Corporate Counsel Connect collection

May 2016 edition

Landmark FCPA settlement; Third parties in merger challenges; Conducting trademark audits

Landmark FCPA settlement

VimpelCom Limited’s recent $800 million settlement with U.S. and Dutch authorities illustrates the need for companies to implement robust anti-corruption policies for their employees, executives, and agents around the world.

The Foreign Corrupt Practices Act (FCPA) prohibits parties from offering or giving money, gifts, or anything of value to a foreign government official to obtain or retain business. The FCPA also requires companies to maintain accurate books and records and adequate internal accounting controls to prevent accounting practices designed to hide corrupt payments.

U.S. and Dutch authorities alleged that between 2006 and 2012, VimpelCom paid an Uzbekistan government official at least $114 million in bribes to gain an advantage in Uzbekistan’s telecommunications market and obtain government-issued licenses, frequencies, and channels. As part of this scheme, VimpelCom also:

Falsified its books and records by reclassifying bribes as legal business transactions.
Failed to implement and enforce adequate internal accounting controls.
Failed to adopt and enforce a strong anti-corruption ethic, particularly among certain executives.

This settlement is one of the largest global foreign bribery resolutions ever. VimpelCom must pay almost $800 million to the SEC, the DOJ, and the Public Prosecution Service of the Netherlands. VimpelCom must also implement rigorous internal controls and retain an independent compliance monitor for three years.

The DOJ noted that several factors led to the resolution of the criminal charges, including VimpelCom’s:

Prompt acknowledgement of wrongdoing.
Willingness to resolve its criminal liability quickly.
Extensive cooperation with the investigation.

These actions led to some reduction in penalties. VimpelCom could not receive more credit because it did not voluntarily self-disclose the misconduct after learning of it through an internal investigation.

For more information on complying with the FCPA, see Practice Note, The Foreign Corrupt Practices Act: Overview.

Third parties in merger challenges

Counsel for companies in industries with high levels of M&A activity should be mindful of government antitrust investigations and litigation, even if the company is not itself engaged in a merger. Recent pretrial decisions in pending merger challenges highlight that competitors and customers of merging parties often face burdensome discovery obligations and other challenges.

The FTC and DOJ frequently issue subpoenas to competitors or customers of merging parties under an antitrust investigation. Companies may also voluntarily provide the FTC or DOJ with information. Companies should treat these requests and subpoenas seriously, because information disclosed during the investigation:

Is subject to discovery in any subsequent litigation.
May be disclosed to other federal agencies.
May affect future matters that the company has before the FTC or DOJ.

If the merger investigation results in litigation, third parties are likely to become further involved in discovery and the trial. Companies may need to:

Combat burdensome or harmful discovery requests. In the FTC’s pending challenge to the Staples/Office Depot merger, the court required Amazon to provide its strategic documents to the defendants.
Intervene to ensure that confidentiality orders protect information turned over to the FTC or DOJ during the merger investigation. In FTC v. Advocate Health Care Network, third parties successfully intervened to ensure that highly confidential documents could be reviewed only by the defendants’ outside counsel.

For resources providing guidance on the confidentiality of third-party submissions during a merger investigation, see the Confidentiality of Merger Review Disclosures Toolkit.

Conducting trademark audits

Counsel should buttress routine trademark portfolio maintenance by conducting periodic, comprehensive trademark audits to ensure that the company’s trademark portfolio keeps pace with its commercial practices.

During a trademark audit, counsel should:

Ensure all application and registration deadlines are calendared and met.
Verify that all assignments have been recorded with the U.S. Patent and Trademark Office.
Confirm that the goods and services for which each mark is used are those identified in the mark’s registrations.
Identify marks not in use and determine whether to abandon them or take steps to avoid their abandonment.
Ensure compliance with any trademark agreements or judgments.
Review all existing and contemplated licenses for exclusivity conflicts.
Assess the adequacy of the company’s trademark policies and procedures.

The timing and frequency of a trademark audit depends on many factors, including the size of the company’s portfolio and the company’s anticipated transactional needs (for example, in advance of a merger or an asset sale). Depending on the company’s legal staffing and resources, a trademark audit may be conducted in-house or outsourced to outside counsel. In either case, the general counsel plays a key role in ensuring the necessary flow of information between counsel and the company’s product, contract, or brand managers and other knowledgeable marketing and sales personnel.

For more information on conducting an audit of a U.S. trademark portfolio, see Practice Note, Trademark Audits.

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