House of Representatives Passes 8-K Trading Gap Act

On January 13, 2020, the House of Representatives in a vote of 384 to 7 passed a bill titled the 8-K Trading Gap Act. The bill would require companies to promulgate policies and procedures that prohibit corporate executives from trading company stock during the time period between the occurrence of a major corporate event and the public disclosure of the event. As brief background, a company must file SEC Form 8-K to report the occurrence of certain corporate events deemed by the SEC to be important to shareholders. Form 8-K lists specific qualifying events, which include senior officer appointments and departures, bankruptcies, and the acquisition or disposition of significant amounts of assets. A company has a maximum of four business days from the occurrence of an 8-K event to file the form. This time period is referred to as the “8-K trading gap” because, in theory, insiders would be able to trade on the basis of the information during this period.

Although the law at all times prohibits corporate insiders from trading specifically on the basis of material non-public information, the law does not explicitly prohibit corporate insiders from trading during the 8-K trading gap. Representative Carolyn B. Maloney, who introduced the bill, has warned that because of this, corporate insiders practically speaking still have a “head start on the public, allowing them to sell off stock or cash in on private information.” Representative Maloney cited as support for this legislation a 2015 study of  profits made by corporate insiders during 8-K trading gaps.

Senator Chris Van Hollen introduced a Senate version of the bill in September of 2019. It remains to be seen when and if the Senate will pass the bill, which is still with the Senate Committee on Banking, Housing, Urban Affairs.

The Supply Chain Security Constellation: Mapping Recent U.S. Government Actions

The new year has already brought significant news for companies that do business with the U.S. government, and for those that trade in materials and technology that represent priorities for national security stakeholders.  Our colleagues in the firm’s CFIUS practice thoughtfully analyzed the regulations implementing the Foreign Investment Risk Review Modernization Act, and other experts explained the impact of the “Phase I” trade agreement with China.

More supply chain security developments are in the works, including forthcoming rules to implement Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 and Executive Order 13873, Securing the Information and Communications Technology and Services Supply Chain.

To understand the impacts on business operations, companies need to understand the nuances of the rules and the ways these fast-moving developments interact with each other.  We created a map to summarize what we are calling the Supply Chain Security Constellation.  It offers a brief history of recent activity and flags the upcoming actions that business leaders and compliance counsel should monitor.

We welcome the chance to discuss with impacted entities how these rules will affect particular supply chain management decisions and broader risk mitigation strategies.

The Week Ahead in the European Parliament –  January 17, 2020

Summary

Next week, Members of the European Parliament (“MEPs”) will meet in Brussels for Committee Meetings.  Several interesting debates, hearings and votes are scheduled to take place.

On Thursday, the Committee on Constitutional Affairs (“AFCO”) will vote on a recommendation to the European Parliament to consent to the EU-UK Withdrawal Agreement (also known as the Brexit deal) during a plenary vote scheduled for January 29, 2020.  This will only happen if the  UK House of Commons passes the Withdrawal Agreement Bill in time – as is expected.  Looking ahead to the upcoming EU-UK negotiations on future trade relations, the Parliament adopted a resolution in September 2019 demanding that any future trade deal include strong safeguards and level playing field provisions.  If any free trade agreement is reached that does not include such protections, the Parliament has threatened not to ratify it – which would block that deal.  The rapporteur’s report on the Withdrawal Agreement can be found here.

On Thursday, the Committee on the Internal Market and Consumer Protection (“IMCO”) will discuss and vote on a non-legislative position on upcoming Commission proposals to meet the challenges that Artificial Intelligence poses to consumer protection.  The MEPs focus on issues related to consumer choice, bias in data, and the need to adapt EU liability rules.  The resolution is non-binding, and does not relate to any specific Commission proposal.  It is rather indicative of the position that IMCO will take on upcoming legislative proposals on AI, which are expected to include reforms to product liability rules.

Meetings and Agenda

Monday, January 20, 2020 

Committee on International Trade

15:00 -17:30

Debate

  • Exchange of views with Karen CURTIS, Branch Chief from the NORMES

Department (ILO) 

Committee on the Environment, Public Health and Food Safety

15:00 -19:00

Debates

  • Exchange of views with Mr Milan KUJUNDŽIĆ, Croatian Minister of Health

Presentation of the Council Presidency’s programme

  • Report back on ongoing interinstitutional negotiations
  • Type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information – Consideration of draft report –
    • Rapporteur: Esther DE LANGE (EPP, NL)
  • Objection pursuant to Rule 112(2), (3) and (4)(c): Commission Regulation amending Annex XVII to Regulation (EC) No 1907/2006 of the European Parliament and of the Council on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) as regards lead and its compounds – Consideration of motion for a resolution –
    • Co-rapporteurs: Bas EICKHOUT (Greens/EFA, NL), Maria ARENA (S&D, BE), Martin HOJSÍK (Renew, SK)
  • Amending Decision No 1313/2013/EU of the European Parliament and of the Council on a Union Civil Protection Mechanism – Consideration of draft report –
    • Rapporteur: Nikos ANDROULAKIS (S&D, EL) 

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U.S.-China “Phase One” Trade Deal

On January 15, 2020, President Trump and Chinese Vice Premier Liu He signed the much-anticipated “Phase One” trade agreement between the U.S. and China. Set to take effect no later than February 14, 2020, the “Economic and Trade Agreement Between the United States of America and the People’s Republic of China” (the “Agreement”) is the first formal accord concluded between the U.S. and China since the U.S. began imposing tariffs on Chinese imports in July 2018 and China responded in kind, triggering protracted negotiations buffeted by additional rounds of tariffs. In this respect, the Agreement signals a potential easing of trade tensions and renewed confidence in the bilateral economic relationship. The tariff landscape, however, will likely stay intact in the near-term future, and the Agreement may not ameliorate core U.S. concerns about China’s problematic intellectual property practices and China’s state-led economic development model. It remains to be seen how new obligations will be interpreted and enforced, and how the parties’ subsequent negotiations will evolve.

Our full analysis is posted here.

Trump Administration Renews Focus on Anti-Human Trafficking Efforts

The Trump Administration has declared this month National Slavery and Human Trafficking Prevention Month, calling on industry associations, law enforcement, private businesses, and others to work toward ending modern slavery and human trafficking. This proclamation follows the Administration’s efforts to combat human trafficking, which we have previously discussed here, and comes on the heels of an OMB memorandum released last fall aimed at “enhanc[ing] the effectiveness of anti-trafficking requirements in Federal acquisition while helping contractors manage and reduce the burden associated with meeting these responsibilities.”

The OMB memorandum directs executive agencies to conduct a review of contract spending to ensure appropriate safeguards are in place to prevent trafficking in high-risk areas. These safeguards include potentially incorporating additional obligations in solicitations (such as code of conduct requirements) and documenting trafficking issues that arise during contract performance through the past performance process. The OPM memorandum also directs executive agencies to appoint a trafficking in persons expert and a procurement trafficking in persons contact for purposes of coordinating and implementing anti-trafficking requirements.

Additionally, the OMB memorandum seeks to respond to a host of questions that contractors have raised since the FAR’s anti-trafficking requirements were revised in 2015. To that end, the OMB memorandum provides a list of “best practices” that a contractor may implement as part of its anti-trafficking compliance program. These best practices generally fall within two categories:

  • Internal Steps: Compliance Policies and Accountability Official – The OMB memorandum notes that the FAR anti-trafficking rule does not technically require compliance policies or an accountability official, but the memorandum identifies such measures as important steps in ensuring compliance. According to the OMB memorandum, compliance policies (including a compliance plan, when required) should take into account recruitment practices, disciplinary action, and host country housing and employment requirements. The compliance policies should also regularly be assessed and updated to account for developing best practices and lessons learned. The OMB memorandum further explains that an official within the company should be responsible for implementing anti-trafficking policies and have the authority to assess supply chain compliance.
  • External Steps: Monitoring High-Risk Portions of the Supply Chain – The OMB memorandum’s guidance for external steps focuses largely on supply chain due diligence that prioritizes high-risk areas and assessing subcontractor compliance. For instance, it explains that contractors should maintain auditing processes to ensure subcontractor compliance with anti-trafficking requirements, including methods for assessing the use of recruiters and the sufficiency of reporting mechanisms. The OMB memorandum also recommends confirming that corrective action measures are in place to ensure appropriate remedial action (including contract termination) and follow-up monitoring when subcontractors engage in violations of anti-trafficking rules.

Notably, the OMB memorandum explains that contracting officers may use these best practices in assessing a contractor’s anti-trafficking compliance program, and notes that such assessments should be performed periodically, such as when a contractor reports a human trafficking incident, as part of a procurement involving a high-risk area, or in connection with a past performance review. When trafficking issues arise, the OMB memorandum advises contracting officers to consider a range of mitigating factors, including:

  • whether the contractor identified the issue as the result of effective monitoring and reporting programs,
  • how quickly the contractor notified the government of the incident,
  • the contractor’s cooperation with the resulting investigation,
  • the complexity of the contractor’s supply chain,
  • the contractor’s experience as a federal contractor, and
  • the presence of systemic violations.

Finally, the OMB memorandum seeks to provide further guidance to contractors’ most frequently asked questions regarding anti-trafficking compliance. Of particular note, the OMB memorandum acknowledges that contractors have struggled to determine the threshold for reporting “credible information” and notes that the term is not defined in the FAR. Although the OMB memorandum attempts to provide some guidance by explaining that the term “refers to believable information received from any source,” the memorandum’s guidance still leaves contractors without any particular direction for determining if an allegation is “believable” or “credible.” In addition, the OMB memorandum addresses a common question concerning whether to develop a company-wide or contract-specific compliance plan, explaining that multiple plans may be impractical and instead encouraging contractors to develop a company-wide compliance plan, which is subsequently tailored to specific contracts.

Given the increased emphasis on anti-trafficking requirements and the need for contractors to certify compliance with such requirements, contractors would be well served by assuring that their compliance structures meet government expectations, including confirming that work performed outside the United States is covered by an adequate compliance plan, if required, and that appropriate diligence and monitoring procedures are in place to address potential human trafficking risk in supply chains.

FRB Governor Brainard Discusses Path Forward on Community Reinvestment Act Reform

On January 8, 2020, Federal Reserve Board (“FRB”) Governor Lael Brainard delivered remarks on the state of Community Reinvestment Act (“CRA”) reform before an audience at the Urban Institute.  As we summarized in a client alert, last month, the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) released a proposed overhaul of the regulations implementing the CRA, which the FRB declined to join.  While Governor Brainard’s speech made clear that she was not speaking on behalf of the FRB, her remarks provided insight into FRB decision-making on CRA reform and possible avenues to consensus among the agencies.In her speech, Governor Brainard referred to an ultimately unsuccessful effort among the three federal banking regulators to produce a single proposal revising the CRA.  While the OCC and FDIC have expressed interest in finalizing a rule sometime in 2020, Governor Brainard suggested that a slower approach would be acceptable in order to “get the reforms done right.”  She noted that major revisions to the CRA rarely occur, and that stakeholders should carefully evaluate any revisions to ensure that they comport with the core purposes of the statute.  She also responded to an audience question by noting that stakeholders are generally satisfied with the current CRA rules, so a rush to revise them is unnecessary.The FRB has not released a formal proposal revising the CRA, and Governor Brainard declined to say whether one was forthcoming.  However, her remarks gave a broad overview of how she would approach revisions to the CRA.

Governor Brainard first described internal FRB’s methodology in formulating a possible approach to CRA reform.  According to Governor Brainard, the FRB has compiled and analyzed a large database of banking statistics and CRA ratings from 2005-2017, chiefly drawing on publicly available data, such as retail lending metrics and past CRA ratings.  She indicated that the FRB plans to make its analysis of that data available at some point in the future.

Governor Brainard then described a proposed framework that has broad similarities to that contained in the OCC and FDIC proposal.  Under both approaches, the distribution of a bank’s retail lending within an assessment area would be evaluated through the lenses of borrowers’ income levels and neighborhoods, its community development activity would be evaluated separately, and the resulting presumptive rating would be adjustable based on performance factors.

However, Governor Brainard’s proposed framework is different from the approach contained in the OCC and FDIC proposal in the following notable respects:

  • The OCC and FDIC proposal would assign a bank’s overall rating primarily based on a single ratio that evaluates all CRA activity (the “CRA Evaluation Measure”), whereas the approach Governor Brainard described would assign separate ratings for retail lending and community development activity. It is not clear how or if the approach she described would reconcile those separate ratings into a single bank-level rating.
  • The OCC and FDIC proposal would establish quantitative metrics for its evaluations.  Governor Brainard voiced a strong belief that qualitative measures are necessary in evaluating retail services and community development activity, and that the FRB’s data show that relying only on quantitative measures can create outcomes that diverge with the aims of the statute.
  • The OCC and FDIC proposal would eliminate the limited purpose and wholesale bank designations contained in the current rules, with the result that currently-designated banks would become subject to a retail lending distribution test.  The approach Governor Brainard described would maintain these designations and subject designated banks only to a community development test (and not a retail lending distribution test).
  • For a bank that receives 50 percent or more of its retail domestic deposits from outside its physical branch footprint, the OCC and FDIC proposal would create additional assessment areas in geographies where it receives 5 percent or more of retail domestic deposits.  Governor Brainard did not discuss any changes to the delineation of assessment areas.
  • Governor Brainard’s approach would set different performance benchmarks for community development activities in different assessment areas.  The OCC and FDIC proposal’s CRA Evaluation Measure would impose uniform ratings benchmarks across all assessment areas.
  • The OCC and FDIC proposal would establish a detailed, public list of activities qualifying for CRA credit.  Under Governor Brainard’s approach, banks could petition their examiners in advance for a determination of whether activities would qualify for CRA credit, and there is no indication that these determinations would be made public and generally applicable.
  • Governor Brainard’s community development test would consider activity outside of the bank’s assessment areas, so long as it is in the same state.  The OCC and FDIC proposal’s bank-level CRA Evaluation measure and Community Development Minimum would consider a bank’s activity both within and outside its assessment areas without requiring that activity to be in the same state.
  • Under the CRA Evaluation Measure and Community Development Minimum set forth in the OCC and FDIC proposal, a bank would generally receive CRA credit for loans and investments based on the dollar value of the loans or investments held on the bank’s balance sheet, calculated on a monthly average basis.  Governor Brainard did not describe whether she would endorse a similar approach in the community development test.

Governor Brainard welcomed public feedback on the approach she described, but did not provide a specific timeline or formal procedures for doing so.  Comments on the OCC and FDIC proposal are due March 9, 2020.

Video of Governor Brainard’s remarks is available here.  The remarks begin approximately 25 minutes into the video.  A transcript of her planned remarks (which does not include the subsequent question-and-answer session) is available here.

The Week Ahead in the European Parliament –  January 10, 2020

Summary

Next week, Members of the European Parliament (“MEPs”) will travel to Strasbourg for plenary session.  Several interesting debates and votes are scheduled to take place.

On Tuesday, the High Representative of the Union and Vice-President of the Commission Joseph Borrell, who has been in office since December 1, 2019, will make a statement regarding the situation in Iran, following a debate on the topic with MEPs.  The situation in the Middle East has destabilized considerably after Iranian Major General Qasem Soleimani was killed in a targeted U.S. done strike on January 3, 2020.  The EU has called for a de-escalation of the situation without condemning the U.S. attack.  It has said it remains firmly committed to the Joint and Comprehensive Plan of Action (“JCPOA”), also known as the Iran nuclear deal, between Iran and the P5+1 together with the EU.  After the attack, however, Iran made strong policy statements that were in contradiction to the JCPOA, but stopped short of withdrawing completely from the JCPOA.  Before considering re-introducing sanctions, France, Germany, the United Kingdom, and the EU are deliberating whether to trigger the dispute resolution mechanism under the JCPOA to address Iran’s latest moves.  The European Parliament does not have a formal role regarding the imposition of sanctions.  Nevertheless, the Parliament can adopt recommendations and resolutions to put pressure on the High Representative and Member States to act.

On Wednesday, MEPs will debate a common vision for and scope of the  “Conference on the Future of Europe”.  The Conference on the Future of Europe was an idea pitched by French President Macron in March 2019 in an open letter addressed at the citizens of Europe.  It is intended to come up with proposals for “all necessary changes to our political project, without any taboos, not even treaty revision.”  The other Member States, though less than exuberant, have joined the initiative.  MEPs have received the project with more enthusiasm, and see it as an opportunity to push for initiatives such as codifying the “Spitzenkandidaten” system for the selection of the Commission President, or transnational lists of candidates in the election to the European Parliament.  It is expected that the Conference would entail a series of national citizen meetings and dialogues.  It is scheduled to start in 2020 and end in 2022.

On Wednesday, the European Parliament will take position regarding the European Green Deal, the Commission’s flagship initiative to achieve EU climate-neutrality by 2050.  It is likely that the resolution will only formalize the Parliament’s position on the Green Deal in broad terms, as the package will include several legislative initiatives that still need to be introduced.  It could, however, be a good benchmark to see whether the ambitions of the Parliament match those of the Commission.

Meetings and Agenda

Monday, January 13, 2020 

Sessions

17:00 – 23:00

Debates

  • Commission statement – Devastating Bushfires in Australia and other extreme weather events as a consequence of Climate Change
  • Commission statement – Cross-border organized crime and its impact on free movement
  • Commission statement – Common charger for mobile radio equipment
    • Vote: future part-session
  • Commission statement – Gender pay gap
    • Vote: January II
  • Commission statement – “Housing First” as urgent action to address the situation of homeless people in Europe 

Tuesday, January 14, 2020 

Sessions

09:00 – 13:00

Debates

  • Council and Commission statements – [KEY DEBATE] Presentation of the programme of activities of the Croatian Presidency
  • Council and Commission statements – Implementing and monitoring provisions on citizens’ rights in the UK Withdrawal Agreement
    • Vote: Wednesday

15:00 – 23:00

Debates

  • Commission statement – Sustainable investment plan, just transition fund and Roadmap on Social Europe
  • Statement by the VP/HR – Situation in Iran and Iraq following recent escalations
  • Annual report 2018 on the human rights and democracy in the world and the European Union’s policy on the matter
  • JD – CFSP and CSDP (Article 36 TEU)
    • Annual report on the implementation of the Common Foreign and Security Policy
    • Annual report on the implementation of the Common Security and Defence Policy
  • Statement by the VP/HR – Situation in Libya
  • Statement by the VP/HR – Situation in Venezuela after the illegal election of the new National Assembly Presidency and Bureau (parliamentary coup)
    • Vote: Thursday

Wednesday, January 15, 2020 

Sessions

09:00 – 11:50

Debates

  • European Parliament’s position on the Conference on the Future of Europe

12:00 – 12:30

Debates

  • Address by His Majesty King Abdullah II, King of the Hashemite Kingdom of Jordan

12:30 – 14:30

Votes

  • Protocol to the Agreement between the EU, Iceland and Norway concerning the criteria and mechanisms for establishing the State responsible for examining a request for asylum lodged in a Member State or in Iceland or Norway regarding the access to Eurodac for law enforcement purposes
    • Rapporteur: Jadwiga WIŚNIEWSKA (PL, ECR)
  • EU-China Agreement on certain aspects of air services
    • Rapporteur: Tomasz Piotr PORĘBA (PL, ECR)
  • Common system of value added tax as regards the special scheme for small enterprises
    • Rapporteur: Inese VAIDERE (LV, EPP)
  • MRs – The European Green Deal
  • Implementing and monitoring provisions on citizens’ rights in the UK Withdrawal Agreement
  • Motion on human rights and democracy in the world and the European Union’s policy on the matter – Annual report
    • Rapporteur: Isabel WISELER-LIMA (LU, EPP)
  • Motion on the implementation of the common foreign and security policy – Annual report
    • Rapporteur: David McALLISTER (DE, EPP)
  • Motion on the implementation of the Common Security and Defence Policy – Annual report
    • Rapporteur: Arnaud DANJEAN (FR, EPP)
  • European Parliament’s position on the Conference on the Future of Europe

15:00 – 23:00

Debates

  • Topical debate (Rule 162) – Distortion of European history and remembrance of the Second World War
  • Council and Commission statements – Ongoing hearings under article 7(1) of the TEU regarding Hungary
  • Council and Commission statements – Ongoing hearings under article 7(1) of the TEU regarding Poland
  • Council and Commission statements – The reopening of the prosecution against the Prime Minister of the Czech Republic on the misuse of EU funds and potential conflicts of interest
    • Vote: February
  • Commission statement – COP15 to the Convention on Biological Diversity (Kunming 2020)
  • Annual report on activities of the European Ombudsman in 2018
    • Rapporteur: Peter JAHR (DE, EPP)
  • Commission statement – Reform of the general principles of comitology 

Thursday, January 16, 2020 

Sessions

09:00 – 11:50   

Debates

  • Institutions and bodies in the Economic and Monetary Union: Preventing post-public employment conflicts of interest Commission
    • Rapporteur: Irene TINAGLI (IT, S&D)
  • Debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)
    • Burundi, notably the case of imprisoned journalists
    • Nigeria, notably the recent terrorist attacks

12:00 – 14:00  

Votes

  • Motions for resolutions concerning debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)
  • MRs – Situation in Venezuela after the illegal election of the new National Assembly Presidency and Bureau (parliamentary coup)
  • MR – Ongoing hearings under article 7(1) of the TEU regarding Poland and Hungary
  • MR – COP15 to the Convention on Biological Diversity (Kunming 2020)
  • Annual report on activities of the European Ombudsman in 2018
    • Rapporteur: Peter JAHR (DE, EPP)
  • MRs – Institutions and bodies in the Economic and Monetary Union: Preventing post-public employment conflicts of interest

15:00 – 16:00

Debates

  • 3D‑printed illicit objects

Friday, January 17, 2020 

  • No meetings of note

Congress Likely to Pursue Legislation in 2020 to Address the Constitutionality of Patent Trial and Appeal Board Judges

The America Invents Act (“AIA”) may be back on Congress’s agenda this year.  Enacted in 2011, the AIA established the Patent Trial and Appeal Board (“PTAB”) to adjudicate patentability disputes.  The Board is composed of administrative patent judges (APJs) who are appointed by the U.S. Secretary of Commerce and removable by either the Secretary or the Director of the U.S. Patent and Trademark Office for “such cause as will promote the efficiency of the service.”  The U.S. Court of Appeals for the Federal Circuit recently concluded that this appointment and tenure structure is unconstitutional, raising questions for Congress about the ability of APJs to adjudicate cases.

Last fall, a panel of the Federal Circuit held in Arthrex, Inc. v. Smith & Nephew, Inc., that the current appointment of APJs violates the Appointments Clause of the U.S. Constitution.  The Federal Circuit reasoned that because APJs have significant discretion to decide cases, there is no direct review of their decisions, and their removal is limited by the AIA, APJs are “principal officers” who can be appointed only by the President with advice and consent by the Senate.  To correct this constitutional violation, the Federal Circuit severed the tenure protection provision from the Act, so that APJs can still be appointed by the Secretary but can now be terminated at will.

The Federal Circuit decision may not be the last word on the issue.  The case could be heard by the full Federal Circuit sitting en banc and eventually by the U.S. Supreme Court.  Any final decision on the issue might not come from the courts for at least another two years, and there is no guarantee that the en banc court or Supreme Court will reach the same result.  APJs and litigants are therefore continuing to participate in the patentability review process without certainty about whether the Board’s decisions could later be overturned because of a conclusion that the APJs are unconstitutional.

The issue has caught Congress’s attention.  The House Committee on the Judiciary’s Subcommittee on Courts, Intellectual Property, and the Internet held a hearing in November to address the potential concerns.  The Subcommittee heard testimony from law professors and practitioners about how the Arthrex decision forces APJs to decide cases without the tenure protections usually afforded to judges in administrative agencies.  Without these protections, the experts warned, the APJs may lose their independence to decide cases without undue pressure from the agency and Department heads.  The experts suggested acting quickly to restore certainty and impartiality to  the patentability review process.

The Subcommittee’s Chair, Representative Hank Johnson (D-GA), noted that it is inconsistent to create an adjudicatory body with judges who have no job security.  Chairman of the full Judiciary Committee, Representative Jerry Nadler (D-NY), added that APJs without tenure protections would simply try to discern what the Director of the U.S. Patent and Trademark Office wants, leaving litigants to question if the Board is in fact impartial.  The Subcommittee’s Ranking Member, Representative Martha Roby (R-AL), observed that although the Arthrex decision may have remedied the constitutional defect, the Board still raises concerns because its decisions are not subject to review except by Article III courts.  Since its decisions are so impactful, involving patent assets worth tens of millions of dollars, Ranking Member Roby questioned whether a non-Senate-confirmed entity should have so much authority.

In light of the time it would take to receive a final decision from the courts, and the possibility that any final decision’s solution may not be satisfying, the Subcommittee appeared willing to consider a legislative fix.  Chairman Johnson raised four alternative provisions that the experts suggested would pass constitutional muster: (1) have all APJs be appointed by the President and confirmed by the Senate; or subject Board decisions to (2) discretionary review by the Director, (3) a panel of presidentially appointed and Senate-confirmed officials, or (4) of a presidentially appointed and Senate-confirmed chief APJ.  These reforms would ensure greater accountability of the APJs’ decisions to a presidentially appointed and Senate-confirmed entity without removing their tenure protections.

Any of these plans, and maybe others, appear to be fair game for potential legislation this year.

Multiple Bipartisan 5G Wireless Bills Advance in Congress

5G wireless technology has captured the attention of Congress.  At least 30 5G-related bills have been introduced in the House and Senate this Congress, signaling widespread interest by lawmakers in 5G. Several of these bills, addressing a range of issues including national security concerns, the promotion of U.S. leadership in international 5G standards-setting bodies, and the deployment of domestic 5G infrastructure, have passed through committee with strong bipartisan support.

The Secure 5G and Beyond Act (S. 893, H.R. 2881), introduced this past spring by bipartisan groups of lawmakers in both chambers, would require the president to develop a whole-of-government national security strategy to ensure the safety of 5G wireless systems and infrastructure, in consultation with the Federal Communications Commission (FCC), the National Telecommunications and Information Administration (NTIA), the Department of Homeland Security (DHS), the Director of National Intelligence (DNI), and the Department of Defense (DOD). In particular, the Act calls for the strategy to protect the competitiveness of U.S. companies and the integrity of standards of international standards-setting bodies. The bill, which was reported favorably out of both the Senate Commerce Committee and the House Energy & Commerce Committee earlier this month, also requires an assessment of the full range of threats to U.S. leadership in 5G and future generations of wireless communications systems, and an assessment of the global competitiveness and vulnerabilities of U.S. manufacturers building 5G devices and infrastructure. Negotiations to move these bills to the floorare ongoing in both the House and Senate.

Earlier this month the House Energy & Commerce Committee also passed the Promoting United States Wireless Leadership Act of 2019 (H.R. 4500), which encourages more participation by U.S. companies and other U.S. stakeholders in global standards-setting bodies.

And just last week, the Secure and Trusted Communications Networks Act of 2019 (H.R. 4998), which prohibits spending federal dollars on telecommunications equipment that could pose a threat to critical infrastructure and creates a fund to replace infrastructure equipment manufactured by certain foreign companies, passed the House on suspension of the rules, signaling strong bipartisan support. Negotiations are still ongoing in the Senate. Senator Mike Lee (R-UT) blocked passage of the House bill last week, arguing against the House bill’s use of tax dollars to fund the replacements.

In addition, Congress has also prioritized the allocation of spectrum for 5G.  The 5G Spectrum Act (S. 2881), which would mandate a public auctioning process for C band spectrum and require the FCC to make available at least 280 MHz of spectrum, was reported out of the Senate Commerce Committee and debated on the Senate floor this month. Senator John Kennedy (R-LA) is currently blocking it from moving forward.

Given the ongoing commercial release of 5G in the U.S. through 2020, we expect that legislative interest in 5G issues will continue unabated.

Momentum In Drug Pricing Reform: House Passes New Legislation on the Heels of Presidential Candidates’ Drug Pricing Proposals

Late last week, House Democrats passed Speaker Nancy Pelosi’s Elijah E. Cummings Lower Drug Costs Now Act. This bill would, among other things, permit the Department of Health and Human Services (“HHS”) to negotiate lower prices for 250 of the costliest drugs on behalf of Medicare beneficiaries and other consumers. Although this particular legislation appears to have little chance of passing the Senate and appears to lack support from President Trump, it comes on the heels of several other efforts aimed at reducing prescription drug prices. For instance, the Trump administration has released its drug pricing blueprint to use similar price control mechanisms to lower Medicare drug prices.  Additionally, just last month, Senator Cory Booker, along with Senators Bernie Sanders and Kamala Harris, introduced the Prescription Drug Affordability and Access Act (“Act” or “Prescription Act”) to regulate the cost of prescription drugs and threaten the abolishment of patent protections for non-compliant drug manufacturers. The current version of the proposal raises significant questions.

The Prescription Act proposes to create two new bodies: (1) the Bureau of Prescription Drug Affordability and Access (“Bureau”) within HHS to determine list prices for new and existing drugs; and (2) a Consumer Advisory Council (“Council”) comprised of patients, patient organizations, and medicine and health care finance experts to oversee the Bureau. Before a new drug can go to market, the Act obligates drug makers to provide the Bureau with sensitive information regarding the cost of research and development, the cost of the drug and comparable medications in other countries, and the federal investments of the drug’s discovery and production, among other things, in order for the Bureau to determine an “appropriate” price. For drugs already on the market, the Bureau would review the drug manufacturer’s cost profile and set an appropriate price based on the lesser of the Bureau-determined price or the median list price of eleven listed drug reference countries including Japan, Germany, the United Kingdom, France, Italy, Canada, Australia, Spain, the Netherlands, Switzerland, and Sweden. If drug makers charge an “inappropriate” price for a drug – i.e., a price above the amount determined by the Bureau, they must remit a rebate based on the surplus revenue earned to patients affected by the higher price. Further, if a drug maker fails to comply with the Bureau’s list price or remit excessive revenue earned within 30 days of receiving a notice that its price is “inappropriate,” HHS may void any patent related to the medication or clinical trial data or end other government-granted exclusivity. In the event HHS invalidates the patent, the Act contemplates that third parties should provide “reasonable compensation” to the patent holders, but the Act does not discuss how reasonable compensation would be determined.

In addition to the uncertainty regarding the calculation of “reasonable compensation,” the Act (like other similar proposals) does not appear to ensure that a drug product’s price reflects its true value. For instance, although the Bureau may take into account the cost of research and development for the particular drug at issue, there is no guarantee that the Bureau will account for (1) the often significant investment made in unsuccessful attempts to bring other drugs to market, or (2) the savings that a drug might bring to the healthcare market by preventing future illness or avoiding more costly treatment options. Also, the Act’s incorporation of reference pricing does not account for the nuances in healthcare systems in the reference countries, including the availability of alternative treatment methods in those countries.

Providing HHS the authority to invalidate patents and government licenses based on drug maker’s failure to abide by a drug price set on what appears to be an incomplete list of relevant factors promises to create further uncertainty for companies investing in drug product development. Companies would be well advised to continue monitoring progress on the Prescription Act, as well as drug pricing reforms more generally, as we head into an election year where government action on drug pricing appears to remain a central issue.

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