCY

Finding the time and resources to implement technology solutions and analyze data can be difficult for corporate legal departments. One way to address this is to leverage the scale of outside legal counsel for staffing and technology solutions. Law firms are in a position to invest in resources and develop platforms that can be scaled across their client base. They also can tap into the vast data they have access to and provide valuable insights to clients.

In the Littler survey referenced above, we asked in-house attorneys what they find most valuable about a law firm’s ability to provide support in relation to staffing. Nearly 70 percent said they want technology solutions that reduce

their own need to hire more staff attorneys. Because in-house teams tend to run lean, they want to rely on their law firms for staffing support to scale up or scale down as their volume of legal work ebbs and flows, for quick access to in-depth knowledge and counsel on complex issues, and for technology solutions that help them manage their responsibilities.

Through aggregate and anonymized data across their client bases, law firms can also provide helpful benchmarking information to clients on where their challenges lie and how they stack up against similar companies. For example, having collected case data on nearly 30,000 matters through our proprietary platform for managing employment litigation, we are able to provide clients with a big-picture, industry-wide view of their legal matters. Through this benchmarking data, a client may find that it is spending less than other companies within its industry to settle administrative agency charges, but with more matters ending up in litigation. Or that its cases are settling at later phases of litigation relative to peers, resulting in higher overall spend — attorneys’ fees plus settlement dollars — than average. Armed with this information, the company can decide how to adjust its settlement and litigation strategy to reduce legal spend.

Put simply, law firms can help inhouse counsel manage their workloads and provide better overall counsel, becoming a flexible and seamless extension of these departments’ own teams.

More than three-quarters of chief legal officers surveyed in the Altman Weil study expect a recession within the next two years. Regardless, we know that smart companies and their law firms will look to technology and datadriven solutions to improve, and that many of them will do so together.

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27

SPRING 202 0 TODAY’S GENER AL COUNSEL

PRIVILEGE PLACE

Whistleblowing to In-House Counsel

By Todd Presnell

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ust like human resource managers, ombudsmen and compliance officers, in-house lawyers often find themselves the go-to corporate representative for whistleblower employee complaints. But unlike their non-lawyer counterparts, an employee’s whistleblowing discussions with in-house counsel raises several thorny privilege issues.

For instance, one should question whether the attorney–client privilege applies to the conversation. Other questions raise a lawyer’s anxiety level. What should the in-house lawyer do if the employee announces that she has an attorney, and ups the stakes by requesting her lawyer’s presence? How does one handle the ensuing complaint asserting a retaliation claim that contains the inhouse lawyer’s comments? And just to make it interesting, what if the whistleblower is another in-house lawyer?

The in-house lawyer listening to a whistleblower employee must determine in the first instance whether the corporate attorney–client privilege protects the conversation from future discovery attempts. The privilege protects communications that are confidential when made, intended to remain confidential thereafter, and made for purposes of

Todd Presnell is a trial lawyer in Bradley’s Nashville office. He is the creator and author of the legal blog Presnell on Privileges, presnellonprivileges.com, and provides internal investigation and privilege consulting services to in-house legal departments. tpresnell@bradley.com

the lawyer rendering legal advice to the corporate client. Courts generally presume that a corporate employee’s communications with the company’s outside counsel are for legal advice purposes. But because courts understand that in-house lawyers often provide both business and legal advice, they do not apply the same legal advice presumption to in-house counsel.

When a whistleblower enters the in-house lawyer’s office, the threshold question is whether the employee is communicating so that the lawyer can provide legal advice to the company management or the employee (in a nonpersonal capacity). This is often difficult.

On the one hand, the in-house lawyer must address the employee’s complaint through an investigative or reporting process, which sounds more like a business process than a legal one. On the other hand, the conversation could certainly lead to the lawyer’s providing legal advice to her client. Or both.

The privilege issue likely will not ripen until the whistleblower employee files

a lawsuit, such as one for retaliation if the company terminates the employee post-whistleblowing. And if the employee made her complaints to the in-house lawyer, she could regurgitate that putatively privileged conversation in the body of the complaint. One court recently addressed this issue and provided some guidance.

In that case, a human resources manager visited her employer’s in-house lawyer to complain about alleged wage and hour violations. She also asked the lawyer for her interpretations of related corporate policies. The next day, she was fired.

In her subsequent retaliation complaint, the now-former employee repeated her conversation with the in-house lawyer, including that her supervisor violated state law and failed to follow employer policies. Other allegations included that she asked for “clarity” of certain policies and the in-house lawyer’s response. Even if the employee’s discussion with the in-house lawyer triggered her next day firing, the employer faced a dilemma: Did the

TODAY’S GENER AL COUNSEL SPRING 2020

privilege cover the employee-lawyer conversation and, if so, what could the employer do to extract privileged communications from the complaint?

The employer filed a Rule 12(f) motion to strike, asking the court to order the employee to refile the complaint omitting the allegations containing privileged information. Rule 12(f) allows a court to strike allegations that are “redundant, immaterial, impertinent or scandalous matter.” This is a good tactic because courts have stricken as “immaterial” allegations that are “inadmissible due to privilege.”

Here, the court found that most of the conversation with the in-house lawyer fell outside the scope of the attorney–client privilege. The critically missing piece was that the employee was reporting misconduct rather than communicating so the attorney could render legal advice. The employee’s conversations were classic whistleblowing on what she perceived as legal violations.

And the court ruled that the privilege does not cover communications that trigger retaliatory conduct.

Other allegations in the complaint, however, presented a closer privilege call.

The employee’s allegations that she asked the in-house attorney for “clarity” on interpretations of corporate policies appeared to be asking for legal advice. And further allegations relaying the in-house attorney’s plans to obtain additional information seemed related to legal.

The court, however, was reluctant to strike these paragraphs without more context. Instead, the court’s remedy was to seal the original complaint and order the employee to file a new complaint with the close-call privilege allegations redacted. So, in sum, the employer could not show that the privilege covered the whistleblowing part of the discussion, but the part of the conversation going beyond whistleblowing likely garnered privilege coverage warranting at least redaction.

Many whistleblowing employees consult a personal attorney before lodging whistleblowing complaints

internally. And if the whistleblowing conversation turns into an interview, which often occurs, additional privilege and ethical questions arise if the whistleblower employee announces that she has an attorney. A recent decision from an Ohio appellate court in an analogous situation illustrates the privilege and ethical quandaries.

In that case, an employee complained to the human resources manager about a supervisor’s alleged sexual harassment.

The company retained outside counsel, and the lawyer’s first act was to interview the complaining employee. After the interview began, the employee excused herself, contacted her lawyer, returned to the meeting, and informed the company’s lawyer that she was represented by counsel. The interview continued for an hour with a tape recorder running. And the company fired her shortly thereafter.

In the employee’s subsequent sexualharassment and retaliation lawsuit, she sought production of her recorded interview. The company claimed that the privilege protected the recording from discovery because it involved a communication between a company employee and a company lawyer.

The court rejected this privilege assertion. Although she was an employee at the time of her interview, the employer knew before the interview began that she could file suit and that she had retained counsel. For these reasons, the court found that the employer could not reasonably expect that the substance of the interview, whistleblowing, would have the character of a confidential communication with a lawyer. Indeed, the court found that a de facto adversarial relationship existed between the employee and her employer and, as such, there was no privilege.

But larger issues permeated the situation. Model Professional Conduct Rule 4.2 prohibits a lawyer from talking with an individual about the subject of the representation when the lawyer knows that the individual has an attorney. The exception is that an interview may proceed if the lawyer obtains con-

sent from interviewee’s lawyer. Here, the company’s lawyer did not stop the interview and contact the interviewee’s lawyer for permission. While the court sidestepped a ruling, it strongly hinted that the lawyer’s conduct raised serious ethical concerns.

Even trickier privilege issues arise if the whistleblower is another in-house lawyer. A federal court case provides an illustration. In that case, an in-house lawyer reported conduct that allegedly violated the Foreign Corrupt Practices Act to the audit committee. His company later fired him, and he filed suit asserting retaliatory discharge claims under the Sarbanes-Oxley and Dodd–Frank acts.

The company later sought a dismissal on the grounds that he could not prove his retaliation case without disclosing the company’s privileged information.

The privilege, of course, belongs to the company. And it asserted that, without waiver, the former in-house attorney could not use privileged communications to which he was a part in order to prove his case. Applying federal law, the court held that with appropriate protections the in-house lawyer as plaintiff may rely on privileged communications that he believes necessary to prove his case.

Ethical rules again come into play.

Here, the state’s ethical rules of confidentiality, which governed the in-house lawyer, prohibit a lawyer from revealing client confidences unless the lawyer reasonably believes disclosure is necessary to prevent a criminal act that would cause death or substantial bodily harm. Model Rule 1.6, by contrast, permits a lawyer to reveal client confidences necessary to establish a claim or defense in a controversy between the lawyer and the client.

The court ruled that the more lenient model rule is the appropriate standard under federal common law and found that the state’s ethical obligations did not preclude the in-house attorney from introducing privileged information.

So, what privilege and ethical issues should an in-house lawyer consider when a whistleblower walks into her office? continued on page 31

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SPRING 202 0 TODAY’S GENER AL COUNSEL

THE ANTITRUST LITIGATOR

The Antitrust Analysis of “Tying”

By Jeffery M. Cross

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30

n my antitrust practice over the past 45 years, I have frequently had to address the antitrust law’s treatment of “tying” both in litigation and in counseling. Tying occurs when a party requires those wanting to purchase one product to purchase another as well.

One area where tying frequently comes up is franchising. Franchisees are often required to buy products from the franchiser, leading to tying claims. Indeed, one court has noted that tying may be the most common non-price antitrust claim in franchise litigation.

The product that consumers or franchisees want to purchase is referred to as the “tying” product. The second product that a franchisee must purchase to obtain the first is referred to as the “tied” product. Often the seller has monopoly or market power in the tying product.

Some academics and commentators have questioned whether tying ever should be a concern of antitrust law.

Even if a seller had a monopoly in the tying product, a monopolist can only obtain a single monopoly profit. Because having a monopoly by itself and earning monopoly profits is not illegal, there would be no anti-competitive effect from tying.

Jeffrey Cross is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a partner in the Litigation Practice Group of Freeborn and Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com

Others have argued that the single monopoly profit theory of tying applies only when there are certain key assumptions made regarding the market. If any of those assumptions are not valid, there can be anti-competitive effects with tying.

Depending on the market conditions, tying can increase monopoly profits, and lower both consumer and total welfare.

Tying can also reduce the competitiveness of rivals in the tied product market and restrict entry into the tying market.

Under the antitrust laws, the analysis of tying applies a “hybrid” per se rule.

Tying is deemed unlawful only if the tying

seller has sufficient market power in the tying product to force buyers to take an otherwise unwanted tied product, and the tying arrangement has a substantial effect on the tied market.

The antitrust consideration of tying is a hybrid per se analysis because it requires some of the features of the Rule of Reason — a determination of market power and impact upon the tied product market — without the benefit of considering the pro-competitive justifications permitted under the Rule of Reason.

Significantly, the antitrust analysis of tying goes beyond just a determination

TODAY’S GENER AL COUNSEL SPRING 2020

of whether there is market power in the tying market. There must be substantial potential for an impact upon competition in the tied product market. For example, if only a single purchaser is affected, there is not enough impact in the tied product market. Or if a purchaser is forced to buy a product that it would not otherwise have bought, there is also not a sufficient impact to the tied product market. Furthermore, if consumers can purchase the product separately in the market, there is no anti-competitive effect from the tying.

The oft-cited example is a single grocery store selling sugar and flour as a package. Consumers shopping at that store who want to buy flour must also buy sugar. However, there can be no anticompetitive effect and no violation of the antitrust laws if there are many stores in the market that do not sell sugar and flour as a package.

There are generally four elements that must be established to find a violation of the antitrust laws with tying: The tying and tied products are two separate products; the sale or agreement to sell the tying product is conditioned on the purchase of the tied product; the defendant has sufficient market power in the tying product to force a purchaser to purchase the tied product; and there is an anti-competitive effect in the market for the tied product.

It is significant that the first element in the foregoing list is a determination of whether there are two separate, distinct products. Unless there are two products, selling them as a package is not likely to have an adverse impact on competition.

The test to determine whether there are two products is whether there is enough consumer demand for the tied product separate from the tying product so that it would be efficient for a firm to provide the tied product separately.

Courts classify a package sale of component products — such as a left shoe and a right shoe, or an alternator and a car — as a single product when there are obvious economies in jointly selling the components. Consumers find

it very efficient to buy a car with the alternator already installed. In such a situation, a package sale is not considered the tying of two distinct products.

However, the Supreme Court has rejected the idea that, if two products are functionally linked — in other words, one product is useless without the other — then there cannot be two distinct products. If such a functionally linked test were applied, then a court would be forced to conclude that there could never be separate markets for cameras and film, computers and software, or automobiles and tires. Clearly, there is enough consumer demand for each of these products that it is efficient to sell them separately.

Consequently, they are considered two separate products.

Frequently, in franchising, the question arises whether the trademark is a separate product from the goods that the franchisor may insist the franchisee buy. For example, for quality control reasons, a pizza franchisor may insist that its dough and sauce must be purchased by its franchisees. And courts have held that a trademark is not a separate product from the product it denotes, i.e., the trademark Buick and the car bearing that trademark.

In franchising, if the trademark identifies a method of doing business, it has been held to be a separate product from the products the franchiser may require the franchisee to buy, such as the dough and sauce example. On the other hand, if the product is an essential ingredient to the franchised system’s formula for success, there is only a single product.

An example would be the unique herbs and spices used in preparing chicken sold through a chicken franchise.

The bundling of products and services is ubiquitous in the economy. Two common examples are season tickets and fast food value meals. Consequently, it is important for those engaging in commerce to understand the antitrust law of tying and its application to the many instances of bundling.

Whistleblowers And Privilege continued from page 29

First, define and document the purpose of the meeting. If the employee arrives with a pure whistleblowing agenda, then it is unlikely that the privilege will cover the discussion, and the lawyer’s comments may find their way into a court-filed complaint. If the conversation evolves into the employee seeking legal advice, such as how to comply with legal or regulatory rules, then the privilege arguably applies.

Second, the in-house lawyer should attempt to take two sets of notes — one recording the whistleblowing and one recording the privileged discussion. If that effort is only plausible in a utopian world, then at minimum she should designate the notes separately when the meeting concludes. When the discovery request arises, having separately designated notes will help to preclude privileged discussions.

Finally, keep in mind that two privilege issues may be in play if the whistleblower is another in-house lawyer. The whistleblowing conversation itself presents issues identical to one made by a non-attorney whistleblower.

But the in-house lawyer receiving the complaint should inquire whether the whistleblower lawyer is relying on other privileged conversations. If the latter, the in-house lawyer receiving the information should refrain from commingling the whistleblower’s reliedupon privileged communications with the interview notes. While a court may permit the whistleblower lawyer to introduce the privileged communications at trial, the receiving lawyer can maintain privilege protection over her separate notes.

And the obvious. When a whistleblower announces that she has counsel — and particularly if she asks for her lawyer’s presence — stop the interview and obtain permission from counsel before proceeding. It is one thing to lose a privilege argument, it is quite another to lose one about ethics.

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SPRING 2020 TODAY’S GENER AL COUNSEL

Liability for Catastrophic Construction Failures PHOTO: WIKIMEDIA

By Robert C. Epstein and Jacqueline Greenberg Vogt

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ecent catastrophic construction failures have stunned the nation and the world.

In April 2019, a construction crane on a Seattle office building construction project collapsed, killing four people and injuring four others. Three companies were fined for their roles in the collapse, and the Seattle Police opened a criminal investigation. About a year earlier, a pedestrian bridge at Florida International University collapsed, killing six people. The National Transportation Safety Board (NTSB) found that “load and capacity calculation errors” were the fundamental cause of the tragedy. In June 2017, a fire engulfed a high-rise apartment building in London, killing 72 people. Officials found that the external walls of the tower violated building code fire-resistance requirements and helped the fire spread.

TODAY’S GENER AL COUNSEL SPRING 2020

These disasters are examples of construction projects that were defectively designed and/or built, leading to construction defects and catastrophic failures. This article examines why construction defects occur and who is responsible.

Obvious and Latent Defects: A construction defect occurs whenever finished or partially completed construction fails to perform as required by contract documents or accepted standards. It is the bridge whose cables flex and snap, the concrete that lacks strength or is structurally deficient, the roof that leaks, the adhesives that don’t bond. Construction defects can be obvious or latent. Defects such as undersized beams, under-strength concrete or coatings failures usually are apparent during construction, when liability is clear and the cost of correction is relatively minimal. Frequently, however, defects are latent.

A DEFECT OFTEN IS DIFFERENT FROM THE MANIFESTATION OF THE DEFECT. A latent defect exists at the time of construction but is undetected until after construction is completed, and the structure and its systems are in use. An example would be a structural beam that meets the specified size, color and grade requirements, but is under strength.

Latent defects also can be progressive.

Over time the defect becomes worse as the structure or systems are subject to wear. Examples include concrete that deteriorates over several freeze-thaw periods, and leaking roofs that over time cause damage to building components and mold growth.

Defect vs. Manifestation of Defect: A defect often is different from the manifestation of the defect. Generally both must be corrected. The manifestation is the apparent condition of the structure, a component or the materials that is caused by the construction defect and provides evidence of a deeper problem.

Although a stucco crack may appear to be the defect, it is just the manifestation of the defect. The underlying defect might be inadequate structural support, improper materials, or improper subsurface preparation. Similarly, movement of the supporting structure, the foundation or the underlying earth may be manifestations of underlying defects such as inadequate foundation reinforcement or shear wall attachment. It is essential to identify both the manifestation of the defect and the defect itself. Correcting the symptoms will not correct the problem.

The Florida International University bridge collapse is an example of failing to identify both the manifestation of the defect and the underlying defect itself.

According to the NTSB report, prior to the collapse engineers discovered cracking at one end of the concrete span. They did not believe that safety concerns were present, but the cracking was a symptom of a flawed design that miscalculated the bridge’s structural loads and capacities.

Types of Construction Defects: In a broad sense, a construction defect is any element of a structure that fails to (a) perform as intended or (b) conform to the contract requirements. Every construction project is built based upon drawings and specifications that tell the contractor what to build and the quality of materials to use. Construction project drawings include plans by the architect, surveyor and consulting engineers as well as shop drawings prepared by the contractor, subcontractor or supplier that are approved by the project design professional. The specifications — typically supplied by the project design professional with the plans — provide even more detail that identify the materials to be used, the performance requirements and the methods of application.

Any material deviation from the plans or specifications is a defect, no matter how well the work was performed, even if the structure and all its systems perform properly.

A construction defect exists where the structure or any of its systems do not work as intended. This includes the

failure to meet performance criteria, the sudden failure of a part of a project, or any aspect of a project that simply does Robert C. Epstein not work as it is a shareholder at GreenbergTraurig should.

All construction and Co-Chair of the National Construcmust comply with tion Law Practice. He construction and represents clients in the area of construcsafety standards. tion law, contracting Failure to comply and litigation, and is constitutes a defect a frequent lecturer in the design, the on construction law. work or both, even epsteinr@gtlaw. com if the structure or systems function as expected. For example, aluminum wiring may function but may still violate the electrical code.

Jacqueline A tragic Greenberg Vogt example of the is a shareholder at consequences of GreenbergTraurig.

She has more than building code vio20 years of experilations is the Lonence in construction don apartment law and concentrates high-rise fire that on construction contracting, construckilled 72 people. tion litigation, and Officials in the resolving all types of UK concluded construction disputes. that the reason vogtj@gtlaw.com the fire spread so rapidly was that the building’s exterior cladding did not meet fire-resistance requirements, but rather acted as “fuel” for a fire that began in one of the units.

Premature deterioration of a project element may be the result of a construction defect. An example would be a roof intended to last 20 years that starts deteriorating after five. However, the same condition may or may not be a construction defect, depending on when it occurs. For example, a crack in a stucco wall completed six months earlier most likely would be a manifestation of a construction defect. But if the same crack appeared 10 years after the wall

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was completed, it likely is not a defect but the result of normal wear and poor maintenance.

34

may be engaged for some or all of a bundle of services, ranging from total control over and responsibility for the project to a limited role preparing a design program or preliminary design scheme. The designers may remain involved throughout the construction process or merely prepare plans for others to execute.

Whatever the designer’s role, a design professional who fails to exer-

templated in the design cannot complain if that use results in a failure. Typical is the situation where an owner overloads a finished structure with machinery, LIABILITY FOR CONSTRUCTION DEFECTS storage or other unusual loads. In such The construction contractor is responsicases, the owner’s misuse of the structure ble to perform the work to complete the or systems may be the cause of failure, project. The contractor hires the suband may bar recovery against either the contractors who carry out the work and contractor or designer. purchases the materials for construcFinally, an owner has a duty to tion. They also must choose how the maintain finished construction to prevent failures that might result over time from neglect of ANY MATERIAL DEVIATION FROM THE PLANS OR finished construction.

SPECIFICATIONS IS A DEFECT, EVEN IF THE STRUCTURE Construction defects also can result from a AND ALL ITS SYSTEMS PERFORM PROPERLY. product failure. Adhesives fail, boilers explode and construction will be performed — what cise reasonable judgment may be liable sprinklers sometimes do not sprinkle. methods will be employed to ensure for resulting construction defects. An All are construction defects that may complete, timely and safe completion obvious example is a structural engineer result from a product defect or failure. of the project. The contractor’s obligawho miscalculates the loads that will be Where they cause a construction defect tions are defined by the construction imposed on finished construction, such that results in personal injury or property contract, which provides the basis for as in the Florida International University damage, the product manufacturer will liability if the contractor fails to perform bridge collapse, leading to a structural be liable in tort for the resulting harm. as required. failure. Also, design professionals who Where a construction defect causes only Construction site safety is the conare contractually required to inspect economic losses (such as lost revenue tractor’s responsibility. For example, work for compliance with plans and from a project), claimants may seek the investigation by Washington State specifications may be liable for failing remedies under the Uniform Commercial authorities of the Seattle crane collapse to discover construction defects that Code, which generally allows the owner blamed the contractor, concluding that could have been detected through a to seek economic damages from the the crane toppled in a wind gust because reasonable investigation. manufacturer for breach of both express the workers who were disassembling Owners typically consider themselves and implied warranties that the product it prematurely removed pins securing immune from liability for construction will function as intended. sections of the mast, contrary to the defects or failures. The owner’s view is Construction defects can affect manufacturer’s instructions. that the designer is obliged to produce completed projects in ways ranging from The contractor is required to perform plans and specifications that are sufpoor aesthetics to catastrophic collapse. the work fully in accordance with the ficient for their intended purpose, and When a defect, failure or collapse occurs, plans and specifications, and in a workthe contractor is responsible to build the contractors, designers and owner manlike manner. Most construction accordingly. However, the owner may each may be exposed to liability, dependcontracts will state these duties explicbe responsible for construction defects ing upon how each one carried out its itly, but even in the absence of specific in certain circumstances. responsibilities during the design and contract provisions, the law generally For example, an owner who proconstruction processes. implies these duties into every contract. vides project information represents A contractor who complies with (either explicitly in the construction plans and specifications generally is not contract or implicitly as imposed by responsible for construction defects. law) that the information will be accuAn important exception is where the rate. Thus, an owner who inaccurately contractor knew that a plan or specireports the condition of the building fication was defective. A duty exists site is responsible if a building failure to bring that deficiency to the owner’s results. attention before performing the work.

Also, an owner who utilizes the finThe project architect and engineers ished construction in a manner not con-

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SPRING 2020 TODAY’S GENER AL COUNSEL

Problems When Transactional Counsel Act as Trial Counsel

By Mark B. Wilson and Gerald A. Klein

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our company’s agent for service of process delivers a lawsuit involving a contract that your company’s law firm drafted. Given the firm’s deep familiarity with the transaction, does it make sense to have that firm litigate the case?

The answer is often no. Here’s why.

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Transactional Counsel Might Be Called as a Trial Witness In a perfect world, there would be no need to have witnesses testify about what a contract means. Generally, courts interpret contracts based solely on the words in the contract.

But the world is not perfect, and even the best transactional firms don’t always draft the perfect contract. Consequently, it is rare for contracts to be perfectly clear to every reader.

Moreover, in a complicated world with many moving parts, it is difficult for transactional counsel to foresee every possible dispute when drafting a contract. It is common for issues to arise after parties sign a contract that no one considered during the drafting process. To persuade the court that their interpretation is correct, the parties may seek to introduce evidence outside the four corners of the contract to explain the circumstances surrounding contract negotiations or the meaning of certain terms.

In such circumstances, the parties’ lawyers may become trial witnesses. In California, it is unethical for lawyers to be trial counsel and trial witness on substantive issues without informed written consent.

Even with consent, it’s almost always a bad idea, and the court has discretion to disqualify counsel who want to both testify and act as trial counsel to protect the jury from being misled, or the opposing party from being prejudiced. Even in those rare circumstances where a trial court would allow a trial attorney to testify on substantive issues in the trial, there is a risk that a testifying lawyer can taint the outcome of the trial. For example, if the jurors do not like the trial attorney’s advocacy, this bias may negatively influence how the jury perceives the attorney’s testimony.

Even when a large firm has a different litigation team from the attorMark B. Wilson neys who wrote the contract, there is a danger the taint arising from is partner and coadvocacy could influence the evaluation of substantive testimony by founder of Klein & Wilson. He represents the transactional attorneys. clients in business litigation and legal malpractice cases. In 2019, Orange County Trial Lawyers Association named him “Trial Lawyer of the Year” in the area of legal malpractice.

Wilson@kleinand wilson.com

Potential Conflict of Interest While legal malpractice may have nothing to do with the cause of the transactional dispute, a potential malpractice claim may cloud issues surrounding the transaction, and the judgment of trial counsel if they or members of their firm drafted the transactional documents.

Although the law in some states, including California, requires malpracticing attorneys to advise the client that malpractice is an continued on page 41

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SPRING 2020 TODAY’S GENER AL COUNSEL

Negotiated Resolution of Criminal Cases in France

By Nicolas Brooke and Camille Gravis

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hree years after Deferred Prosecution Agreements (DPAs) were introduced into French law, and shortly after Airbus concluded its $4 billion settlement with French, British and American authorities, it is a good time to take stock of how the French corporate criminal enforcement landscape has recently evolved.

In December 2016, France adopted a new anti-corruption law known as Sapin II, which brought about a small revolution in the French criminal justice system. France equipped its prosecutorial authorities with a new instrument, the convention judiciaire d’intérêt public (CJIP), directly inspired by U.S.-style deferred prosecution agreements. CJIPs suspend the prosecution of companies in exchange for their cooperation with law enforcement authorities, the payment of a fine and the implementation of remedial measures.

Since the enactment of Sapin II, nine CJIPs have been concluded in total. Six of them relate to corruption cases, and three to tax fraud. The two most significant CJIPs, involving Société Générale and Airbus, were part of joint international criminal resolutions involving a number of countries.

In the Société Générale case, the $500 million fine was split in equal shares between the French Parquet National Financier (PNF) and the U.S. Nicolas Brooke is Department of Justice (DOJ). As for a Partner at Signathe Airbus case, the sanction was split ture Litigation. He between three law enforcement agencies specializes in internal as follows: 2.1 billion euros for the PNF, investigations and compliance, and ad€984 million for the U.K. Serious Fraud vises clients on whiteOffice (SFO) and €525 million for the collar crime issues, DOJ. the implementation A third case appears to have been of compliance and remedial programs, close to a similar coordinated resolution crisis management involving the French authorities. On and civil fraud matters.

June 25, 2019, TechnipFMP concluded Nicolas.brooke@ a deferred prosecution agreement with signaturelitigation. com the DOJ and Brazilian authorities. The

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40

French PNF also took part in the investigation, but TechnipFMP failed to reach an agreement with it. The investigaCamille Gravis is an tion appears to associate at Signature Litigation specializing be continuing. in internal investigaThese matters tions and compliance. show that there is Camille.gravis@ an unprecedented signaturelitigation. com level of cooperation between French law enforcement agencies and their foreign counterparts.

The Airbus settlement also shows that the level of sophistication and approach to criminal settlements adopted by the French prosecutors is becoming very comparable to the DOJ’s.

The number of CJIPs concluded thus far in France remains relatively low, however. There are a number of reasons for this.

LET’S NOT MAKE A DEAL

First, the “art of the deal” features less prominently in the Gallic mindset than the American one. Cooperating with law enforcement authorities and attempting to reach a consensual resolution rather than defending one’s case every step of the way is not an obvious decision to make from a French perspective. Furthermore, the reputational impact that an indictment can have on a company is less damaging in France than it is in the United States. That may change as the “compliance” phenomenon continues to spread across Europe, and France in particular.

There is also a point of comparative criminal law that should be taken into account. The concept of corporate criminal liability presents a real challenge for prosecutors intending to charge a company with a crime. The French Criminal Code provides that “legal entities, with the exception of the State, are criminally liable for the offences committed on their account by their constituent bodies or representatives.” In other words, the prosecution

has the burden of proving that someone vested with the power to represent the company, or one of its constituent bodies, committed a crime on behalf of the company. Although the French courts have displayed a tendency to construe this article more and more broadly over recent years, there are still many cases where misconduct committed by employees will not trigger criminal liability for the company.

By contrast, the doctrine of respondeat superior under U.S. federal law makes it a lot easier to go after companies. It can be restated as follows: “a corporation may be held criminally liable for the acts of any of its agents who commit a crime within the scope of employment with the intent to benefit the corporation.” This wording suggests that an employee committing acts that go beyond the scope of her/his duties may nonetheless trigger the company’s criminal liability if the intention was to procure some form of benefit to the company. As a result, American companies may be more inclined to seek a negotiated resolution than their French counterparts, given that the threshold for establishing corporate criminal liability is a lot higher in France and other countries.

NOT MUCH GUIDANCE FROM ENFORCERS

Another reason that may explain the fairly low number of CJIPs is that there is limited guidance available regarding the conditions for concluding such an agreement. The PNF and the French Anti-Corruption Agency (FAA) issued guidelines on June 27, 2019; and the Airbus settlement describes in some detail what is expected from companies in terms of cooperation. But a number of key questions still remain unanswered.

By way of illustration, the guidelines argue that companies are expected to conduct thorough internal investigations and that the evidence turned over to the authorities must be sufficient to support an indictment before any negotiations regarding the conclusion of a potential CJIP may take place. The guidelines also

state, however, that all materials turned over by the company can be used by the authorities in subsequent investigations or proceedings if the negotiations fail. This obviously does not encourage companies to self-report.

Another key area that requires more clarity is the methodology for calculating the fine. The guidelines state in particular that mitigating or aggravating factors will be taken into account and will trigger multipliers of the base amount of the fine. This approach is similar to the one followed by the DOJ, but unlike the U.S. Federal Sentencing Guidelines, the French authorities provide no indication as to the specific levels of the applicable multipliers.

Finally, the French framework does not properly address the situation of individuals, who are not entitled to conclude a CJIP and who cannot benefit from clearly defined witness immunity programs in France, in contrast to other countries. This could lead witnesses caught up in cross-border investigations to “forum shop” to place themselves under the protection of the most favorable system, which can be a factor leading to significant disruption.

It remains to be seen whether CJIPs will become the usual way of resolving corporate criminal matters in France in the future. This will depend in part on how the areas of uncertainty flagged above will be addressed. But in the meantime, the practice certainly appears to be developing steadily and becoming more and more consistent with the approach and methodology of other law enforcement authorities around the world.

TODAY’S GENER AL COUNSEL SPRING 2020

Litigation & Trial Counsel continued from page 36

issue, attorneys are understandably reluctant to confess malpractice and sometimes don’t even recognize it. Therefore, it is critical for clients to hire an outsider to the underlying transaction to advise the client candidly about its chances for success in the litigation, whether there is a malpractice issue, and what steps are required to preserve the statute of limitations, which can be as little as one year from the malpractice.

When transactional attorneys testify at trial, attorney-client privilege issues can arise. Clients may decide to waive the attorney-client privilege and have a transactional attorney discuss communications with the client to advance one point or another at trial.

It is much easier to begin the waiver process than it is to end it. Waiving the attorney-client privilege can become a

AS CASES BECOME BIGGER AND MORE COSTLY, FEWER CASES ARE GOING TO TRIAL. slippery slope where the waiver never seems to end. If the law firm handling the litigation is the same law firm involved in the transaction, the lines may become murky as to where the waiver of privilege ends and the sanctity of the litigation attorney-client privilege begins. Those lines are brighter when the litigation firm is different from the firm involved in the transaction.

The Best Transaction Law Firm May Not Be the Best Trial Firm It would be very rare for a law firm to be outstanding in every practice area.

Although the transaction firm that wrote the contract might be the best transaction firm on the planet (notwithstanding the lawsuit), the same might not be said about the litigation department of that

firm. The fact the lawyer who drafted the contract might not be qualified to litigate its breach may seem obvious, but it is less obvious that the litigation department at that firm might not be the best trial firm for the client.

BUILDING A TRIAL TEAM

Companies count on general counsel to pick a first-class trial team. For the reasons noted above, it is unwise to hire the firm that drafted the transactional documents to litigate them. While it seems intuitive to ask the transactional firm to recommend trial counsel, there is a risk that the recommendation will be to a “friendly” law firm that would be unwilling to discuss malpractice against the firm referring the matter.

General counsel is advised to seek trial counsel with no ties to transactional counsel. It is critical to identify the trial attorney early in a dispute and ascertain the level of involvement that attorney will have from beginning to end.

Every area of litigation has its own expertise. For example, a law firm hired to defend product liability cases against a company may not be the right firm to defend a breach of contract action.

Moreover, many litigation firms are good at discovery and law and motion battles, but lack trial experience to win big cases.

The only way to become a highly skilled trial lawyer is to try a lot of cases, and often litigation departments lack that expertise. Accordingly, the search for litigation counsel should start with examination of trial experience. How many trials has the attorney handled?

What was his or her role in each trial?

What is the trial lawyer’s win and loss record? What were the complexity levels of each case the lawyer tried? How familiar is the lawyer with the judges and the venue that will hear the case?

The more that questions like these are asked, the clearer it will be that there are fewer attorneys in the legal market capable of trying the case.

It is hard to picture when, if ever, the law firm that drafted transactional documents in dispute should represent

the company in a trial involving those documents.

When a company hires a law firm to defend it in disputes involvGerald A. Klein ing transactional is partner and cofounder of Klein documents the & Wilson. He has law firm wrote, tried over 40 cases there will always to conclusion. He be conflict issues. represents clients in business litigation Likewise, in and legal malpractice such situations, cases. In 2017, Klein there will almost was inducted into the always be a American College of Trial Lawyers. malpractice issue Klein@kleinand hanging in the wilson.com air; and hiring the same firm to defend those documents may lead to a conflict of interest and/ or clouded judgment. General counsel should look at litigation involving transactional documents a prior firm wrote as a brand-new transaction requiring general counsel to hire the best trial firm qualified to defend the company in the dispute over the transaction.

Finding the right trial firm may involve looking at highly experienced small firm trial experts and marrying them to large firm support. But using the trial team of the law firm that drafted the transactional documents in a dispute involving those documents will often be a costly mistake.

Sadly, as cases become bigger and more and more costly, fewer cases are going to trial. Many of the largest law firms in the country, which handle the largest transactions in the country, now lack a stable of trial-tested lawyers. Those that remain are getting grayer and longer in the tooth. Many companies are seeking smaller firms to provide trial expertise and marrying them to larger firms to provide litigation support. These kinds of marriages, when they work, combine the experience, expertise and judgment of battle-tested trial lawyers with the immense resources of a large law firm. In the coming years, this paradigm may become the rule, rather than the exception.

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Cross-Border Discovery and Witness Considerations in Germany and Japan

By Sara Alexandre

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TODAY’S GENER AL COUNSEL SPRING 2020

T

he potential for legal liability for products is as pervasive as their presence across the world. Accordingly, products liability litigation often involves parties from differing jurisdictions, whether those jurisdictions exist within a single nation or span several countries. Such litigation can be complex, expensive and time consuming. Managing a dispute on a transnational scale can take on a life of its own, particularly when it comes to the most onerous part of litigation — discovery. Obtaining necessary, relevant documents and testimony located in various parts of the globe requires specialized tools unique to each locale.

The following is a brief and general overview of the means by which parties involved in multinational litigation, be it products liability or other commercial matters, may acquire information helpful to their cases. The three countries cited are manufacturing powerhouses routinely involved in products liability disputes: the United States, Germany and Japan.

The discovery rules governing the U.S. judicial system are fueled by common law. The rules are designed to empower

dowed with subpoena powers to compel discovery, and disclosure rules governing federal cases can compel certain parties to exchange information with their adversaries. A party’s violation of any one of the myriad discovery rules can trigger a court to impose sanctions, civil penalties and even default judgment in favor of the moving party.

The expansive gathering powers afforded to parties in the United States contrast starkly with those extended by civil law in countries such as Germany and Japan. This dichotomy is especially noticeable when litigants initiating action in the United States seek pre-trial documents and testimony from information resources abroad.

DISCOVERY TIGHTLY CONTROLLED IN GERMANY

Discovery as contemplated within the United States does not exist in Germany.

After initiation of an action, a court will either set a preliminary hearing where parties can expound upon relatively simple matters, or order briefs detailing their stance prior to the hearing. Before judgment, the court uses its discretion as

evidence from witnesses who are German residents, as provided by the Hague Convention on Taking Evidence Abroad Sara Alexandre is in Civil or Coman attorney at Swift, mercial Matters of Currie, McGhee & Hiers, LLP. Her 1970 (Hague Evidence Convention). practice includes defending clients in Interestingly, the the areas of prodmain goal of the ucts and premises liability, construction Convention was and environmental to resolve different law, and catastrophic discovery proceinjury and wrongful dures that are in death. sara.alexandre@ effect in common swiftcurrie.com law countries, such as the United States, and civil law countries, such as Germany. Generally, the Hague Evidence Convention provides that a participating country may seek the assistance of another contracting state by issuing a Letter of Request. With respect to pre-trial discovery, Germany will allow requests for the deposition of witnesses concerning the substance of certain documents. However, pursuant to Article 23

SHOULD THE JAPANESE COURT DEEM A U.S. ATTORNEY’S METHOD OF EVIDENCE COLLECTION HAS EXCEEDED WHAT THE CCP OR THE CONSULAR CONVENTION ALLOWS, IT IS AUTHORIZED TO REFUSE ENFORCEMENT OF ANY JUDGMENT. litigants to obtain, prior to trial, all nonprivileged information concerning the claim or defense of any party reasonably believed to lead to the discovery of admissible evidence. Generally, parties are authorized to obtain evidence without the interference of the courts. To acquire the information, parties can employ discovery tools, including written interrogatory questions, requests for production of documents, and depositions of witnesses.

If a party refuses to divulge the requested information, the requesting party may seek an order from the court compelling compliance. Courts are en-

to the pieces of evidence it will permit the parties to tender and the witnesses it will allow to offer testimony on the day of the hearing.

Private litigants and their legal counsel are precluded from engaging in evidence taking, as it is considered a public judicial function. Accordingly, foreign courts, commissioners and lawyers are likewise prohibited from obtaining evidence in Germany, as these attempts are viewed a usurpation of “its sovereignty, even if German witnesses comply voluntarily.”

However, German courts will facilitate a U.S. court’s acquisition of limited

of the Convention, it has maintained a refusal to fulfill Letters of Request seeking the pre-trial discovery of those documents.

The Hague Evidence Convention is not the sole authority governing discovery efforts in Germany undertaken by U.S. courts. Per the landmark Supreme Court case Société Nationale Industrielle Aerospatiale v. U.S. District Court for the South District of Iowa (1987), the convention does not possess “exclusive discovery procedures a Federal District Court must use [to] seek continued on page 47

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Protecting Electronic Devices at the Border

By Punam S. Rogers

44

O

n August 23, 2019, Ismail Ajjawi, a Palestinian student about to begin his freshman year at Harvard University, traveled to Logan International Airport where he was denied admission into the United States, had his visa canceled, and was ordered back to Lebanon. Why? His friends’ social media activity.

Mr. Ajjawi, in a statement to the Harvard Crimson, noted his phone and laptop were searched extensively and that he was questioned and reprimanded for his friends’ social media posts expressing views critical of the U.S. government. After Harvard’s president intervened, Mr. Ajjawi was eventually admitted on September 2, 2019, after he “overcame all grounds of inadmissibility,” a spokesman for U.S. Customs

and Border Protection (CBP) said in a statement.

Still, this search underscores serious concerns about data privacy while traveling. Imagine, for instance, the private company information a company’s general counsel or outside counsel has on her/his device while traveling, which could become subject to CBP search if proper precautions are not taken.

The Trump administration has enacted

seismic policy shifts related to border searches of electronic devices and social media data. In January 2018, CBP issued a directive to its officers instructing how and when electronic devices can be searched for travelers applying for admission to the United States. The guidance allowed CBP officers to continue conducting warrantless basic searches of electronic devices. This policy directive, coupled with the administration’s

TODAY’S GENER AL COUNSEL SPRING 2020

Executive Order on Enhanced Vetting, significantly increased electronic device searches by CBP. There were 33,295 electronic device searches in fiscal year 2018 compared to only 5,085 searches in fiscal year 2012 — an over six-fold increase in six years.

In June 2019, the government began collecting social media data of all visa applicants, including their usernames and the social media platforms used in the past five years. This will impact an estimated 14-million-plus travelers to the United States each year.

The Ajjawi case underscores the government’s broad authority in searching electronic devices and collecting and using social media data in subjective decision making, resulting in major impact to the traveler (e.g., the inability to enroll at Harvard University). More importantly, the privacy implications go beyond foreign national travelers and can extend to U.S. citizens and residents whose data may be inadvertently shared and stored on a device the government can now access.

At the intersection of privacy versus national security policy lies this new and emerging question: Should the government have unfettered access to your electronic device or your social media information without a warrant or some level of reasonable suspicion?

How much privacy do we maintain when it comes to our electronic devices at the border?

Our lives are microscopically documented on the electronic devices we carry daily. Our laptops and phones contain hosts of exceedingly private data, including far more personal and revealing information than could be found if you searched a person’s home, which legally requires a warrant. Devices likely contain sensitive data about the traveler, including their social media connections, political beliefs, religious affiliation, health conditions, financial status, sex lives and family. Additionally, people in countless professions, especially the legal profession, have a heightened duty to keep data stored on their electronic

devices confidential and protected.

With virtually every traveler carrying a device that can now carry boundless amounts of extremely valuable data, should devices be treated like luggage and subjected to a search?

Historically, border searches have never required a warrant or probable cause, and only sometimes require “reasonable” suspicion. The courts have deferred to the notion that the expectation of privacy is less at the border than in the interior and have carved out a “border search exception” to the Fourth Amendment’s warrant requirement. This has permitted CBP to conduct warrantless searches on the legal assumption that travelers have negligible privacy interests when it comes to the content of their luggage versus the government’s interest in protecting what is admissible into the United States. However, prior precedent has not kept pace with technology and did not contemplate the vast amount of personal, confidential and/or private data that can be stored on electronic devices.

CURRENT JURISPRUDENCE

Within the last seven years, two federal courts of appeals have held that border searches of digital information require individualized suspicion. In United States v. Cotterman (2013), the U.S. Court of Appeals for the Ninth Circuit held that border agents need reasonable suspicion of illegal activity before they could conduct an electronic forensic search of the defendant’s laptop.

One year later, in Riley v. California (2014), the Supreme Court held that the police had to obtain a probable cause warrant to search the cell phone of an individual under arrest. The police had argued that the warrantless and suspicionless cell phone search was permissible as a “search incident to arrest,” the same way it would be possible for the police to search the pockets or wallet of an arrestee for drugs or weapons. Rejecting that argument, the Court held that “the fact that technology now allows an individual to carry such information in his hand does not make the information

any less worthy of the protection for which the Founders fought.”

In March 2018, the Eleventh Circuit was Punam Rogers is a the first circuit to partner at Constangy, Brooks, Smith & address whether Prophete. She counRiley’s reasonsels U.S. employers ing extends to a of all sizes on immisearch of a travgration matters, and works with clients eler’s cell phone to design and impleat the border. In ment immigration United States v. strategies.

Vergara, a divided progers@constangy. panel held that com forensic searches Joyce Dos Santos, occurring at the Suffolk Law Student border, not as and paralegal with searches incident Constangy, Brooks, Smith & Prophete, to arrest, do not contributed research require a warrant to support this article. or probable cause.

At most, these searches require reasonable suspicion.

Important here is that in Cotterman and Riley, the courts emphasized the privacy interest in all the data modern digital devices contain — call logs, emails, text messages, voicemails, browsing history, calendar entries, contact lists, shopping lists, personal notes, photos and videos, geolocation logs, and so forth. Digital devices typically cover many years of information and include the most intimate details of a person’s life. The Supreme Court in Riley rejected the notion that cell phones are the same as physical items: “That is like saying a ride on horseback is materially indistinguishable from a flight to the moon” just because both are “ways of getting from point A to point B.” The Fourth Circuit in United States v. Kolsuz (2018), addressed the issue but not Riley per se. It held that it is unconstitutional for CBP to subject visitors’ devices to forensic searches without individualized suspicion of criminal wrongdoing. Five days later, in U.S. v. Touset, the Eleventh Circuit diverged from the Fourth and Ninth

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Circuits, ruling that the Fourth Amendment does not require suspicion for forensic searches of electronic devices at the border. It is unclear where that leaves us until the Supreme Court weighs in on addressing this.

A NEW CASE

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Recently, the ACLU of Massachusetts, the national ACLU and the Electronic Frontier Foundation filed a lawsuit against the Department of Homeland Security (DHS) on behalf of 11 travelers whose devices were searched without warrants at the U.S. border in the matter of Alasaad v. McAleenan. In November 2019, the federal court ruled that the government’s suspicionless searches of international travelers’ smartphones and laptops at airports and other U.S. ports of entry violate the Fourth Amendment.

As a result of this ruling, border officials must demonstrate individualized suspicion of contraband before they can search a traveler’s device.

Judge Casper’s reasoning in Alasaad relied on the findings in Riley including that although “the government’s interest in preventing the entry of unwanted persons and effects is at its zenith at the border,” this interest must be balanced against the “substantial personal privacy interests” implicated by the searches of electronic devices. Judge Casper dismissed the notion that reasonable suspicion should only be required for forensic searches, not for “basic” manual searches, and that “a basic search and an advanced search differ only in the equipment used to perform the search and certain types of data that may be accessed with that equipment, but otherwise both implicate the same privacy concerns.”

This differentiates Alasaad from earlier cases, where courts have not come to a consensus on whether the government must have some amount of suspicion for forensic searches of devices seized at the border. DHS appealed the Alasaad ruling to the First Circuit on January 10, 2019, so stay tuned.

In the absence of guidance from the Supreme Court, the legislative branch

attempted to resolve the split in the courts by introducing two bipartisan bills that appear to limit the search of traveler’s electronic devices belonging to U.S. citizens. Because the bills have no real traction at the moment, CBP continues to maintain broad authority to conduct routine and cursory searches of travelers — including a person’s suitcase, body and an electronic device

or broken. Encryption technologies can make stored information unintelligible to anyone who does not know the password. Even if you are prepared to unlock your devices or provide the passwords, encryption still prevents your devices from being searched or examined without your knowledge.

You are not legally required to provide CBP with passwords to unlock your

INFORM THE CPB OFFICERS IF YOUR DEVICE CONTAINS SENSITIVE DATA, INFORMATION PROTECTED BY ATTORNEY-CLIENT PRIVILEGE, CONFIDENTIAL TRADE SECRETS OR THE LIKE. — without probable cause and without suspicion if the search is routine. Searches falling outside of routine inspection require reasonable suspicion of criminal wrongdoing to be legal. To determine reasonable suspicion, CBP may consider a wide variety of factors including your behavior, criminal history, travel history and more.

PRECAUTIONS TRAVELERS CAN TAKE

The simplest solution is to minimize the data you carry when traveling.

For work-owned devices or personal devices containing work-related information, it’s a good policy to talk to employees about data security before traveling. Many employers have policies and procedures to protect sensitive and confidential data, including from threats unrelated to border searches.

Inform the officers if your device contains sensitive data, information protected by attorney-client privilege, confidential trade secrets or the like.

According to CBP policy, privileged and/or confidential materials are subject to higher standards than general information.

Before traveling with sensitive data, consider two strategies to minimize privacy risks: Create backups and use encryption. Backups prevent data from being lost if your device is seized, stolen

electronic device. However, if a traveler does not comply, CBP may subject the traveler to additional questioning and detention, or escalate the encounter. CBP cannot deny a U.S. citizen admission to the country, even if you refuse to cooperate. Conversely, non-citizen travelers could be denied admission.

Although the courts tackle the tensions between privacy and law enforcement in the digital age, remember that the risk of having your device searched or seized at a border will remain, even though the borders are not Constitutionfree zones. In the meantime, travelers should always take precautions with their data and devices to ensure that travels go as smoothly as possible.

TODAY’S GENER AL COUNSEL SPRING 2020

Cross-Border Discovery continued from page 43

evidence abroad.” Rather, the Aerospatiale court held the Convention provided “optional procedures to facilitate discovery” that did not prevent litigants from using “normal discovery methods of the Federal Rules of Civil Procedure.”

Section 1783 of 28 U.S. Code allows a U.S. court to subpoena a person in a foreign country to produce documents, items or the person as a witness. However, this provision cannot supplant “blocking statutes” prohibiting the discovery of information falling under the protection of German laws concerning privacy, privilege or confidentiality.

Additionally, this authority can only compel the compliance of a U.S. resident or national. As brought out in Relational, LLC v. Hodges (2010), out of the Seventh Circuit, “foreign nationals are beyond the court’s subpoena power.”

CASES MOVE SWIFTLY IN JAPAN

Japan’s legal system is modeled after Germany’s civil law system and mirrors the limited discovery allowed there.

Generally, litigation in Japan is viewed as relatively fair, effective and inexpensive.

Japan’s system of rotating its justices is viewed as rendering its judicial system less susceptible to corruption. Further, matters may make it to trial in as little as nine months from the start of the action.

The absence of an extensive discovery process contributes to the efficiency of Japanese courts: Pre-trial discovery is largely considered superfluous.

Section 5 of Japan’s Code of Civil Procedure (CCP) governs Japan’s discovery process, which is largely administered by the court with the specific goal of obtaining evidence for use at trial. Consequently, a lawyer’s scope of fact gathering will be restricted to information that the court decides has satisfied Japan’s standard of evidence.

Article 219 of Section 5 provides that the requester of information must first submit a request for specific documen-

THE HAGUE EVIDENCE CONVENTION IS NOT THE SOLE AUTHORITY GOVERNING DISCOVERY EFFORTS IN GERMANY UNDERTAKEN BY U.S. COURTS. tary evidence to the court, which will order the production of the document if it agrees. Only the court has the power to direct the collection of evidence. Hence, a court will not grant evidentiary status to information obtained without the court’s involvement. There are no formal rules empowering Japanese attorneys to compel an adversary’s response. They must rely on the opposing side’s willing cooperation.

Unlike Germany, Japan is not a contracting state of the Hague Evidence Convention. The Consular Convention, which was executed between Japan and the United States in 1963, is a bilateral treaty facilitating the taking of evidence from within the member country.

Although a special arrangement exists between Japan and the United States, this does not necessarily mean smooth sailing for U.S. litigants when attempting to obtain evidence. Certain restrictions present a continuing challenge, including the following: • Only a U.S. attorney or recognized official representative may collect evidence, and it must be offered voluntarily.

• U.S. courts are effectively toothless when it comes to compelling the production of evidence or adherence to stateside discovery rules.

• The Consular Convention does not expressly entitle a U.S. attorney to obtain testimony or evidence from witnesses; they must rely on the willingness of witnesses to voluntarily offer information.

What is more, should the Japanese court deem a U.S. attorney’s method of evidence collection has exceeded what the Consular Convention allows, the court is authorized to refuse enforce-

ment of any judgment considered to be grounded on such activity. Consequently, the practical effect is that despite the Consular Convention, parties initiating litigation in the United States do not directly engage in efforts to obtain discovery in Japan for fear of risking the court’s non-enforcement of issued judgments.

Products are an inextricable component of life; but it is only when something goes wrong or an injury occurs that an action is filed and the design and manufacturing comes under intense scrutiny.

Often, key documents, witnesses and related information connected to products in dispute are situated within the three manufacturing giants discussed above: the United States, Germany and Japan. Although the far-reaching authority for parties to obtain discovery in the United States at all stages of litigation is allowed, parties conducting transnational litigation out of the U.S. court system face a plethora of obstacles and restrictions, particularly during the pre-trial phase, when seeking to obtain documents and testimony from other countries, including Germany and Japan.

In order to successfully overcome the challenges of discovering evidence across international lines, U.S. litigants must be equipped and willing to expend time, effort and resources to satisfy the requirements of the country where the evidence originated. Such considerations are part and parcel of preparing for multinational litigation. However, this article has only discussed these concerns in a broad and general fashion. Depending on the specific circumstances of a matter, access to relevant materials may involve additional layers of complexity and challenges.

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BACK PAGE FRONT BURNER

Business Risk and the Evolving Role of the CLO

By Bobby Balachandran

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oday, the role of a company’s Chief Legal Officer and General Counsel (CLO/GC) looks very different than it has in the last few years. Part of this is because the position of the CLO/ GC has shifted to play a bigger role in the success of the business. Having come from a position of primarily providing legal expertise, the CLO/GC is now a key figure in business strategy and oversees a much broader scope of responsibilities.

This means, in addition to overseeing the legal operations of the organization, today’s CLO also has to play a central role in ensuring that the company’s compliance and data governance capabilities meet all regulatory requirements — not to mention the other enterprise risks facing the company, such as data breaches, for example.

Often, this means implementing appropriate technologies and processes to prevent risks from occurring, along with quickly addressing those hypothetical risks should they occur.

As the role of the CLO/GC continues to change and evolve, you will see that organizational structures are changing as well. A company’s privacy and security departments can no longer be siloed from legal or compliance. New business challenges—such as those that arise from the EU’s General Data Protection Regulation and the California Consumer Privacy Act, or effective implementation of a defensible Bobby Balachandran data retention/disposition is the founder and program—span organiCEO of Exterro, a zational units. With more fully integrated Legal organizational lines blurring GRC platform that each day thanks to rules addresses regulatory, compliance and that increase in complexity, litigation risks. there are more opportuni-

ties to streamline processes, share technologies and gain greater efficiencies.

A good way to think about the CLO’s changing role is to think of that role as being responsible for overseeing and managing the legal governance, risk and compliance efforts for the enterprise. We refer to this as Legal GRC. Legal GRC, in part, represents the culmination of the regulatory storm that has been brewing for decades. It’s a new landscape not only for the CLO/GC but also for data governance and data management practices at small, mid-size and large organizations everywhere.

Data is what ties all these new responsibilities together. How does an organization collect, store, use and secure its data? The answer to that question will ultimately determine the extent to which data poses risks, incurs costs and provides value for a business. In this way, Legal GRC can be seen as both a concise way to manage crossfunctional approaches to business challenges related to new legal, privacy and compliance regulations, and as a new data management philosophy.

GRC is also a new class of enterprise software, designed to seamlessly orchestrate the tasks and activities required to implement processes that will address new business challenges.

Just as siloed business units can no longer adequately meet business goals in this new environment, single-point solutions used only by certain stakeholders within the business must be phased out in favor of a unified platform that offers end-to-end solutions to the complex business challenges that are already here—and those that are still on the way.

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