Technically Still Yours: Court Holds that Contractors May Mark Unlimited Rights Data with a Proprietary Legend

If your company delivers technical data to the Department of Defense, you should take a close look at the Federal Circuit’s decision issued yesterday in The Boeing Co. v. Secretary of the Air Force.

The Court acknowledged that contractors may retain ownership and other interests in unlimited rights data, and it held that they may take steps to put third parties on notice of those rights.  In particular, the Court held that, in addition to the standard legends required by the Defense Federal Acquisition Regulation Supplement (“DFARS”), contractors may also include a legend notifying third parties of the contractor’s retained rights.

However, the Court clarified that such a legend would be inappropriate if it was written in a way that restricted the government’s lawful data rights.  The Court declined to decide whether a legend used by Boeing had that effect, remanding the matter to the Armed Services Board of Contract Appeals (“ASBCA”) to decide that question.

Contractors would be well-served to evaluate whether their data protection policies can be enhanced in light of the Court’s decision.

Background on the Appeal

The appeal was based on an Air Force contract for development of the F-15 fighter jet’s electronic warfare system.  Slip Op. at 5-6.  Boeing was required to deliver certain data with unlimited rights, and it did so under DFARS 252.227-7013.  Id.  As a result, the Government received the right to use the data for any purpose or disclose it to anyone, including other contractors.  See id. (citing DFARS 252.227-7013(a)(16)).

However, under long-standing DFARS regulations, contractors generally retain ownership of and rights in data delivered to the Government.  See, e.g., DFARS 252.227-7013(c) (“All rights not granted to the Government are retained by the Contractor.”).  Contractors often seek to protect their retained rights from misuse by third parties.  One way of doing so is to add a legend to the data that warns third parties of a contractor’s rights.

Boeing used just such a notice, advising “NON-U.S. GOVERNMENT” parties of its assertion that the information was “proprietary” to Boeing and could not be used without permission from Boeing or the Government.  Slip Op. at 6.

In response, the Air Force’s Contracting Officer (“CO”) challenged the marking and directed Boeing to resubmit the data deliverables without the proprietary notice.  Id. at 7.  According to the Air Force, DFARS 252.227-7013(f) forbid Boeing’s marking, because the clause states that “only” the DFARS-prescribed legends can be used, and Boeing’s legend was not one of those.  DFARS 252.227-7013(f).

The Court’s Decision

In a 22-page opinion, the Federal Circuit rejected the Air Force’s interpretation, holding instead that DFARS 252.227-7013’s marking procedures apply “only in situations when a contractor seeks to assert restrictions on the government’s rights.”  Slip Op. at 13 (emphasis added).  The clause “is silent on any legends that a contractor may mark on its data when it seeks to restrict only the rights of non-government third parties.”  Id. at 11.  As a result, the Court held that Boeing’s third-party legend was not prohibited as a matter of law by the DFARS.

However, the Court held that there was still a question about whether the language of Boeing’s particular legend did — as a matter of fact — cause a restriction on the government’s unlimited rights.  Id. at 22.  The Court characterized this as a “factual dispute” for the ASBCA to resolve at trial.  So although legends directed at third parties are allowed, they must not be written in a way that burdens the government’s lawful rights in data.


The Federal Circuit’s decision confirms that contractors may mark data delivered to the Government — even data delivered with unlimited rights — with a legend putting third parties on notice of the contractor’s retained rights in that data.  Contractors who do not currently use such a legend may want to consider adopting that practice, but they should carefully assess the language of their legend to ensure that it does not restrict the Government’s data rights.

Sen. Grassley’s Unsuccessful Effort to Pass FARA Reform Legislation Leads to Bipartisan Commitment for Comprehensive Review of the Law

On Wednesday, December 16, Senator Chuck Grassley (R-Iowa) sought, and failed to achieve, unanimous consent to pass legislation that would have granted significant new powers to the Department of Justice to enforce compliance with the Foreign Agents Registration Act.  In objecting to passage, Sen. Bob Menendez (D-N.J.) said that the Senate should “take a step back and take a comprehensive look” at the statute and reform proposals.

In one of the last Senate sessions of the year, Sen. Grassley called for the Senate to pass S. 1762, the Foreign Agents Disclosure and Registration Enhancement Act, a bipartisan bill that he introduced in 2019.  In his remarks on the Senate floor, Sen. Grassley noted that the bill was supported by the chairs and senior Democratic Senators of both the Senate Judiciary Committee and the Senate Intelligence Committee.  He noted that he recently received support from Sen. Jim Risch (R-Idaho), the Chairman of the Senate Foreign Relations Committee, a development that appears to have prompted Sen. Grassley to seek consent to pass the bill.

Notably, it was Sen. Menendez, the ranking Democratic Senator of that same Committee, who objected to passing the bill by unanimous consent.  Sen. Menendez noted his agreement with Sen. Grassley “that changes are sorely needed to FARA,” but he noted that Members of Congress had introduced numerous FARA reform bills, with a wide variety of proposals, including “additional disclosure and registration requirements, significant changes to the current FARA exemptions, or more electronic reporting.”  The Foreign Relations Committee, he said, should have an opportunity to “considering such changes . . . and to see if other changes are warranted.”

Sen. Menendez also raised concerns that FARA’s “definitions and requirements are broad and sow confusion over exactly when and under what circumstances an individual must register and report covered activities.”  He noted that some organizations are concerned that broader FARA enforcement authorities could lead to the statute being “weaponized.”

Sen. Grassley’s legislation would make several significant changes to FARA enforcement:

  • The bill would give the Attorney General the authority to issue civil investigative demands to require the production of documents, answers to interrogatories, and testimony from witnesses in FARA investigations. Grassley indicated that he modeled the provisions on similar authorities in the False Claims Act.
  • The legislation would increase the criminal penalties for willful violations and material misstatements to $200,000 (from $10,000) and increase the penalty for more minor violations to $15,000 (from $5,000).
  • The bill would create a new criminal offense for meeting with a Member of Congress or staff without disclosing that an individual is a registered foreign agent.
  • The bill would create new civil penalties for violations of the statute, including a $10,000 fine for failing to file, a $1,000 fine for failing to file a required supplemental statement, and fines up to $200,000 for other violations, including failing to rectify a deficient filing.
  • The legislation would require the Department of Justice to develop a comprehensive strategy for FARA enforcement, including an examination of all of the registration exemptions contained in the statute. The bill also would require various reviews by the Department’s Inspector General, reports by the Attorney General, and audits by the Government Accountability Office.
  • Most significantly for private sector companies, the bill would require the Government Accountability Office to audit the use of the Lobbying Disclosure Act exemption to registration, and provide recommendations for potential improvements. Notably, this bill does not contain a repeal of the LDA exemption, which had been in an earlier version of Sen. Grassley’s reform legislation and would have forced many private sector companies to register and report under FARA.

FARA has been enforced with increasing aggressiveness by the Department of Justice over the last several years, not only through formal enforcement actions but also through audits, advisory opinions, and the issuance of determination letters demanding that private parties register.  Senator Menendez’s public expression of concern regarding FARA’s breadth and its potential “weaponization” is a significant development.  Although Senator Grassley failed in his attempt to pass the bill, which has never had a full public hearing,  Senator Menendez’s acknowledgement that changes in FARA are sorely need may suggest an opening for fuller consideration, and perhaps even enactment, of the bill in the next Congress.

What to Expect as the FEC Reconvenes

With the swearing in of Shana M. Broussard, Sean J. Cooksey, and Allen Dickerson, the Federal Election Commission now has a full roster of six Commissioners for the first time since 2017.  While the FEC briefly enjoyed a quorum with four Commissioners in May, since then it has lacked a sufficient number of Commissioners to promulgate rules or vote on enforcement matters.  Now, the FEC will turn to the significant backlog of cases, many of which are nearing the five year statute of limitations.

We have argued elsewhere that the most important decision these new Commissioners will make is how they work together to reach the four votes necessary for the Commission to take formal action on matters before it.  The first indications of this will appear internally, as they sort through the significant backlog of enforcement actions.  But those votes will remain confidential until each matter is fully resolved.  Externally, we will see the first signs of the approach the newly reconstituted Commission will take in Advisory Opinion votes, where the discussion, compromise and final decisions will be public.

For our clients last February, Covington’s Election and Political Law group looked back on the two prior years of agency decisions to identify trends in agency decision making.  There were several areas that fairly consistently showed a strong, bipartisan agreement on what the law said, and how it should be enforced.  We think there is a reasonable likelihood that consensus will remain in most of these areas.  These include:

Misuse of Federal Funds and Failure to Report.

Misappropriation of PAC funds, whether embezzlementmisappropriation, or use of non-Federal funds in Federal elections, is by far the most frequent subject of commonality among the Commissioners. Similarly, failure to file timely reports, disclose disbursements, or make timely corrections to reports, are likely to garner a unanimous vote to take action.  Thus, the routine “blocking and tackling” of political committee compliance remains essential, for there is little partisan or ideological divide over the need to comply with these rules.

Foreign National Contributions.

The FEC has voted to take action and impose penalties in matters involving reasonably straight forward violations of the ban on contributions by foreign nationals.  Most strikingly the Commissioners accepted the single largest penalty in 2019 — a staggering $940,000 — in a matter arising from a Chinese national approving a domestic corporation’s contribution to a Super PAC.  A similarly substantial penalty, relative to the size of the violation, arose from the Australian Labor Party’s payment of the travel expenses of Australians who came to work in federal elections.  There were also several cases where the FEC declined to pursue the violation only because those involved had already been prosecuted by the Justice Department.  At the same time, the agency has refused to investigate politically charged cases involving Russia and the Trump administration and NRA.

Prohibited Contributions.

Commissioners have agreed to take action in matters involving excessive contributions, contributions made in the name of anotherreimbursed contributions, non-voluntary contributions and non-refunded general election contributions.  Like foreign national contributions, the Department of Justice also routinely pursues contributions in the name of another, sometimes more commonly known as “straw donor” contributions, magnifying the need for those soliciting and receiving contributions to understand and comply with these rules.

Technology and Deregulation. 

The Commission has frequently found consensus on questions involving the application of the agency’s rules to new technology.  This includes cases where the FEC concluded that technology companies did not make contributions” or “expenditures” or themselves become “political committees” despite the political content of their products.  There was also consensus on the application of the FEC’s rules to cryptocurrency use.  Finally, the Commissioners found consensus on a relaxed reading of the application of their rules to those companies providing tech solutions to FEC regulated entities that faced the risk of foreign state actors.

For many other important issues, consensus has been harder to find.  When does an entity become a “political committee”?  What is “coordination”?  How does the First Amendment inform agency decision making?  One example of the difficulty the agency has had in decision making:  It has been a decade since the agency completed a substantive rule making. With four new Commissioners appointed in the past year, it will be interesting to see what this new phase at the FEC will hold.

Expansion of the Procurement Collusion Strike Force

Just over a year after launching the Procurement Collusion Strike Force (“PCSF”), the U.S. Department of Justice’s Antitrust Division (“DOJ”) announced new measures to further its pursuit of antitrust and related crimes in government procurement, grant, and program funding.  These changes expand the PCSF’s enforcement capacity and signal DOJ’s enduring—and intensifying—commitment to the PCSF’s mission.

The PCSF has added 11 new national partners: the Department of Homeland Security Office of the Inspector General, the Air Force Office of Special Investigations, and nine new U.S. Attorneys.  As a result, the growing PCSF coalition now includes 29 agencies and offices, including U.S. Attorneys in 22 federal judicial districts; the Federal Bureau of Investigation; and Offices of Inspectors General at six federal agencies.  The PCSF also named the Antitrust Division’s Daniel Glad as the Strike Force’s first permanent director, solidifying the PCSF’s institutional role at DOJ.  Glad previously served as an Assistant Chief at the Antitrust Division’s Chicago Office.

These changes followed a productive year for the PCSF.  Since its formation, the PCSF has facilitated the opening of more than two dozen active grand jury investigations, covering a wide array of procurement collusion and fraud matters from defense and national security to public works projects.  The PCSF has focused on expanding the use of data analytics to detect suspicious bid patterns, sharing best practices on collusion analytics, and providing training on both the buy and sell side of government contracting.  The PCSF has also adapted to COVID-19, including the heightened collusion risks associated with exigent procurement by government agencies.  In March, Attorney General William Barr underscored this focus: “The Department of Justice stands ready to make sure that bad actors do not take advantage of emergency response efforts, healthcare providers, or the American people during this crucial time.”

It has long been the case that contractors bidding on new federal awards must formally certify that they have determined their prices independently, that that have not and will not share their prices with any other competitor prior to award, and that the contractor has not induced any other competitor “to submit or not to submit an offer for the purpose of restricting competition.”  But with the advent of the PCSF and the promise of even more scrutiny on the horizon, the number of procurement-related investigations is likely to continue to grow, increasing the importance of compliance and the need to avoid even the appearance of any violations of these procurement rules and the antitrust laws in the contracting space.

Penalties for illegal restraints on trade can be both criminal and civil.  Under § 1 of the Sherman Act, criminal repercussions may include incarceration of individuals for up to ten years and corporate fines up to $100 million or twice the gain/loss caused by the violation.  In addition to criminal penalties, the Antitrust Division has made it a policy to seek treble damages through civil antitrust actions to recover damages to the government.  Such conduct can also result in violation of other statutes, such as the civil False Claims Act, which provides for treble damages and fines.  And  what can be most devastating to a company, a conviction raises the specter of debarment from federal contracting, which can have far-reaching effects on government contractors.

Now is the time for government contractors to ensure that they have adequate safeguards in place to prevent, detect, and mitigate collusive or fraudulent procurement practices.  A great starting point is the Antitrust Division’s Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations (“ECCP”).  The ECCP discusses the criteria that the Antitrust Division considers when deciding whether, and to what extent, it will bring criminal charges against a company.  Under the ECCP, Antitrust Division prosecutors first consider:

(a) whether the company’s antitrust compliance program addressed and prohibited criminal antitrust violations;

(b) whether the compliance program detected and facilitated prompt reporting of the violation; and

(c) the extent to which the company’s senior management participated in the violation.

Antitrust Division prosecutors then evaluate the effectiveness of the antitrust compliance program based on nine key factors:

(1) the company’s culture of antitrust compliance;

(2) program design and comprehensiveness;

(3) responsibility for, and resources devoted to, antitrust compliance;

(4) antitrust risk assessment techniques;

(5) compliance training and communication to employees;

(6) monitoring and auditing techniques;

(7) reporting mechanisms;

(8) compliance incentives and discipline; and

(9) remediation methods.

The Antitrust Division also may consider the factors laid out in the DOJ Criminal Division’s Evaluation of Corporate Compliance Programs, such as whether the program is well designed; whether it is adequately resourced and applied in good faith; and whether it works in practice.

Presentation of the results from the Covington/Brussels School of Competition immunity and leniency survey 2020

We recently presented to DG COMP the findings of the immunity and leniency survey 2020, which was conducted jointly by Covington and the Brussels School of Competition. The survey ran from December 2019 to March 2020 and asked competition law practitioners, enforcers and in-house counsels to share their observations on the perceived decline in immunity and leniency applications in the EU.

GCR’s interview discussing the results of the survey with Johan Ysewyn and Maria Jaspers (Director of Cartels at DG COMP) can be found here. Covington Competition blog readers can access the slidedeck which presents the results from the survey here.

UK Supreme Court lowers the bar for collective actions

The UK Supreme Court has today ruled in favour of Walter Merricks, the former head of the UK Financial Ombudsman Service., in a hotly-anticipated judgment in the first opt-out competition class action brought in the UK.


Mr Merricks is the proposed class representative for 46.2 million people who, between 22 May 1992 and 21 June 2008, purchased goods and/or services from businesses in the UK that accepted MasterCard cards.  Mr Merricks has valued that claim at in excess of £14 billion (and this sum will likely now be even greater, with interest having continued to run since the claim was filed in September 2016).  Our commentary on the earlier Court of Appeal decision in the case, with which the Supreme Court largely agreed, can be found here.


The Supreme Court has dismissed MasterCard’s appeal, which means the case will now go back to the Competition Appeals Tribunal (“CAT”) for a second attempt by Mr Merricks at obtaining a Collective Proceedings Order (“CPO”), but this time with clearer guidance as to the threshold.  Importantly, that threshold has been lowered by the Supreme Court, making it more likely that CPOs will be made going forward.  The many cases waiting in the wings can now move forward to their own CPO hearings, with more certainty as to the threshold the claimants must meet.

The lowering of the bar from the standard set by the CAT seems based – at least in part – on policy considerations, i.e., that collective proceedings have been introduced for a purpose, and it is not the job of the CAT to set up too many hurdles.

Two points of immediate note in the Supreme Court’s judgment are:

  1. The lowering of the bar in respect of the suitability of the claim. The Court found that this is not to be considered in the abstract, but in relative terms, i.e., whether the claim is more suitable to proceed on a collective basis than individually.  This substantially lowers the bar, since it will be more challenging to argue that it would be better for a claim to be brought by each individual consumer than on a collective basis.
  2. The firm guidance from the Supreme Court that the compensatory principle is not an element of the test for granting a CPO. On this point, the two dissenting judges also agreed, meaning any suggestion that this forms part of the test falls away entirely.

The case will now go back to the CAT for a further CPO hearing.  Whilst the Merricks case lives to fight another day, it has not yet been given the go-ahead as a collective claim, and is likely some years away from a trial on the merits (if it ever gets to that stage at all).

The Supreme Court specifically did not criticise the CAT’s detailed questioning and cross-examination of experts at the initial CPO hearing, noting that this achieved “both greater clarity and a considerable improvement in the quantification methodology then being proposed on Mr Merricks’ behalf, in a case of unprecedented size and complexity”.  It is likely, then, that the further CPO hearing in this case – and CPO hearings for other complex cases – will be hotly-contested hearings, with detailed questioning of experts.

Unique procedural issue

Another interesting challenge arose for the Supreme Court in this case.  Handing down of the judgment was recently delayed following the unfortunate passing of the former Supreme Court justice, Lord Kerr, who had presided at the hearing.  This resulted in a perhaps unique procedural issue for the Court to consider.

The judgment was going to be a 3:2 majority decision dismissing the appeal.  However, following Lord Kerr’s death, the panel for this appeal was re-constituted to include only Lords Briggs, Sales, Leggatt and Thomas, leaving the four judges split 2:2 (Lord Kerr having been part of the majority).  The dissenting judges (Lords Sales and Leggatt) agreed to change their position from dissenting to dismissing the appeal, such that the 3:2 majority outcome could be given effect, in accordance with Lord Kerr’s views.  Had they not done so, with the Supreme Court evenly divided, the case would have had to have been re-argued before a different constitution of the Court, at great expense and further delay.

We will be considering the case in more detail and commenting further in the coming weeks.  If you would like to discuss the case in the meantime, please do contact the authors.

California’s AB 685 Expands Employers’ COVID-19 Notification Requirements, Effective January 1

Effective January 1, 2021, California employers will be required under Assembly Bill (AB) 685 to provide detailed notices to employees when there is a COVID-19 case in the workplace and to notify local public health departments of COVID-19 “outbreaks” in the workplace.  California employers should begin assessing their practices now to ensure that they will be ready to comply with AB 685 come January 1.
Below is a summary of the key requirements under AB 685 and recent California Department of Public Health (CDPH) guidance on AB 685, including FAQs and definitions.Notification to Workforce of Potential COVID-19 Exposure

Under AB 685, employers are required to provide certain workforce notifications within one business day of receiving a “notice of potential exposure.”  A “notice of potential exposure” means any of the following:

  • Notification from a public health official or licensed medical provider that an employee was exposed to a “qualifying individual” at the worksite;
  • Notification from an employee or his/her emergency contact that the employee is a “qualifying individual”;
  • Notification through the testing protocol of the employer that the employee is a “qualifying individual”; or
  • Notification from a subcontracted employer that a “qualifying individual” was on the worksite.

“Qualifying individual” includes a person who: (1) has a laboratory-confirmed positive viral test for COVID-19; (2) has a positive COVID-19 diagnosis from a licensed health care provider; (3) is ordered to isolate by a public health official; or (4) has died from COVID-19.

Within one business day of receiving a notice of potential exposure, an employer must take all of the following actions:

  • Provide written notice to all employees, and to the employers of subcontracted employees, “who were on the premises at the same worksite as the qualifying individual within the infectious period that they may have been exposed” to COVID-19. The notice should be hand delivered or sent by email or text, so long as the notice can reasonably be anticipated to be received by the employee within one business day of sending, and it must be in English and in the language understood by the majority of the employees.  The notice should not share information that could identify the individual with COVID-19, although CDPH guidance indicates that the notice may inform employees of the dates that the individual with COVID-19 was at the worksite.
  • Provide written notice to the exclusive representative (e.g., union representative), if any, of the employees referenced above. The written notice to the exclusive representative must contain the same information that would be required in an incident report in a Cal/OSHA Form 300 injury and illness log, unless the information is inapplicable or unknown to the employer.
  • Provide employees and their exclusive representative (if any) with information regarding COVID-19-related benefits to which the employee may be entitled under federal, state, or local laws, such as workers’ compensation, COVID-19-related leave, company sick leave, state-mandated leave, supplemental sick leave, or negotiated leave provisions, as well as anti-retaliation and anti-discrimination protections; and
  • Inform all employees and their exclusive representative (if any), and the employers of subcontracted employees, about the disinfection and safety plan that the employer plans to implement and complete per federal Centers for Disease Control guidelines.

AB 685 defines “worksite” as “the building, store, facility, agricultural field, or other location where a worker worked during the infectious period” but does not include buildings, floors, or other locations that the individual with COVID-19 did not enter.  Furthermore, “[i]n a multiworksite environment, the employer need only notify employees who were at the same worksite as the qualified individual.”

Under CDPH guidance, the parameters of the “infectious period” depend on whether the qualifying individual is symptomatic or asymptomatic.  If symptomatic, the infectious period begins two days before they first develop symptoms, and it ends when: 10 days have passed since symptoms first appeared, and at least 24 hours have passed with no fever (without use of fever-reducing medications), and other symptoms have improved.  If asymptomatic, the infectious period begins two days before and ends 10 days after the specimen for the individual’s first positive test for COVID-19 was collected.

The written notice requirements do not apply to a “health facility” (as defined in Section 1250 of the Health and Safety Code) nor to employees who, as part of their duties, conduct COVID-19 testing or screening or provide direct patient care or treatment to individuals who are exposed to or test positive for COVID-19, unless the “qualifying individual” is an employee at the same worksite.

Notification to Local Health Department of an “Outbreak”

AB 685 also requires that an employer notify the local public health agency within 48 hours if the number of positive COVID-19 cases meets the definition of an “outbreak” as defined by CDPH.  CDPH guidance specifies that for non-healthcare workplaces, an outbreak is defined as three or more COVID-19 cases among workers at the same worksite within a 14-day period.

This notice must include the names, number, occupation, and worksite of the employees, and the business address and NAICS code of the worksite.  Subsequent laboratory-conformed cases of COVID-19 at the worksite must also be reported to the local public health agency.

Worksite Shutdowns by Cal/OSHA

Finally, AB 685 specifically authorizes Cal/OSHA to prohibit entry into a worksite that is deemed to constitute an “imminent hazard to employees” by exposing workers to COVID-19.  This provision remains in effect until January 1, 2023.

Next Steps for Employers

The broad notice requirements under AB 685 may present particular challenges for employers with large workforces or large or complex worksites.  Thus, employers should immediately begin planning to ensure they will be ready to comply by January 1 with the workforce and local health department notice provisions, including the strict timing requirements, and to ensure that they have implemented appropriate workplace safety protocols in accordance with CDC and state and local health guidance to reduce the risk of COVID-19 outbreaks.  There are also unanswered questions and ambiguities under AB 685 that have yet to be clarified, such as whether an employer’s receipt of an unconfirmed report of a positive COVID-19 test immediately triggers the one-day notice requirement or whether employers should consider employees’ level of contact with the qualifying individual when determining which employees must receive notice of potential exposure to COVID-19.

Employers should also note that the Cal/OSHA emergency temporary COVID-19 standard, which took effect on November 30, 2020, imposes additional workforce notification requirements, as well as strict protocols that employers must follow in the event of workplace COVID-19 outbreaks.  More information on the Cal/OSHA standard is here.

China Issues Blueprint for Development of New Energy Vehicle Industry Through 2035

As the incoming Biden Administration prepares to assume office and fulfill campaign promises to support significant spending in the zero emission vehicle industry—including in the construction of hundreds of thousands of electric vehicle chargers, and in the development of stringent new fuel economy and greenhouse gas emission standards for cars and trucks—it is worth considering how China may shape the overall market during the next 15 years. Indeed, on the eve of the U.S. presidential election, the State Council of the People’s Republic of China (“State Council”) issued a new 15-year development plan for its NEV—or new energy vehicle—industry.

Since 2015, and for five consecutive years, China has been ranked first in the world for its NEV production and sales volume. Aiming to further enhance the competitiveness of the NEV industry, the State Council’s new Development Plan for the New Energy Vehicle Industry (2021-2035) (“Plan”; Full Text in Chinese | English Press Release), issued on November 2, 2020, serves as a blueprint for the development of China’s battery-electric, plug-in hybrid, and fuel cell vehicle industry through 2035.

According to the Plan, by 2025, China is to achieve key technology breakthroughs in electric battery, drivetrain, and vehicle operation systems; lower the average power consumption of new pure electric vehicles to 12.0 kWh/100 km; and increase NEV sales volume to 20% of total sales of new vehicles. By 2035, China should achieve “a new international competitiveness,” building on a domestic industry capable of driving innovation and sales in zero emission vehicles on a global scale. By that time, the government aims to make pure electric vehicles mainstream in new vehicle sales, achieve full electrification of public sector vehicles, and commercialize fuel cell vehicles.

The Plan also lists four major tasks: improving technological innovation, advancing industrial integration, perfecting infrastructure construction, and deepening market openness. Specifically:

  • Technological Innovation: The Plan seeks to promote technological innovation through research and development (“R&D”) in six areas, referred to as the “three verticals and the three horizontals.” The term “three verticals” refers to vehicle propulsion technology—i.e., pure electric vehicles, plug-in hybrid electric (including extended range) vehicles, and fuel cell vehicles. “Three horizontals” refers to key NEV technologies necessary across each of the verticals: power battery and management systems, drive motor and power electronics, and networking and intelligent technologies. Beyond relying on market forces and incentives to drive R&D, the Plan calls for leading enterprises to carry out joint R&D projects with national laboratories. Further, R&D expenditures are to serve as a factor in evaluating the performance of state-owned enterprises.
  • Industrial Integration: Recognizing that advancing the NEV sector requires cooperation across several industries—i.e., the vehicle, energy, transportation, and information communication industries—the Plan urges local governments to foster enterprise clusters that integrate entire supply chains and encourage cross-industry cooperation. For instance, developing the value chain for battery technology would involve improvements in guaranteeing the supply of raw materials, advanced manufacturing equipment, and recycling systems. The Plan also highlights the importance of “vehicle-to-grid” energy interaction, the construction of smart cities, and the establishment of intelligent green logistics transportation to promote industrial integration.
  • Infrastructure Construction: The Plan also emphasizes the need to construct battery charging and swapping infrastructure, including fast-charging public stations: according to the Ministry of Finance, China had 4.2 million NEVs and 1.42 million charging piles by the end of September 2020. The Plan also calls for the development of hydrogen fuel technologies and the construction of infrastructure able to comprehensively provide oil, gas, hydrogen, and electricity services. Infrastructure construction goals under the Plan, among others, also touch upon the construction of intelligent highways, the formulation of NEV standards, and the establishment of cloud service platforms.
  • Market Openness: Having eliminated the ceiling on foreign equity shares in NEV, special purpose vehicle, and commercial vehicle companies between 2018 and 2020, the government, according to the Plan, seeks to further the development of an open, transparent, and inclusive NEV market. The Plan notes the importance of building a market-oriented, internationalized business environment characterized by the rule-of-law, equal treatment for domestic and foreign players, relaxed market access requirements, integration into global value chains, and participation in the development of international standards.

The Plan is a high-level blueprint for further government action, so its actual effect on the market will depend on how central and local government agencies implement its imperatives in the months and years to come. Subsidies will likely continue to play a critical role in the NEV industry, though they may be phased down to some extent in favor of the growing use of quotas and market-based regulatory mechanisms such as the Dual-Credit System, which requires vehicle manufacturers to meet NEV sales targets and allows automakers to trade NEV credits.

Overall, the contents of this Plan, however high-level, demonstrate Chinese industrial planners’ grand ambitions for the country’s role in the development of the global new energy vehicle industry. In addition to satisfying global demand for zero emission and low-carbon vehicles (although the Plan only briefly discusses emission reductions or vehicle efficiency), the Plan suggests that China’s domestic industry can achieve success in a global market by leading the development of new and adjacent technologies critical to the overall NEV ecosystem. After spending years promoting the manufacturing and adoption of NEVs, the Plan recognizes that autonomous driving, intelligent connected vehicles, and charging infrastructure construction will be key to achieving China’s domestic and international goals. Although a number of questions remain as to how the Chinese government will implement the details of this 15-year plan, perhaps the most urgent questions for the rest of the global auto market are: how will China treat foreign-owned players and products in its own, huge domestic market, and how will China’s efforts at home affect industry growth and competition globally?

Runze Li of Covington & Burling LLP assisted with the research and preparation of this article.

The Week Ahead in the European Parliament – Friday, December 4, 2020

Next week, Members of the European Parliament (“MEPs”) will gather in person and virtually in Brussels for committee meetings.  Several interesting votes and debates are scheduled to take place.

On Monday, the Legal Affairs Committee (“JURI”) will vote on a report that addresses interpretive questions of public international law on the military uses of AI and the impact of AI on international private law.  In the draft report, Rapporteur MEP Gilles Lebreton (ID, FR) reiterates how all military uses of AI should be governed, such as data processing for military purposes, “collaborative combat”, defensive systems, and all weapons using AI including lethal autonomous weapon systems (“LAWS”).  Given their high risk, the report details specific principles for LAWS.  The draft report suggests that LAWS should only be used in clearly defined cases and in accordance with detailed procedures that are accessible to the public or national parliaments.  The draft report also calls for the prohibition of the “antropomorphisation” of LAWS to prevent the possibility of LAWS being mistaken for humans.  It further stresses that the authority of the state may not be challenged by a private authority in possession of highly sophisticated AI technologies.  The draft report is available here.

On the same day, JURI will also debate on a report on the liability of companies for environmental damage and the implementation of the Environmental Liability Directive 2004/35/CE (“ELD”).  Rapporteur Antonius Manders (PPE, NL) observes that the implementation of the ELD differs significantly among Member States and, therefore, recommends transforming the ELD into a fully harmonized Regulation.  In his draft report, he furthermore suggests to create an “EU ELD-taskforce” that would be responsible for the implementation and enforcement of the ELD and could offer support to harmed individuals.  As regards foreseeability of environmental damage, the Rapporteur thinks the burden of proof should be reversed and be placed on the companies.  Companies should prove that they could not have known the danger of their activity.  In addition, the ELD should be aligned with civil liability legislation for company board members.  The draft is an “own-initiative report,” meaning that it is not part of a legislative process and, if adopted, will not amend the ELD and will not be legally binding.  The draft report is available here.

On Thursday, MEPs of the Committee on the Environment, Public Health and Food Security (“ENVI”) will have an exchange of views with the Executive Director of the European Medicines Agency (“EMA”), Emer Cooke, to discuss the procedures and assessments for authorizing vaccines against COVID-19.  Recently, BioNTech-Pfizer and Moderna have submitted their candidate vaccines for conditional market authorization under an accelerated timeline.  The first opinions and assessments could be within the next several weeks, but EMA has previously said that it is unlikely that it will approve any vaccines before the end of the month.  Over the past few months, the European Commission has secured five contracts with pharmaceutical companies to have a diversified vaccine portfolio.

For the complete agenda and overview of the meetings, please see here.

California Employers Must Comply with New Cal/OSHA COVID-19 Workplace Safety Standards

On November 30, 2020, emergency temporary COVID-19 workplace standards (“ETS”) issued by the California Division of Occupational Safety and Health (“Cal/OSHA”) took effect.  The ETS, which requires stringent workplace protocols intended to curb the spread of COVID-19, applies to all California employers, other than those subject to the Cal/OSHA Aerosol Transmissible Disease standard or those with only one employee at the workplace who does not have contact with others.  Under the ETS, employers must adopt and implement a comprehensive COVID-19 prevention program that includes identification and correction of COVID-19 risks, employee screening, investigation of cases, use of face coverings and other protective equipment, exclusion of exposed employees, and provision of free COVID-19 testing in certain circumstances, among other requirements.  The ETS also mandates testing and other action when there are multiple infections or an “outbreak” in a workplace.

Cal/OSHA promptly published a “Frequently Asked Questions” document (“FAQs”), a one-page summary of the ETS, and a Model Prevention Plan.  These documents shed additional light on the ETS and how it might be enforced.

Below is an overview of the key takeaways from the new ETS and subsequent Cal/OSHA publications.

Basic Elements of the COVID-19 Prevention Program

The central feature of the ETS is the requirement that all employers implement a written COVID-19 prevention plan.  At a high level, the prevention plan must include the following:

  • Communication to employees about the employer’s COVID-19 prevention procedures;
  • Screening of employees for COVID-19, although employees may be asked to evaluate their own symptoms before coming to work;
  • Identification, evaluation, and correction of COVID-19 hazards;
  • Physical distancing of at least six feet unless it is not possible;
  • Use of face coverings, with only limited exceptions;
  • Use of engineering controls, administrative controls, and personal protective equipment as required to reduce transmission risk;
  • Procedures to investigate and respond to COVID-19 cases in the workplace, including to verify cases and receive information on test results and symptom onset;
  • COVID-19 training to employees;
  • Testing of employees who are exposed to a COVID-19 case, and in the case of multiple infections or a major outbreak, implementation of regular workplace testing for employees in the exposed work areas;
  • Exclusion of COVID-19 cases and exposed employees from the workplace until they are no longer an infection risk; and
  • Maintenance of records of COVID-19 cases and reporting of serious illnesses and multiple cases to Cal-OSHA and local health departments.

Closer Look: Training Requirements

 The ETS requires employers to provide training and information on the following topics:

  • The employer’s COVID-19 policies and procedures;
  • Information regarding COVID-19-related benefits;
  • The fact that COVID-19 is an infectious disease that can be spread through the air when an infectious person talks, vocalizes, sneezes, coughs, or exhales, that COVID-19 may be spread through surface contact, and that an infected person may have no symptoms;
  • Methods of physical distancing at least six feet apart and the importance of face coverings;
  • The fact that particles containing the virus can travel more than six feet, especially indoors, so other controls, including face covers and hand hygiene, must also be used;
  • The importance of frequent hand washing with soap and water for at least 20 seconds and the proper use of hand sanitizer;
  • Proper use of face coverings and the fact that face coverings are not respiratory protective equipment; and
  • COVID-19 symptoms, and the importance of obtaining a COVID-19 test and not coming to work if the employee has symptoms.

Closer Look: Investigation of COVID-19 Cases and Notification of Exposure

The ETS contains strict requirements for investigating COVID-19 cases in the workplace.  Employers must determine the day and time the COVID-19 positive individual was last present and, to the extent possible, the date of the positive diagnosis or appearance of symptoms.  Employers must determine which employees may have had a COVID-19 exposure by evaluating the activities of the COVID-19 case and all locations in the workplace the individual visited during the “high-risk exposure period.”  The ETS defines the “high-risk exposure period” as either (1) from two days before they first develop symptoms until 10 days after the symptoms have first appeared, and 24 hours have passed with no fever, or (2) from two days before until ten days after the specimen for the individual’s first positive test for COVID-19 was collected.

Within one business day, the employer must notify all employees who may have had COVID-19 exposure (and any authorized representatives, such as their union), as well as any independent contractors or other employers present at the workplace during the high-risk exposure period.   Importantly, the notice must not reveal the identity of the employee with COVID-19.  The FAQs clarify that notification is required only to employees who were potentially exposed by being within 6 feet of a COVID-19 case for at least 15 minutes over a 24-hour period during the high-risk exposure period.

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