09.16.24

D.C. Insider: September 2024

By ICR

In the September 2024 edition of The ICR D.C. Insider, we share our insights and analysis about the FTC’s proposed ban the use of noncompete agreements, new rules for auditors, and a new DOJ whistle-blower program.  Read about developments in Washington that could have an immediate and long-term impact on your business.

Regulations

  • The Biden-Harris Administration Passes Record Number of Regulations – As of late May, the Biden Administration had issued 273 economically significant rules, more than any of the past six administrations accomplished in the entire four years of their first term. Regulators have made it clear that additional rules are in the works, despite litigation across multiple agencies and proposals. In April and May, agencies rushed to finish key rules in an effort to put them outside of a period within which an incoming Congress (one potentially controlled by Republicans) could use the Congressional Review Act to overturn them.

FTC

  • Court Rejects FTC’s Proposed Ban on Noncompete Agreements – A federal judge in Texas struck down a landmark regulation issued by the Federal Trade Commission (FTC) that sought to ban employers from using noncompete agreements to prevent most workers from joining rivals. In a pointed 27-page ruling, the judge found that the Commission lacks the authority to issue such a wide ban or category of conduct, writing: “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do. The commission lacks statutory authority to retroactively invalidate millions of existing contracts.” The FTC is contemplating an appeal. In contrast, a federal judge in Pennsylvania rejected a similar challenge to the FTC’s authority in July, suggesting that the Supreme Court may ultimately be called on to make a ruling.
  • Sweeping Rule on Reviews and Testimonials Finalized – The FTC announced a final multi-part rule that reshapes how companies act online with respect to reviews and testimonials. The final rule, which will become effective on October 21, 2024, prohibits:
    • Fake or false consumer reviews, consumer testimonials, and celebrity testimonials (including AI-generated fake reviews)
    • Buying positive or negative reviews
    • Insider reviews and consumer testimonials
    • Company-controlled review websites
    • Review suppression
    • Misuse of fake social media indicators
  • FTC & DOJ Partner with Labor Agencies to Enhance Antitrust Review of Labor Issues in Merger Investigations – The FTC and the Department of Justice Antitrust Division (DOJ), together with the Department of Labor (DOL) and National Labor Relations Board (NLRB), signed a new agreement that will enhance the ability of the FTC and DOJ to investigate the impact of mergers and acquisitions on labor markets.

SEC & PCAOB

  • New Rules for Auditors Approved – With a 3-2 party line vote, the Securities and Exchange Commission (SEC) approved new rules adopted in June by the Public Company Accounting Oversight Board (PCAOB). Under the new rules, audit firm employees, partners, independent contractors, and others who substantially contribute to a firm’s violations can be held liable at a lower standard, negligence, rather than the higher standard of recklessness. The SEC also approved new PCAOB audit standards related to auditors’ general responsibilities and the use of technology-assisted data analysis when conducting audits

Justice Department

  • Pilot Whistleblower & Rewards Program Launched – The Department of Justice launched a three-year pilot program that will give monetary awards to tipsters who report certain types of corporate misconduct. Through its first-ever broad whistleblower program, people who report original information will, if a prosecution results in a forfeiture of assets, be eligible to receive up to 30% of the first $100 million in assets forfeited and up to 5% of those assets between $100 and $500 million. The program is designed to capture conduct not already covered by existing whistleblower programs run by other agencies including the SEC, the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS). Officials said they are especially interested in foreign corruption schemes that are outside the authority of the SEC, health care fraud against private insurers, and certain financial crimes, including defrauding regulatory agencies. Collectively, the Justice Department’s efforts with this program, and others, are intended to put more pressure on companies to proactively report wrongdoing.
    • Deputy Attorney General Lisa Monaco said, “With very few exceptions, you need to be first in the door. And when everyone needs to be first in the door, no one wants to be second. Suddenly everyone is racing up the front steps, all hoping they’re the first to knock.” She noted that while tipsters that alert their employers to misconduct in addition to reporting to the Justice Department could receive a higher award, companies that disclose a whistleblower report they received internally within 120 days, and before being contacted by federal prosecutors, will be eligible for leniency under a corporate voluntary disclosure program.

Cyber

  • Harmonization for Federal & State Reporting Law Sought – Citing overlapping and conflicting federal and state cybersecurity incident reporting mandates, private sector cybersecurity chiefs are looking for the harmonization of these rules. Efforts are under way to try to reconcile at least some provisions, although few if any rules have been amended to date.

China

Imports & Retail

  • Bipartisan Effort in Congress to Stiffen Import Law – A bipartisan group of lawmakers have proposed a new law that would block textiles and apparel from being imported through the de minimis provision that allows commercial shipments valued at under $800 to enter the U.S. with little scrutiny and no duty or taxes. The Fighting Illicit Goods, Helping Trustworthy Importers, and Netting Gains (FIGHTING) for America Act,” creates a two-part approach to address these issues. First, it would prohibit the use of the de minimis provision to import certain types of goods, such as those that are import-sensitive or subject to additional trade remedies. Second, the bill would strengthen monitoring of the de minimis entry process by requiring Customs and Border Protection (CBP) to collect additional information about commercial packages. Senate Finance Committee Chairman Ron Wyden(D-Ore.) and Banking Committee Chairman Sherrod Brown (D-Ohio), along with Sens. Susan Collins (R-Maine), Cynthia Lummis (R-Wyo.), and Bob Casey (D-Penn.) are among those driving this effort.

Technology, Chips, & AI

  • The Biden Executive Order on AI – Industry groups are challenging the Treasury Department’s use of definitions from President Biden’s October 2023 Executive Order on AI to set restrictions on outbound investments aimed at limiting China’s access to advanced technologies. The Semiconductor Industry Association (SIA) and other business groups argue that applying the broad AI definitions from the Order on AI to the August 2023 Executive Order on outbound investments could result in overly expansive and imprecise regulations, and that Treasury should narrow the scope of its proposed rule to focus more precisely on AI applications that pose genuine national security risks.
  • CHIPS Act Awards Continue – Texas Instruments, SK hynix, and HP were among those companies who received additional support from the 2022 CHIPS Act to build facilities in the U.S. Texas Instruments will be awarded up to $1.6 billion in grants and $3 billion in loans to help it build two plants in Sherman, Texas, and a facility in Lehi, Utah. The Commerce Department and HP have signed a non-binding Preliminary Memorandum of Terms (PMT) to provide up to $50 million in proposed direct funding to support the expansion and modernization of HP’s existing facility in Corvallis, Oregon. South Korean chipmaker, SK hynix will be awarded up to $450 million in grants to help build its new chip facility in Indiana, and as a result, the U.S. now has commitments from all five of the world’s leading-edge semiconductor manufacturers to construct chip plants in the U.S. Over the last two years, the Commerce Department has allocated more than $32 billion in proposed funding across 16 states to build factories domestically, and is proposing to invest billions more in research and innovation.
  • Leading AI Companies Agree to Share Models with the U.S. Government – Anthropic and OpenAI have each signed a memorandum of understanding to allow formal collaboration with the S. Artificial Intelligence Safety Institute, a part of the Commerce Department’s National Institute of Standards and Technology. In addition to early access to models, the agreements pave the way for collaborative research around how to evaluate models and their safety as well as methods for mitigating risk.

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