D.C. Insider: August 2024

This month in ICR’s D.C. Insider, a Treasury warning on de-banking, moving ahead with cyber certifications for consumer products, the Biden Administration’s new rule on semiconductor exports, and more. Get insights and analysis about developments in Washington that could have an immediate and long-term impact on your business.

FTC

• Probe Launched to Examine if Companies Raise Prices Using Consumer Surveillance – The Federal Trade Commission (FTC) ordered eight companies that offer surveillance pricing products and services incorporating data about consumers’ characteristics and behavior to provide a wide range of information to the Commission. The orders(via civil subpoenas) aim to help the FTC better understand the opaque market for products by third-party intermediaries that claim to use advanced algorithms, artificial intelligence, and other technologies, along with personal information about consumers – such as their location, demographics, credit history, and browsing or shopping history – to categorize individuals and set a target price for a product or service.
  • FTC officials said they decided to undertake this effort after hearing claims that public companies make on earnings calls about their pricing power.
• Comment Period on Serial Acquisitions and Roll-Ups Extended – Along with the Department of Justice Antitrust Division (DOJ), the FTC is extending the deadline by 60 days for the public to comment on a joint Request for Information that seeks to identify serial acquisitions and roll-up strategies throughout the economy that have led to consolidation that has harmed competition. The RFI seeks information on serial acquisitions and roll-up strategies in which corporate actors, including private equity-owned businesses, become larger – and potentially dominant – through acquisitions of several smaller companies in the same or related business sectors or industries. The new deadline to submit comments is September 20, 2024.
• FTC Takes Actions to Protect Franchisees from Franchisers – The FTC took a suite of actions to address growing concerns about what it termed unfair and deceptive practices by franchisers. These efforts include a policy statement that warns that franchisers’ use of contract provisions, including non-disparagement clauses that prohibit franchisees’ communications with the government, violate the law. Other specifics included a caution for franchisers not to tack on fees that weren’t disclosed in documents provided to prospective franchise buyers. The agency also reopened the comment period for its 2023 Request for Information (RFI) related to franchise agreements and franchiser business practices. The new deadline is October 10, 2024, and the FTC noted that its review of the Franchise Rule is continuing.
• Inflation-Adjusted Monetary Thresholds for Three Exemptions to Franchise Rule Published – With a unanimous vote, the Commission approved inflation-adjusted monetary exemption thresholds that are used to determine whether the sale of a franchise qualifies for an exemption under the Franchise Rule. The exemptions from compliance with the rule, which took effect on July 12, 2024, are sales:
  • Where the buyer pays less than $735 (currently $615) for the franchise.
  • Requiring a large investment where the franchisee pays at least $1,469,600 (currently $1,233,000), excluding the cost of unimproved land and any franchiser (or affiliate) financing.
  • For large entities, such as multi-unit franchisees, airports, hospitals, and universities that have been in business for at least five years and have a net worth of at least $7,348,000 (currently $6,165,000).

SEC

• New Interagency Securities Council Launched – The Securities and Exchange Commission’s (SEC) Division of Enforcement launched a new Interagency Securities Council (ISC), which invites federal, state, and local regulatory and law enforcement professionals to meet quarterly to discuss the latest scams, trends, frauds, and mitigation strategies. The ISC launched with representatives from more than 100 departments and agencies, including federal agencies, state offices of attorneys general, state police, as well as local police departments and sheriff’s offices.

Treasury

• Treasury Warns States on De-Banking – Treasury Undersecretary Brian Nelson said that state laws targeted at stopping banks from dropping customers over their politics could harm national security, singling out legislation recently signed by Florida Gov. Ron DeSantis. Nelson emphasized that banks need flexibility to comply with anti-money laundering and counter-terrorist financing.
• Final Regulations About How to Report and Pay Corporate Stock Repurchase Excise Tax Established – Together with the Internal Revenue Service (IRS), the Treasury Department issued final regulations that provide taxpayers and tax professionals with guidance on how to report and pay the 1 percent excise tax owed on corporate stock repurchases. The Inflation Reduction Act imposed a new excise tax on stock repurchases equal to 1 percent of the aggregate fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments. The stock repurchase excise tax applies to repurchases after Dec. 31, 2022.

Labor/NLRB

• NLRB Drops Joint Employer Standard – The National Labor Relations Board (NLRB) declined to appeal a March 2024 ruling by a federal judge in Texas that blocked the Biden Administration’s joint employer standard, thereby leaving a looser Trump-era rule in place. The blocked rule would have held big franchisers liable for the working conditions of franchisees’ employees.

Cyber

• FCC Moving Ahead with Cyber Certifications for Consumer Products – Anne Neuberger, Deputy National Security Adviser for Cyber and Emerging Technology, said that the Cyber Trust Mark program is likely to launch in October 2024. The program, which was unanimously approved by the Federal Communications Commission (FCC) earlier this year, intends to put labels on products to help consumers compare the security characteristics of connected devices, while giving manufacturers an incentive to differentiate their products by virtue of their strong digital defenses. Neuberger noted that the Biden Administration also plans to go further, and is working with “other governments around the world” to expand the label program.

Congress

• Supreme Court Reaction Continues – Republicans and Democrats are pushing competing legislation following the Supreme Court’s decision to overturn the Chevron deference. The Chevron deference, established in 1984, required courts to defer to federal agencies’ reasonable interpretations of ambiguous statutes. Sen. Bill Cassidy (R-La.) is working to compel the Biden Administration to rein in its rulemaking, while Sen. Elizabeth Warren (D-Mass.) is leading an effort among Democrats to codify the deference. Sen. Cassidy, the top Republican on the Senate Health, Education, Labor, and Pensions (HELP) Committee, introduced a bill that would create more hurdles for agencies before their rules are published by involving Congress at various stages. Along with ten other Democrat Senators, Warren introduced the Stop Corporate Capture Act (SCCA), which would codify the Chevron doctrine into law.

CPSC

• Amazon Found Responsible for Hazardous Items Sold by Third-Party Sellers – In a unanimous ruling, the Consumer Product Safety Commission (CPSC) issued a Decision and Order against Amazon, determining that the company was a “distributor” of products that are defective or failed to meet federal consumer product safety standards, and therefore Amazon bears legal responsibility for recalls of these products. The CPSC determined that a range of products listed on Amazon.com and sold by third-party sellers using the Fulfilled by Amazon program, pose a “substantial product hazard” under the Consumer Product Safety Act (CPSA). This decision could have significant implications for other online marketplaces and their liability for third-party sellers’ products.

China

Congress

• Legislation Introduced to Require Public Companies with Meaningful Exposure to China to Disclose Their Risks – House Select Committee on the Chinese Communist Party Chairman John Moolenaar (R-Mich.) and House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions Chairman Blaine Luetkemeyer (R-Mo.) introduced the PRC Risk Transparency Act that would require public companies with meaningful exposure to China to:
  • Disclose the percentage of their revenue, profit, capital investment, and supply chain that is tied to China.
  • Disclose their relationships with the Chinese Communist Party and with companies identified by the U.S. Government as national security threats or human rights violators.
  • Assess what a geopolitical conflict with China would mean for their business by mandating a market access loss scenario describing a situation where U.S.-China trade falls by 80%.
  • Directs investment firms to disclose their holdings of, and exposure to, certain Chinese securities.
• Lawmakers Propose New Legislation on Trade Crime – A bipartisan coalition of House members introduced the Protecting American Industry and Labor from International Trade Crimes Act that targets trade crimes by China-based companies. The bill was introduced by Rep. Moolenaar (R-Mich.), alongside Rep. Ashley Hinson (R-Iowa) and Ranking Member Raja Krishnamoorthi (D-Ill.) of the House Select Committee on the Chinese Communist Party. The legislation would require the Justice Department to establish a new unit in the Criminal Division dedicated to prosecuting international trade crimes. A number of trade groups representing U.S. businesses, as well as labor unions endorsed the proposed legislation.
• Tax Credit for Semiconductor R&D Proposed – Reps. Moolenaar (R-Mich.) and Krishnamoorthi (D-Ill.) joined a bipartisan group of House members and introduced the Semiconductor Technology Advancement and Research (STAR) Act that would advance U.S. semiconductor research and development initiatives by creating an investment tax credit for semiconductor design expenditures.
• New Legislation to Protect Intellectual Property Introduced – Rep. Moolenaar (R-Mich.) and Rep. Young Kim (R-Calif.), Chairwoman of the House Foreign Affairs Subcommittee on the Indo-Pacific, introduced the Protecting American Innovation and Development (PAID) Act to hold nations accountable for the theft of American intellectual property. The PAID Act would require the Secretary of Commerce to identify and report on foreign entities, including those affiliated with China, Russia, North Korea, and Iran, who are using American IP related to a critical or emerging technology area without a license.
• Comprehensive China Legislation – House Speaker Mike Johnson (R-La.) is looking to move a comprehensive package of China-focused legislation after Labor Day, including provisions that would restrict outbound investment from the U.S. into China and revoke the de minimis privileges for goods subject to Section 301 tariffs. The proposed restrictions of outbound investment are meant to prevent U.S. capital from bolstering China’s technological and industrial advancements. Revoking the de minimis privileges set by The Trade Facilitation and Trade Enforcement Act (2016) would eliminate tariff exemptions for imported goods valued under $800.

The Biden Administration

• Biden Administration Poised to Unveil New Rules on Semiconductor Equipment Exports – The Biden Administration plans to unveil a new rule soon that will expand the power of the U.S. to stop exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers, but shipments from U.S. allies – including Japan, the Netherlands, South Korea, and 30-plus other countries – will be excluded, while exports to China from countries including Israel, Taiwan, Singapore, and Malaysia will be affected, Reuters reported. The rule, an expansion of the Foreign Direct Product rule (which stipulates that if a product is made using American software or technology, the U.S. government has the power to stop it from being sold, including products made in a foreign country), would bar about half a dozen Chinese semiconductor fabrication factories at the center of China’s most sophisticated chipmaking efforts from receiving exports from many countries. The U.S. also plans to add about 120 Chinese entities to its restricted trade list, including the factories that would be hit by the rule, plus toolmakers, providers of EDA (electronic design automation) software, and related companies. Suppliers for entities on the list need to obtain licenses to ship to them, which would then likely be denied.
• New Rule Would Expand Authority to Block Foreign Investment in Real Estate Near U.S. Military Bases – A Treasury Department proposal would allow the Committee on Foreign Investment in the U.S. (CFIUS), which reviews transactions from a national security perspective, to look into real estate purchases near more than 50 military sites across 30 states that are not currently covered. Some of the added installations are deemed sensitive enough that even real estate deals up to 100 miles away from a military base could be blocked, potentially making it more difficult for Chinese companies to build factories in the U.S.
• Enhanced Tariffs on Chinese Goods Delayed – The Office of the U.S. Trade Representative (USTR) said that the increased tariffs on Chinese imports, which were slated to go into effect on August 1^st, will now be released later in August. The enhanced tariffs focus on electric vehicles, semiconductors, steel, aluminum, and green energy production. The tariffs on semiconductors, batteries, and graphite are not scheduled to take effect until 2025 or 2026.