February 2023

In August 2022, the Chips and Science Act—a massive, $280 billion bill to boost public and private sector investments in critical and emerging technologies—became law.  We followed the bill from the beginning and anticipated significant opportunities for industry to inform and influence the direction of the new law’s programs. 

One such opportunity is available now.  The U.S. Department of Commerce recently published a request for information (RFI) “to inform the planning and design of the Regional Technology and Innovation Hub (Tech Hubs) program.”  The public comment period ends March 16, 2023.

Background

The Chips and Science Act authorized $10 billion for the U.S. Department of Commerce to establish a Regional Technology and Innovation Hub (Tech Hubs) program.  Specifically, Commerce was charged with designating at least 20 Tech Hubs and awarding grants to consortia composed of one or more institutions of higher education, political subdivisions, state governments, and “industry or firms in relevant technology, innovation, or manufacturing sectors” to develop and deploy critical technologies in those hubs.  $500 million has already been made available for the program, and Commerce will administer the program through the Economic Development Administration (EDA).Continue Reading Commerce Seeks Comments on Regional Tech Hubs Program

The American Music Fairness Act (“AMFA”) has been re-introduced in the Senate for this Congress.  Sen. Padilla (D-CA) introduced the bill (S.253) earlier this month, along with Sens. Blackburn (R-TN), Tillis (R-NC), and Feinstein (D-CA).  The bill was referred to the Judiciary Committee, on which every cosponsor serves. …

Continue Reading THE AMERICAN MUSIC FAIRNESS ACT RETURNS TO THE SENATE

On 24 January 2023, the Italian Supervisory Authority (“Garante”) announced it fined three hospitals in the amount of 55,000 EUR each for their unlawful use an artificial intelligence (“AI”) system for risk stratification purposes, i.e., to systematically categorize patients based on their health status. The Garante also ordered the hospitals…

Continue Reading Italian Garante Fines Three Hospitals Over Their Use of AI for Risk Stratification Purposes, Establishes That Predictive Medicine Processing Requires the Patient’s Explicit Consent

On the heels of Russia’s invasion of Ukraine, pandemic-induced supply chain disruptions, and U.S.-China tensions over Taiwan, 2022 accelerated a sweeping effort within the U.S. government to make national security considerations—especially with respect to China—a key feature of new and existing regulatory processes. This trend toward broader national security regulation, designed to help maintain U.S. strategic advantage, has support from both Republicans and Democrats, including from the Biden Administration. National Security Advisor Jake Sullivan’s remarks in September 2022 capture the tone shift in Washington: “…[W]e have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies…That is not the strategic environment we are in today…[w]e must maintain as large of a lead as possible.”

This environment produced important legislative and regulatory developments in 2022, including the CHIPS and Science Act (Covington alert), first-ever Enforcement and Penalty Guidelines promulgated by the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) (Covington alert), President Biden’s Executive Order on CFIUS (Covington alert), new restrictions under U.S. export control authorities targeting China (Covington alert), and proposals for a new regime to review outbound investments by U.S. businesses (Covington alert). The common thread among these developments is the U.S. government’s continuing appetite to use both existing and new regulatory authorities to address identified national security risks, especially where perceived risks relate to China.

With a Republican majority in the U.S. House of Representatives riding the tailwinds of this bipartisan consensus, 2023 is looking like a pivotal moment for national security regulation—expanding beyond the use of traditional authorities such as trade controls and CFIUS, into additional regulatory domains touching upon data, communications, antitrust, and possibly more. In parallel, the U.S. focus on national security continues to gain purchase abroad, with foreign direct investment (“FDI”) regimes maturing in tandem with CFIUS, and outbound investment screening gaining traction, for example, in the European Union (“EU”). It is crucial for businesses to be aware of these developments and to approach U.S. regulatory processes with a sensitivity towards the shifting national security undercurrents described in greater detail below.Continue Reading Will 2023 Be an Inflection Point in National Security Regulation?

On Tuesday, February 14, 2023, the Senate Judiciary Committee held a hearing titled “Protecting Our Children Online.”  The witnesses included only consumer advocates, and no industry representatives.  As Committee Chair, however, Senator Durbin (D-IL) indicated that he plans to hold another hearing featuring representatives from technology companies.

The key takeaway was that there continues to be strong bipartisan support for passing legislation that addresses privacy and online safety for minors.  Both Senator Durbin and Senator Graham (R-SC), the Committee’s Ranking Member, were in agreement that the Committee will mark up relevant legislation, which could happen within the next six months—making the next couple months particularly important for negotiations.  Notably, all of the previously introduced legislation that was discussed had passed at least its respective Senate Committee last Congress.

Senators focused on four bills that could be included as part of a legislative package:

  1. Kids Online Safety Act (KOSA) (to be reintroduced).  KOSA would apply to “covered platforms,” which the previous bill defined as a “commercial software application or electronic service that connects to the internet and that is used, or is reasonably likely to be used, by a minor.”  Among other things, KOSA would impose a duty of care on covered platforms that would require them to “prevent and mitigate the heightened risks of physical, emotional, developmental, or material harms to minors posed by materials” on the platform.

Continue Reading Senate Judiciary Committee Holds Hearing on Children’s Online Safety

Covington annually publishes a detailed survey of state campaign finance, lobbying, and gift rules.  Now, for the first time, Covington is releasing an updated survey that details federal campaign finance, lobbying, and gift rules, in addition to those of the 50 states and the District of Columbia. Corporations, trade associations, non-profits, other organizations, and individuals face significant penalties and reputational harm if they violate federal or state laws governing corporate and personal political activities, the registration of lobbyists, lobbying reporting, or the giving of gifts or items of value to government officials or employees. To help organizations and individuals comply with these rules, this detailed survey—now 327 pages—summarizes the campaign finance, lobbying, and gift rules adopted by the federal government, all 50 states, and the District of Columbia.

Newly added federal sections cover the Lobbying Disclosure Act, the Foreign Agents Registration Act, Congressional gift rules, executive branch gift rules, and the Federal Election Campaign Act. Information is provided in a table question and answer format intended to address common questions with practical guidance. Continue Reading Covington Releases Updated Survey of Federal and State Campaign Finance, Lobbying, and Gift Rules (2023 Edition)

In the past five years, loot boxes have been the focus of many gaming regulators worldwide.  While the regulatory status of loot boxes is still unclear in the EU, the Report of the European Parliament on Consumer Protection in Online Video Games: a European Single Market Approach, adopted on January 18, 2023, may bring some clarity on how loot boxes will be regulated in the EU in the future.

This blog post illustrates how loot boxes are currently regulated in the EU and explains why the gaming industry should already prepare for a possible ban on paid loot boxes.

Qualification of Loot Boxes in the EU

In its Study on Loot Boxes in Online Games and Their Effect on Consumers, in Particular Young Consumers of July 2020, the European Parliament broadly defined loot boxes as “features in video games which are usually accessed through gameplay, or which may be optionally paid for with real-world money.  They are ‘mystery boxes’ which contain randomised items, so players do not know what they will get before opening.  Players can access diverse types of in-game content through loot boxes such as cosmetic items for game customisation (e.g. skins and new looks for the player’s avatar) or items affecting gameplay (e.g. tools, weapons, levels, maps, in-game currency etc.) which could, for example, help players compete better or advance more quickly.”

Thus, loot boxes are usually characterized by the following features:Continue Reading Upcoming EU Legislation on Loot boxes?

February 16, 2023, Covington Alert

The 2023 proxy season is underway for public companies and their investors. Corporate secretaries, lawyers, and executives are actively engaged in the SEC’s shareholder proposal process. Consistent with recent proxy seasons, a significant number of companies are receiving proposals calling for new or enhanced political disclosures. Although these proposals have been around for some time, recent contentious election cycles, debate over hot-button issues, including the Supreme Court’s 2022 decision in Dobbs v. Jackson Women’s Health Organization, and increased investor focus on ESG matters (as well as criticism of such focus) have cast an ever-increasing focus on disclosure of corporate political expenditures.

Effectively responding to shareholder proposals on this issue is essential. Although shareholder proposals are non-binding, proposals that are approved – or that fail but with a substantial level of support – will give rise to an expectation that the company will address the subject matter of the proposal in the months following the annual meeting. A company’s failure to act on a shareholder proposal that is approved or that receives strong support can result in reputational damage to the company and could signal to shareholders and proxy advisory firms that the board is not responsive to a matter of significant shareholder concern. This can give rise to further shareholder proposals and potential votes against some or all of the company’s directors at the next annual meeting. In some circumstances, failure to effectively respond to a shareholder proposal could lead activist investors to threaten or initiate a proxy contest in advance of the next annual meeting.

In recent years, shareholders have submitted hundreds of proposals aimed at encouraging companies to voluntarily disclose more information on their websites with regard to their corporate political spending and processes. In Covington’s 2015 guide on “Responding to Corporate Political Disclosure Initiatives,” we noted that “although some have argued that these efforts are primarily intended to force companies to scale back their lobbying and political activities—not to promote transparency—they continue unabated.” The pace and breadth of these proposals has expanded in the ensuing years, with a significant number of shareholder proposals focused on two topics—political contributions and lobbying expenditures. According to the Center for Political Accountability (“CPA”), its model political disclosure resolution was used 22 times each in the 2021 and 2022 proxy seasons, resulting in six votes in excess of 50 percent in 2021 and two in 2022. We expect, and have begun to see, a similar number of politically-focused shareholder proposals this proxy season. As of December 2022, for example, CPA reported that its shareholder partners have “filed 25 proposals in the 2023 proxy season, with more expected over the coming months.”Continue Reading Tips for Responding To Corporate Political Disclosure Shareholder Proposals

The Digital Markets Act (“DMA”) will apply from 2 May 2023. In anticipation of this, the European Commission (“Commission”) has sought feedback via a public consultation on the draft DMA Implementing Regulation (“IR”) between early December and 9 January 2023.

The draft IR addresses a range of procedural aspects concerning the DMA, including gatekeeper designation and core platform service notifications, opening of proceedings, the right to be heard, and access to the file. By contrast, the draft IR so far is silent on the Commission’s investigative powers during the gatekeeper designation process and the process of further specifying the obligations set out in Article 6 DMA (both of which gatekeepers will undoubtedly be eager to learn more about).

The Commission is aiming to publish the final IR before Spring, and it will apply from the same date as the DMA. Whilst the draft IR may still be subject to changes before the final version is adopted, it already provides valuable insights into the Commission’s thinking.  How stakeholder feedback might affect these issues in the final IR remains to be seen.

Two themes in the draft IR – each further outlined below – are particularly noteworthy:

  • First, it touches upon the potential delineations of core platform service under the DMA, an issue which can have important ramifications for future enforcement: delineating one core platform service from other services in the context of digital ecosystems which are often designed to be seamless could prove rather complex.
  • Second, the draft IR displays a certain tension between achieving a “rapid and effective investigatory and enforcement process” (Recital 3 IR) while also ensuring that rights of the defence of the parties to the proceedings are effectively protected. The Commission’s emphasis on speed in DMA enforcement may require some notable departures from the traditional procedural framework for antitrust.

Continue Reading Countdown to Compliance: the DMA Implementing Regulation

What happens in Arkansas does not stay in Arkansas.  Or at least not when federal prosecutors from the Department of Justice’s Public Integrity Section get involved.

A recent sentencing from Arkansas highlights the many options in DOJ’s toolkit to pursue “state-level” misconduct involving public officials.  In the case of former state senator Jeremy Hutchinson, DOJ obtained a “global” guilty plea for misconduct charged in three separate district courts.  The court sentenced Hutchinson to 46 months incarceration. 

According to the Government’s sentencing memorandum, Hutchinson accepted over $157,500 from the owner of an orthodontic clinic in exchange for advancing favorable legislation to deregulate the state dental industry.  The bribes masqueraded as payment for legal retainers, according to the Plea Agreement.  In addition, Hutchinson:

commingled campaign contributions and donations with his own personal funds and misappropriated and converted campaign funds for his own personal use, including, but not limited to, using campaign funds for a vacation, hotel stay, travel expenses, groceries, a gym membership, and jewelry.

Continue Reading Recent Arkansas Sentencing Highlights How Easily Federal Prosecutors Can Target State Campaign Finance Issues