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May 2017 edition

FTC’s green marketing enforcement • Antitrust guidelines for IP licensing • International tax guidance

FTC’s green marketing enforcement

Counsel for companies that make marketing claims about the environmental benefits of their products and services should be aware that the FTC has stepped up its enforcement activity in this area. Companies making these claims must carefully adhere to the principles of advertising claim substantiation and the FTC’s Green Guides.

The FTC’s scrutiny of environmental marketing claims has increased over the last two years. In 2015, for example, the FTC sent warning letters to five groups that offered environmental seals and to 32 companies that displayed the seals for making general environmental marketing claims rather than conveying the basis for the seal. In 2016, the FTC settled four enforcement actions against companies that had claimed certain personal care products were “all natural” despite the presence of artificial ingredients. Additionally, the FTC recently entered into a settlement with Volkswagen, after determining that Volkswagen’s “Clean Diesel” campaign was deceptive and unsubstantiated. The FTC secured a $10 billion order to compensate consumers. In all of these activities, the FTC focused on the evidence necessary to substantiate the claims at issue.

Environmental marketing claims often require competent and reliable scientific evidence to substantiate the claims. When making environmental marketing claims, companies should:

  • Avoid general claims about the environmental benefits of a product or service.
  • If using an environmental seal, convey the specific attributes that merited the seal.
  • Not overstate an environmental attribute, such as stating “100% natural” or “all natural,” when the claim cannot be substantiated.
  • Perform due diligence on the scientific substantiation of any environmental marketing claims and ensure any advertising accurately reflects the research.
  • Consult the FTC’s Green Guides for guidance on specific types of environmental marketing claims.

For more information on the FTC’s green marketing and claim substantiation standards, see Practice Note, Green Marketing in the US and Practice Note, Substantiation of Advertising Claims.

Antitrust guidelines for IP licensing

Companies entering into intellectual property (IP) licensing arrangements should review the FTC’s and DOJ’s updated Antitrust Guidelines for the Licensing of Intellectual Property (Guidelines). The Guidelines state the agencies’ antitrust enforcement policy for IP license agreements, research and development collaborations, pooling agreements, and other arrangements involving the licensing or acquisition of patents, copyrights, trade secrets, and know-how.

While the updates to the Guidelines do not represent a major shift in policy, they reflect several important legal developments since the agencies issued their original guidelines in 1995. Among other things, the Guidelines:

  • Confirm key principles in the agencies’ analysis of IP licensing arrangements, including that:
    • IP is evaluated the same as other property;
    • ownership of an IP right does not necessarily confer market power; and
    • licensing of IP is pro-competitive.
  • Incorporate changes in statutory and case law, including U.S. Supreme Court precedent applying a rule-of-reason analysis to price maintenance restraints.
  • Apply the 2010 Horizontal Merger Guidelines to the analysis of markets affected by an IP licensing arrangement.

For international IP licensing arrangements, the Guidelines refer to the Antitrust Guidelines for International Cooperation and Enforcement, also recently updated, and state that the agencies may take enforcement action if a foreign IP licensing arrangement has a sufficient nexus to the U.S., taking into account international comity and foreign government involvement. Companies entering into these arrangements should therefore involve antitrust counsel in all relevant jurisdictions.

Notable omissions from the Guidelines include:

  • Standard-essential patent (SEP) licensing.
  • Pay-for-delay patent settlements.
  • Patent assertion entities’ licensing and enforcement.

Companies should continue to rely on existing agency decisions, policy statements and reports for guidance on these activities.

For more information on the Guidelines, see Legal Update, FTC and DOJ Issue Updated Antitrust Guidelines for IP Licensing.

International tax guidance

Multinationals should review new international tax regulations recently issued by the IRS. The regulations provide guidance on:

  • Outbound transfers of foreign goodwill. The IRS finalized regulations retroactively eliminating a gain recognition exception for outbound transfers of foreign goodwill and going concern value. Under these regulations, generally applicable to outbound transfers occurring on or after September 14, 2015, a U.S. taxpayer that transfers foreign goodwill or going concern value to a foreign corporation must recognize:
  • Cross-border partnership transfers. The IRS issued final and temporary regulations requiring, in certain cases, gain recognition when a U.S. transferor contributes built-in gain property to a partnership in which the transferor and related persons own 80% or more of the interests and a related foreign person is a direct or indirect partner. The regulations generally apply to contributions on or after August 6, 2015.
  • Branch Currency Regulations. The IRS issued final and temporary regulations under IRC Section 987 providing guidance on determining taxable income or loss for operations of a qualified business unit (QBU) that uses a different foreign currency than its owner does. The regulations generally follow 2006 proposed regulations, but include changes to make the rules more administrable. Taxpayers subject to the rules generally must adopt them for the second taxable year beginning after December 7, 2016 (2018 for calendar year taxpayers). The temporary regulations contain deferral rules (generally applicable to certain events occurring on or after January 6, 2017) limiting taxpayers’ ability to selectively generate IRC Section 987 losses through a QBU’s termination.

The IRS also issued regulations:

  • Finalizing rules disregarding certain stock in a foreign acquiring corporation for purposes of determining whether the foreign acquirer is a foreign surrogate corporation under the IRC Section 7874 inversion rules.
  • Finalizing temporary regulations under FATCA and corresponding withholding tax rules (providing helpful changes for withholding agents).
  • Under IRC Section 901(m), which limits foreign tax credits after certain transactions that cause a U.S.-foreign tax basis disparity.

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