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August 2016 edition

FCPA Self-Reporting Pilot Program; The Defend Trade Secrets Act; Proposed Ban on Mandatory Arbitration Provisions

FCPA Self-Reporting Pilot Program

Companies with foreign operations should consider participating in the new one-year pilot program for self-disclosure of Foreign Corrupt Practices Act (FCPA) violations recently announced by the Fraud Section of the DOJ. The program offers fine reductions of up to 50% for companies that:

So what are top 10 things general counsel need to consider in relation to anti-bribery and corruption practices in global supply chains?

  • Voluntarily disclose wrongdoing. To qualify for the program, a company’s self-disclosure must occur before the imminent threat of a government investigation and within a reasonably prompt time after the company becomes aware of the misconduct.
  • Fully cooperate with the Fraud Section’s investigation. A cooperating company should, for example, provide timely and full disclosure of relevant information, comply with requests to resolve conflicts, and make employees and officers available for interviews.
  • Institute timely and appropriate remediation of the problem. The assessment of remediation programs will be case specific, but successful programs will generally include implementation of an effective compliance program and appropriate discipline for employees responsible for the misconduct.

If a company meets all of the requirements of the program, the Fraud Section may:

  • Reduce fines by up to 50% off the bottom end of the US Sentencing Guidelines’ fine range.
  • Waive the appointment of a monitor, since companies should have an effective compliance program already in place as a result of program participation.
  • Decline to prosecute the company for misconduct.

Even companies that fail to voluntarily self-disclose wrongdoing may qualify for up to a 25% reduction in fines, provided that they fulfill all other requirements of the program.

To qualify for any fine mitigation, companies must disgorge all profits from the FCPA-violating misconduct. For more information on the new program, see Legal Update, DOJ Launches FCPA Self-Reporting Pilot Program.

The Defend Trade Secrets Act

Companies should assess their policies and practices for identifying and protecting trade secrets as a result of the recent enactment of the Defend Trade Secrets Act of 2016 (DTSA). The DTSA creates a federal civil cause of action for trade secret misappropriation, historically available only under state law.

Trade secret owners now have private enforcement rights in federal court. Therefore, counsel should:

  • Maximize trade secret protection under the DTSA’s powerful federal remedies.
  • Mitigate the risk of potential misappropriation actions, as competitors can be expected to step up their own enforcement.

Increased employee training and awareness about trade secrets is critical. Employees need to understand:

  • What types of confidential information constitute trade secrets.
  • How to maintain the evidence necessary to support trade secret status.
  • What actions or inactions threaten trade secret status.
  • The need to strictly adhere to:
    • contractual non-disclosure obligations; and
    • reasonable security measures, including cybersecurity controls.
  • How to detect misappropriation of:
    • the company’s trade secrets in the marketplace; and
    • competitors’ trade secrets that might be occurring internally.

Counsel should also assess the company’s patent policy. New enforcement rights under the DTSA may make protecting innovations as trade secrets preferable to seeking patent protection, especially because patents are increasingly vulnerable to:

  • Inter partes administrative attacks.
  • Subject matter eligibility restrictions, following recent US Supreme Court rulings.

For more information on the DTSA, see Legal Update, Are You Ready for the Defend Trade Secrets Act?

Proposed Ban on Mandatory Arbitration Provisions

Interested parties may wish to comment on a rule recently proposed by the Consumer Financial Protection Bureau (CFPB) that would prohibit financial service providers from using agreements with mandatory arbitration provisions that deny consumers the right to file or participate in class action lawsuits.

The proposed rule seeks to limit the use of pre-dispute arbitration agreements by consumer financial service providers by:

  • Prohibiting financial institutions from using mandatory arbitration provisions to prevent consumers from participating in class action litigation.
  • Requiring that financial institutions include specific language in mandatory arbitration provisions to inform consumers that the provision does not prevent the consumer from bringing or joining a class action.
  • Monitoring financial institutions that use mandatory arbitration provisions to ensure that consumers are being treated fairly.

The proposed rule would apply to most institutions that offer consumer financial products and services, namely those engaged in lending, storing, moving, or exchanging money.

Comments on the proposed rule will be accepted during the 90-day period following its publication in the Federal Register.

About Practical Law

This look at the major issues on the horizon for corporate counsel comes from Practical Law – an online legal know-how service. View all the looming issues now – compliments of Practical Law The Journal, which covers the latest transactional and compliance topics that impact your practice. To gain access to more related know- how resources, please visit www.us.practicallaw.com.

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