Apr.03.2020

Introduction

We are in extraordinary times.

Businesses are having to adapt, fire-fight and problem-solve like never before. Markets are fluctuating in ways that were totally unforeseeable six months ago and sometimes only days ago. Most companies are now operating in an entirely new world of demand behaviours, supply chain constraints and pricing practices.

This changed environment inevitably leads to new approaches, and we are seeing some for the greater good, but others less so. For example, a light is increasingly being shone on profiteering or “price gouging” – the practice of charging excessive prices for products and services during an emergency situation or extreme market conditions.

The Law

Price gouging and similar behaviours are primarily regulated in the U.K. by the Competition and Markets Authority (CMA), which enforces competition and consumer protection law. (For businesses operating in the U.S., see our update here.)

In particular, section 18(2) of Chapter II of the Competition Act 1998 specifically prohibits the imposition of unfair prices or other unfair trading conditions by entities with significant market power (which can be as small as 40% of a particular market in a part of the U.K. – and what is a particular market can be a complex issue in itself). Case law provides tests for assessing whether particular pricing behaviours will be abusive, including as follows – which the CMA has decided to apply in its cases:

  1. Is the difference between costs actually incurred and the price actually charged excessive? And, if yes:
  2. Has a price been imposed which is either unfair in itself or when compared to competing products?

The Risks

The Competition Act gives the CMA extensive powers to investigate and take enforcement action against price gouging practices, including: making directions requiring an entity to modify or cease particular conduct; applying to the courts for enforcement orders; and imposing financial penalties.

In response to the current crisis and the sadly inevitable recent increases in price gouging practices, the CMA has launched a new COVID-19 taskforce dedicated to:

  • Monitoring market developments and scrutinising harmful pricing practices.
  • Proceeding with enforcement action where businesses have breached competition or consumer protection law.
  • Advising Government on emergency legislation to extend existing powers, including potential direct action to regulate prices.

Breaches of the law can be serious in other ways too – agreements can be held unenforceable, directors can be disqualified, and criminal sanctions can be imposed for particularly serious abuses; be in no doubt that this is a serious issue.

Potential Claims including Class Actions

Entities may also expose themselves to third party claims, for example, in damages and for other relief including injunctions (where brought by counterparties who can demonstrate that they have been harmed by anti-competitive behaviour). There may even be the possibility of fraud claims, if a party can demonstrate that it relied upon a fraudulent misrepresentation regarding pricing which caused a loss and that could create personal liability for directors or employees that make those representations.

Notably the CMA has confirmed that U.K. courts may take its recent guidance into account when deciding any corresponding cases – which might pave the way for a stricter approach being seen in the courts in the near future.

For competition claims, the main cause of action is typically breach of statutory duty, although economic torts may also be relevant (e.g. conspiracy to use unlawful means – although note that this involves a requirement for the defendant to have intended to cause injury to the claimant). These claims may be brought on a stand-alone or follow-on basis. The former is where a claimant alleges an infringement separate to any CMA investigation or decision, and the latter is where liability has already been established by the regulator.

Civil claims can be brought in the High Court or the Competition Appeal Tribunal (CAT) and if a number of individuals have suffered at the hands of one entity then class actions are potentially possible too (although only in the CAT). Under the Consumer Rights Act 2015, the CAT has the power to determine certain class action competition claims on either an opt-in (where each claimant actively signs up to be included) or opt-out (where individuals are automatically included unless they specifically request to be excluded) basis. Note that opt-out provisions only apply to U.K. entities, but non-U.K. entities may opt-in.

Issues and Risks in the Current Climate

A number of issues are pertinent for businesses: ranging from how to react to supplier price increases on products or services that are critical for ongoing operations; to how to introduce necessary increases to their own prices, in response to constraints up or downstream in their supply chains or the increased cost of doing business in this environment; to how to seek recourse if they have suffered at the hands of unlawful price gouging or other market abuse.

Many businesses are likely to be genuinely under pressure to adapt to new market constraints, and helpfully the CMA has recognised that certain competition law enforcement could impede necessary cooperation between businesses to deal with the current crisis. As part of their expanded remit they will also be advising Government on preserving market stability and not prohibiting legitimate commercial practices which may help bolster supply chains and public health needs.

Actions

So what practical steps can clients take to enable them to react nimbly to these changing circumstances?

  • Businesses would be wise to keep abreast of developments, as the CMA’s approach may be increasingly robust. For example, particular scrutiny is being placed on the pharmaceutical and food and drink industries already. The CMA has published an open letter to businesses operating in these markets, warning of increased monitoring of bad behaviours.
  • Check your contractual framework. There may already be mechanisms in place to help with agreeing changes to pricing structures or performance obligations that protect all project parties.
  • If the position is unclear, take advice before making reactive decisions on pricing. The CMA has made it clear that some price rises are inevitable due to unavoidable economic pressures, but it is asking businesses to inform it of suspected bad practice.

We expect this issue to present new legal challenges so we will be monitoring developments in this area, including any significant action from the new CMA taskforce. However, as mentioned above, the prohibition contained in Chapter II of the Competition Act is triggered only where an entity has “significant market power”. Businesses that are confident that they do not have significant market power should be able to charge what they think people will be prepared to pay. That said, it remains to be seen whether the new CMA taskforce will be interpreting the definition more loosely – particularly in the current climate.

 

 

Apr.03.2020

The COVID-19 pandemic presents unique and unprecedented challenges to the ongoing need to protect confidential information and trade secrets. The massive business disruptions that enterprises of all kinds now face include (1) entire workforces forced to work remotely, accessing and using confidential information and trade secrets from home; (2) exigent circumstances created by the cessation or substantial slowing of commercial activity that may result in the disclosure of confidential information or trade secrets to third parties outside normal procedures; and (3) the off-boarding of remote employees who are accessing confidential information and trade secrets remotely.

Trade secret protection may not be the immediate priority of a business facing massive business disruptions, but taking reasonable steps now to protect the security of trade secrets and confidential information is critical to the preservation of these valuable assets when this crisis is over. Trade secret law – both federal and state – requires that a trade secret holder take reasonable measures under the circumstances to protect trade secrets.1 Reasonable measures relate not only to prevention of unauthorized disclosures, but also the minimization of the impact of any such disclosures after they occur, and these measures must be reasonable now under the current exigent circumstances.

As explained below, many of the major confidentiality risks associated with business practices during the COVID-19 pandemic are identifiable and actionable. The measures referenced below are examples of actions that reflect the needed focus on trade secrets and confidentiality and should serve as a guide in adopting reasonable confidentiality measures during the pandemic. What constitutes reasonable measures is dependent on at least the nature of a business’s critical trade secrets, and the circumstances that business now faces, but the following four-step analysis should help guide most businesses on the adoption of appropriate measures.

1. Identify High Value, High Risk Areas.

Prioritize your security measures by broadly identifying the high value and high risk areas of your business, where the confidential information and trade secrets are most important to protect or are most vulnerable during the pandemic, including:

  • High value/risk business divisions, departments, or teams.
  • High value/risk products or services.
  • High value/risk servers, networks, drives, computers or other media.

Once you have identified your high value and high risk areas, you will be better equipped to select the protection measures that make most sense and identify the personnel who require the most direct and urgent counseling for the implementation of those measures.

2. Address the Risks Associated with Remote Work.

Remind your employees that working remotely does not create any exception to existing confidentiality and non-disclosure agreements or company policies, manuals, or practices. Consider reminding employees that when working remotely they should:

  • Limit printing of confidential information, and restrict access to any such printed information within their homes, just as they would in the office (e.g. in locked rooms or storage areas).
  • Not send or save confidential information to their personal devices (e.g. personal email accounts, cloud-based services, external storage devices, printers, etc.).
  • Not allow others (e.g. friends, family, smart devices with microphones) to hear their confidential discussions.
  • Be aware of the new surge of fraudulent cybersecurity threats seeking valuable information under false claims of authority or false offers of relief or information relating to the COVID-19 pandemic.

If you have not yet done so, designate an individual or team to handle confidentiality inquiries, and encourage employees to ask questions regarding how to maintain confidentiality while working remotely.
Also consider implementing or updating the following security measures, which may warrant additional attention in the context of a remote workforce:

  • Limit and monitor remote access to electronic networks and files through: (1) multi-factor authentication; (2) encryption; (3) complex password protection; and (4) the maintenance of access logs.
  • Institute pop-up messages that remind employees when they are accessing confidential or trade secret information.
  • Maintain an inventory of company devices and information that employees have taken off site (consider asking employees for this information now if it is not yet documented).

In implementing or updating these protections, it will be necessary to work with and consult your IT team for an understanding of the scope of employees’ electronic access and the corresponding security measures.

3. Limit and Track Your Third-Party Disclosures.

During the pandemic, your business may receive urgent or unexpected requests, demands, or opportunities to disclose confidential information or trade secrets to a third party – or receive such assets from a third-party. It may be tempting to do so outside the terms of an existing confidentiality agreement, or without obtaining an appropriate confidentiality agreement. Counseling under these circumstances is critical to advise employees, including key members of the business, that securing critical trade secrets and confidential information remains a high priority notwithstanding the demands or opportunities the business now faces.

Identify and make available to the business a template confidentiality agreement that can be used as consistently as possible, where appropriate, in advance of disclosing or receiving valuable confidential business information. Having this template on hand should streamline the process for any emergent opportunities, and the uniformity will provide you a clear understanding of the terms in place for all of your disclosures (or receipt of third-party disclosures) during the pandemic. Consider adding language to your template explicitly emphasizing that the rights and obligations established therein apply with equal force during the COVID-19 pandemic and through any related exigencies.

Keep in mind that many confidentiality agreements include an exception for the disclosure of confidential information required by law, regulation, court order, or other legal process. These exceptions often require advance notice of any such required disclosure, and that the party whose information is being disclosed be given time to seek appropriate relief or protection. Check your template and your existing agreements for any such exception. Be mindful of the rights and obligations they create, and their potential impact on your contractual relationships during the pandemic.

To the extent your business shares confidential information or trade secrets with third parties – or third parties do so with your business – exercise additional care during the pandemic to document and track the disclosures, including the following key information:

  • What information was shared?
  • When?
  • With whom?
  • For what purpose?
  • Under what agreements and restrictions?
  • Was the information returned or destroyed as required after the project was complete?

Maintaining this information should be useful: (1) to ensure that third parties protect your information; and (2) as proof in any later dispute over the unauthorized use of your information. It also may minimize the risk of successful claims by third parties over the alleged unauthorized use of their information.

4. Adapt Your Off-Boarding Procedures.

It is always important to ensure that employees being off-boarded return all confidential and trade secret information before their departure, and that they be reminded of their continuing obligations to protect, and not improperly use, that information. Now the need for adequate off-boarding is greater, yet the circumstances now make the process more challenging. Off-boarding can be particularly challenging during the pandemic, given that many employees may be off-boarded in a short period of time, and exit interviews, execution of documents, and the return of company property cannot be conducted in person as usual. However, many off-boarding procedures can be performed remotely, including:

  • Disabling access to company systems, electronic devices, and accounts, and monitoring any unauthorized access thereafter;
  • Conducting an exit interview by video or phone.
  • Requiring e-signature of documents establishing the off-boarded employee’s continuing confidentiality obligations.

For parts of the off-boarding process that absolutely cannot be executed during the pandemic, keep clear records of what remains outstanding for each employee, so those items can be addressed as soon as practical. In particular, take inventory of all company property and information the employee has taken off site, and confirm this inventory with the employee during the exit interview. Establish a plan for the secure destruction and/or return of this property and information as soon as possible.

Using the four steps above as a framework, businesses should vigilantly adopt measures tailored to the present circumstances in order to protect valuable trade secrets and confidential information, deter misappropriation, and minimize the risk of third-party misappropriation claims.

 

Last Updated on April 2, 2020

List 1 Exclusions Granted December 28, 2018 Cargo Systems Messaging Service (CSMS) Guidance #19-000052
List 1 Exclusions Granted March 25, 2019 CSMS Guidance #19-000155
List 1 Exclusions Granted April 18, 2019 CSMS Guidance #19-000212
List 1 Exclusions Granted May 14, 2019 CSMS Guidance #19-000244
List 1 Exclusions Granted June 4, 2019 CSMS Guidance #19-000289
List 1 Exclusions Granted July 9, 2019 CSMS Guidance: Sixth Round of Products Excluded from Section 301 (Tranche 1)
List 1 Exclusions Granted September 20, 2019 CSMS Guidance: Tenth Round of Products Excluded from Section 301 (Tranche 1)
List 1 Exclusions Granted October 2, 2019 CSMS Guidance #40330403
List 1 Exclusions Granted December 17, 2019 and Amendments to Exclusions Granted July 9, 2019 and September 20, 2019 None
List 1 Exclusions Granted February 11, 2019 CSMS Guidance #41878462

 

List 2 Exclusions Granted July 31, 2019 CSMS Guidance: Seventh Round of Product Excluded from Section 301 (Tranche 2)
List 2 Exclusions Granted September 20, 2019 CSMS Guidance: Corrected Eleventh Round of Products Excluded from Section 301 (Tranche 2)
List 2 Exclusions Granted October 2, 2019 CSMS #40208881
List 2 Amendments to Exclusions Granted September 20, 2019 None
List 2 Exclusions Granted February 25, 2020 None

 

List 3 Exclusion Granted August 7, 2019 CSMS Guidance: Eighth Round of Products Excluded from Section 301 Duties (Tranche 3)
List 3 Exclusion Granted September 20, 2019 CSMS Guidance: CORRECTED: Ninth Round of Products Excluded from Section 301 Duties (Tranche 3) and Application of Duties for Certain Set Provisions in Tranche 3 and Tranche 4 Annex A
List 3 Exclusion Granted October 28, 2019 CSMS Guidance #40564257
List 3 Exclusion Granted November 13, 2019 CSMS Guidance #40710742
List 3 Exclusion Granted November 29, 2019 CSMS Guidance #40901928
List 3 Exclusion Granted December 17, 2019 CSMS Guidance: Section 301 $200B – Tranche 3 Sixth Round of Product Exclusions from China
List 3 Exclusion Granted January 6, 2020 CSMS Guidance #41702837
List 3 Exclusion Granted February 5, 2020 CSMS Guidance #41834749
List 3 Exclusion Granted February 20, 2020 None
List 3 Exclusion Granted March 16, 2020 None
List 3 Exclusion Granted March 26, 2020 None

 

List 4 Exclusions Granted March 10, 2020 None
List 4 Exclusions Granted March 17, 2020 None
List 4 Exclusions Granted March 31, 2020 None

 

By  on 

As a result of the current situation, we are advising clients who find themselves operating in the shadow of potential bankruptcies along the supply chain, in their customer base and their trading partners globally. Based on deep workout experience after past world crises, we can help clients to find and employ business strategies to minimize business disruption, salvage relationships and restructure financial facilities and business structures to facilitate ongoing trading .

Issues arising:

  • Rewriting and restructuring of financial facilities and security/collateral
  • Key customer and supplier contract reviews and negotiations
  • Potential supply chain issues and business interruption
  • Triggering of force majeure clauses
  • Landlord and tenant issues
  • Employment strategy and obligations
  • Advising on Government policies and intervention
  • Predatory pricing/supply issues
  • Diversification projects and joint ventures
  • Sale and down-scaling of non-core business
  • Acquisition of key business operations
  • Dealing with changes in the regulatory and legislative landscape
  • Advising on and implementing restructuring strategies, including formal bankruptcy processes
  • Managing international disputes
  • Managing corporate insurance claims and renewals

Representative Engagements

  • Advising a group of recruitment agencies on the impact on their agency staff of the liquidation of Carillion
  • Restructuring and selling high profile online retailer in an MBO
  • Advising PNC Financial UK as an agent for a syndicate of lenders in relation to the restructuring and recovery of £265 million in asset-based loan facilities made available to British Steel, which went into liquidation after attempts to negotiate a government bailout stalled.
  • Acted on behalf of lenders in connection with the protection and enforcement of claims in debtor restructurings and insolvency proceedings in the United Kingdom, the United States, France, Germany, Norway, and Australia.
  • Advising directors, stakeholders and insolvency practitioners in distressed scenarios including MBOs, “pre-pack” sales, restructurings, collect outs and general administration and liquidation work.
  • Advising large Chinese textiles manufacturer on cancellation / postponement of global retail orders following COVID 19 outbreak and international government sanctions.
  • In the aftermath of Black Monday on the U.S. stock market, represented the Robert M. Bass Group in working out and recovering on a portfolio of $6 million in real-estate secured loans in connection with the then-largest savings and loan failure in U.S. history. The successful portfolio workout included one of the first-ever securitizations as well as navigating through multiple corporate borrowers’ bankruptcies.
  • Represented U.S. opportunity funds against federal governments on post-closing litigation arising from disputes over several multi-billion dollar asset purchase agreements involving assets of insolvent savings and loans in the U.S., Canada, and Japan.
  • Coordinating counsel for GE Capital Real Estate in working out a portfolio of defaulted commercial loans in the South Pacific, including Hawaii and Guam.
  • Lead litigation counsel for several of the top companies in Asia in rescuing them from multi-million liabilities on important U.S. matters.
  • Represented a major S. based multinational toy company in multiple  claims related to the insolvency of its Hong Kong joint venture partner who shut down its manufacturing facilities in Guangdong province, People’s Republic of China.

WEBINAR REGISTRATION LINK

As part of Crowell & Moring’s ongoing effort to keep clients informed about the most significant developments stemming from the COVID-19 pandemic, we are offering a webinar series focused on issues that are immediate in terms of their impact, as well as issues that are just around the corner. Our focus is helping clients to anticipate issues, take proactive steps, develop appropriate responses, and execute sound legal, business and operational plans.

We have added one additional program to our line-up this week. On Friday at 3:00 pm EDT, we will hold a webinar entitled: What if Your Business Is Essential, But Your Employees Are Afraid to Report to Work? Details are included below.  We hope you are finding the content of these webinars to be helpful. Please let us know if you have questions.

Thursday, April 2 at 11:00 am EDT
COVID-19: “Virtual” Sanctions Compliance: Managing Your Team and Getting Your Regulatory Updates While Remote
Join us for a “couch side chat” for tips on how to effectively manage your sanctions compliance program virtually. We will also provide recent sanctions developments you might have missed while you were busy following important health news.
Speakers: Dj Wolff, Michelle Linderman, and Nicole Succar

Thursday, April 2 at 1:00 pm EDT
Business Disruption in a Pandemic: Does COVID-19 Excuse Non-Performance of a Contract
As COVID-19 rapidly evolves and continues to disrupt your business operations in many ways, companies are increasingly confronting the challenges presented by force majeure and related doctrines in their contracts. Join us for a discussion on the five steps companies should consider as a follow on to the alert we previously shared.
Speakers: Mark Klapow, Renee Delphin-Rodriguez, and Luke van Houweligen

Thursday, April 2 at 4:00 pm EDT
What’s Next for Your Employees: Congress Responds with New Rules for Employment and Benefit Programs
On Friday, Congress passed the COVID-19 Stimulus Law in its most recent installment of critical legislation responding to the COVID-19 pandemic.  Join us as we discuss the impact of the legislation on a number of employment and ERISA issues, including paid sick leave; enhanced unemployment benefits; payroll tax relief; pension plan funding relief; 401(k) changes to hardship/loan withdrawals and RMDs; employer student loan payments; health insurance coverage issues and COBRA; impact on HDHPs, HSAs, FSAs, HRAs; and executive compensation.
Speakers: Tom Gies, Christine Hawes, and David McFarlane

Friday, April 3 at 1:00 pm EDT
Tax Relief is Here: How to Take Advantage and is There More to Come?
Congress, Treasury, and the IRS have pushed taxes to the front line in the fight against a potential recession due to COVID-19. This webinar will discuss the actions that taxpayers should take now to benefit from tax credits and enhanced deductions under the COVID-19 Stimulus Law; changes to IRS collections, audits, and enforcement; and potential tax changes in the next wave of legislation aimed at inoculating the economy from COVID-19.
Speakers: David Blair, Starling Marshall, Teresa Abney, and Eric Homsi

Friday, April 3 at 3:00 pm EDT
What if Your Business Is Essential, But Your Employees Are Afraid to Report to Work?
As COVID-19 infections continue to mount, reports of employees becoming increasingly concerned about having to report to worksites across the country in service of essential businesses are escalating. Anxious employees are refusing to come to work, and in some cases, have already lodged formal complaints in court and with relevant agencies, notwithstanding the myriad efforts undertaken their employers both to adhere to CDC guidance and implement wide ranging safety measures. Please join us for a discussion of (i) the steps essential businesses can and should take when their employees refuse to work to report citing concerns about COVID-19; (ii) concrete measures employers should implement to satisfy their legal obligation to provide a safe work environment; and (iii) the legal risks associated with failing to do so.
Speakers: Ellen Dwyer, Dan Wolff, Glenn Grant, and Anne Li

Apr.01.2020

The U.S Patent and Trademark Office (USPTO) announced several initiatives aimed at providing relief for those impacted by the COVID-19 public health emergency.

The USPTO considers the effects of the coronavirus outbreak to be an “extraordinary situation” within the meaning of 37 CPR §§1.183 and 2.146 for affected patent and trademark applicants, patentees, reexamination parties, and trademark owners. To that end, the USPTO has waived certain petition fees in the event a trademark or patent application is held abandoned, or a reexamination prosecution terminated or limited, as a result of an applicant’s inability to timely respond to a PTO communication due to the effects of the outbreak. The PTO also waived the regulatory requirements of 37 CFR §§1.4(e)(1) and (2) for original handwritten, ink signatures, and will instead accept copies of handwritten signatures “until further notice is provided” by the USPTO.

In a further attempt to alleviate the strain of the coronavirus outbreak on the public, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, authorizes the Director of the USPTO to waive and alter certain statutory deadlines.

  • Authority to the Director of the USPTO: Section 12004(a) of the CARES Act grants the USPTO Director authority during the “emergency period” to toll, waive, adjust, or modify certain statutory deadlines if the Director determines that the emergency: “(1) materially affects the functioning of the Patent and Trademark Office; (2) prejudices the rights of applicants, registrants, patent owners, or others appearing before the Office; or (3) prevents applicants, registrants, patent owners, or others appearing before the Office from filing a document or fee with the Office.” The emergency period includes the duration of the national emergency declared by President Trump on March 13, 2020 as a result of the COVID-19 outbreak (and any renewal thereof) plus an additional 60 day period.

Pursuant to this authority, the USPTO announced on March 31 that those who are unable to meet certain patent or trademark-related timing deadlines in light of the outbreak may be eligible for a 30-day extension for a range of filings and fees that otherwise would have been due between March 27 and April 30, 2020.

Filings to which the patent-related extension applies include, but are not limited to: replies to USPTO notices or actions issued during examination or patent publication processing; notices of appeal; appeal and reply briefs; requests for oral hearings before the PTAB; and requests for a rehearing of a PTAB decision. Filings to which the trademark-related extension applies include, but are not limited to: responses to USPTO actions, including notices of appeal from a final refusal; statements of use; affidavits of use or excusable nonuse; and priority filings basis under 15 U.S.C. §§ 1126(d)(l) and 1141g, and 37 C.F.R. §§ 2.34(a)(4)(i) and 7.27(c). At the request of the USPTO Director, the PTAB will similarly provide a 30-day extension for requests for hearings of a PTAB decision, petitions, and responsive filings in trial proceedings.

* * * * *

Please note that the USPTO is closed to the public “until further notice,” with all meetings and communications occurring remotely. If you have any questions or intellectual property needs relating to a patent, trademark, or copyright matter, please contact a Crowell attorney.

For more information on the legal and business implications of the COVID-19 pandemic generally, please visit our Coronavirus Resource Center.

April 1, 2020

The COVID-19 pandemic has or will disrupt performance under at least some contracts of virtually all businesses.  No matter which side of the contract you are on or the industry or the specific situation, if the COVID-19 pandemic has impacted performance of your commercial contracts there are a wide variety of considerations – legal and practical – that need be assessed quickly and then acted on. As outlined in our recent client alert, we want to address each of the most frequently asked questions in more detail.

 

The central government of the People’s Republic of China (PRC) as well as provincial and city level governments across the country have announced numerous incentives and supporting measures to assist companies, including wholly foreign owned enterprises (commonly referred to as WFOEs) and Sino-foreign joint ventures, in resuming production and operations that were adversely impacted by the COVID-19 outbreak. In China, provincial and municipal governments often have discretion to implement specific rules pursuant to broad policy guidelines or requirements issued by the central government so long as the local rules do not provide benefits or incentives that are lower than that provided in the national guidelines. Accordingly, companies should confirm the local rules at provincial or municipal levels as specific implementing measures may vary.

Some of the programs that may be available to multinational companies operating in the PRC, including the following:

1. Central Government Incentives to Support Resumption of Production

a. Preferential Tax Measures. The PRC’s State Tax Administration (SAT) announced on February 6 a series of preferential tax measures to encourage resumption of industrial production including employment. One of the measures allows companies in certain industries severely affected by the epidemic to offset 2020 losses for a longer than standard period of time (8 years, instead of 5). Qualifying industries include transportation, catering, accommodation, and tourism. The portion of the revenue generated from business activities in the qualifying industries must account for more than 50% (excluding non-taxable income and investment income) of total revenue in 2020. Separately, the PRC Ministry of Finance (MoF) and SAT Announcement [2020] No. 8 provides that companies engaging in production of key personal protective equipment (PPE) (e.g., facial masks, protective clothes) may deduct the costs of purchased equipment in a lump sum from applicable PRC corporate income tax (CIT). In addition, donations from companies to public welfare organizations, governmental agencies, or directly to hospitals responsible for epidemic control are entitled to a full deduction from taxable income, under MoF and SAT Announcement [2020] No. 9.

b. Import Exemption. Under MoF Announcement [2020] No. 6, the importation of donated supplies used for prevention and control of the epidemic, such as reagent, disinfection equipment, and protective supplies, is exempt from import duties, import VAT, and consumption tax. For donated supplies from the United States, no retaliatory tariffs would be imposed on such donated supplies. This policy is applicable to imports between January 1, 2020 and March 31, 2020. Import tariffs during that period can be refunded if they were not used to offset the importer’s output VAT. Importers may claim refunds before September 30, 2020.

c. Payroll Exemptions. The Ministry of Human Resources and Social Security (MHRSS), MoF and SAT jointly issued a notice (Social Security Ministry Announcement [2020] No. 11) on February 20, 2020 to allow provincial and municipal governments to exempt small and medium enterprises from making company contributions to social insurance programs for up to five months, and large enterprises from fifty-percent (50%) of the company contributions, for up to three months. Provincial and municipal governments have implemented this announcement as highlighted below.

2. Provincial and Local/Municipal Incentives

Many other incentive and support measures have been announced at the provincial and municipal levels, including:

a. Hubei Provincial Measures. The provincial government of Hubei, which suffered most of the adverse economic impact of COVID-19 in China, issued the Hubei Provincial New Corona Virus Infection Prevention and Control Headquarters Notice on March 11, 2020. It provides that Wuhan-based companies essential to epidemic prevention and control (e.g., including the manufacture of PPE), public utilities operations (e.g., water supply), daily necessities (e.g., sales of food, fruits, meat and eggs), and agricultural production (e.g., seeds and fertilizer), are permitted to resume production. Companies that are significant to national and global supply chains can also resume production if approved by the authorities. In areas considered medium or low risk, there a broader range of companies is allowed to resume production. However, businesses on the “negative list”, such as cinemas, bookstores, bars, gyms and restaurants, cannot resume work before the epidemic ends. Most notably, all companies in Hubei, including wholly foreign-owned enterprises and joint ventures, are also temporarily exempt from payment of pension, unemployment, and work injury insurance contributions according to an announcement issued by the Hubei Provincial government on March 27, 2020.

b. Shanghai Municipal Measures. In Shanghai, a number of measures have been implemented to reduce the financial burden on employers. For example, employers that have not laid-off employees, or attempted to minimize the number of employees laid-off, may receive a refund on their payment of unemployment insurance premiums of fifty percent (50%). Pursuant to the central government joint notice referenced above, the local Shanghai Branch of the MHRSS has implemented an exemption for (a) small and medium sized enterprises in Shanghai to make company contributions to the three social insurance programs between February to June this year, and (b) for large enterprises, a fifty-percent (50%) reduction in company contributions to the three social insurance programs between February and April.

c. Measures in Beijing and Guangdong Province. The Beijing Municipal Government has similarly introduced measures to reimburse small and medium sized companies for their payments of unemployment insurance premiums if the companies’ reduction in force is below certain thresholds, and to provide companies a reduction (large enterprises) and exemption (small and medium enterprises) in the amount of company contributions to social insurance programs. Guangzhou and Guangdong Province have also allowed companies to delay contributions to social insurance programs without penalty.

Observations and Recommendations

China, having faced unprecedented public health and economic damage, is now turning to recovery in many dimensions. Multinational companies should evaluate their operations in China to see if they are eligible to benefit from these incentives and supporting measures. If you believe your company may be eligible for any of these incentive and support measures, we recommend:

  • Seeking information on qualifying requirements; explore prima facie eligibility; move quickly – some of the programs have a short eligibility or claim period.
  • Considering all forms – national, provincial, and municipal – that may apply.
  • Understanding the risks, documentation requirements, audits, and the overall enforcement environment based on the specific measure itself under consideration.

We note that with many of the measures described above, the text often does not specify which “authorities” have jurisdiction, which raises uncertainty with respect to implementation and enforcement.

Crowell & Moring is monitoring stimulus programs being considered in major markets around the world and will provide periodic updates on our Coronavirus Resource Center.

In ruling NY N309682, Customs and Border Protection (CBP) discussed the classification of a Smart Cat Litter Box from Japan. It is a composite good that consists of a urine tray, body, drain board, top cover, sensor plate (containing load cells and a camera), spiral tube and AC adapter. The body measures 428mm (width) x 561mm (depth) x 300 mm (height). The product weighs approximately 3.4kg. The litter box utilizes the camera for facial recognition to determine which cat is entering the litter box in a multi-cat home. The device also utilizes four load cells (weight sensors), which determine the weight of the cat, the cat’s urine and the cat’s feces. The load cells provide the information to the Smartphone App, which charts the data in grams or pounds. The user accesses the App to view the charts and consequently monitor the health status of the cats.

The Smart Cat Litter Box is a composite good made up of different components. In accordance with GRI 3(b), CBP found that the load cell (weight sensor) imparts the essential character of the Smart Cat Litter Box, as the article’s principal function is to detect the cat’s weight, feces, and urine, and that data is used to analyze the animal’s health.  Additionally, with the sole exception of the camera, the value of the weight sensor far outweighs the value of the article’s other components.

The Explanatory Notes (EN) to the Harmonized Tariff System, provide a definition of load cells of heading 9031 that describes the subject article’s weight sensor. The EN to heading 90.31(A)(30) specifically include “load cells which convert changes in applied force (including weight) into proportional changes in voltage. These changes in voltage are generally detected by instruments for measuring, controlling, weighing, etc., and are expressed in the desired units.” The load cells (weight sensors) in the Smart Cat Litter Box allow the cat, urine and feces weights to be charted by the App.

CBP determined that the applicable subheading for the Smart Cat Litter Box will be 9031.80.8085, HTSUS, which provides for “Measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter; profile projectors; parts and accessories thereof: Other instruments, appliances and machines: Other: Other.” The general rate of duty will be free.

 

Mar.27.2020

As a result of the COVID-19 Pandemic, restaurants may have food on hand that they can no longer use to prepare food for patrons. Similarly, food manufacturers may have inventory labeled for use in restaurants that is no longer in demand by the restaurant industry. To encourage the further distribution of this food during the ongoing public health emergency, which may otherwise go to waste, the U.S. Food and Drug Administration (“FDA”) temporarily changed its policy to allow restaurants and food manufacturers to sell packaged foods (intended for restaurant use), that lack Nutrition Facts labels, directly to consumers and businesses. Under normal circumstances, if restaurants sell packaged foods directly to consumers, or to other businesses for sale to consumers, nutrition information may be required. See 21 CFR 101.9(a)(1) and 101.9(j)(2).

FDA’s Final Guidance, released on March 26th, explains that the agency will not object to restaurants and food manufacturers selling packaged foods (both perishable and non-perishable) directly to consumers without a Nutrition Facts label, provided that the food does not have any nutrition claims, and the packaging contains other required information, including:

  • “a statement of identity,
  • an ingredient statement,
  • the name and place of business of the food manufacturer, packer, or distributor,
  • net quantity of contents, and
  • allergen information required by the Food Allergen Labeling and Consumer Protection Act.”

FDA has also indicated that if retail packaging for certain food products is unavailable, it will not object to further production of such food products until the retail packaging is available.

This policy is in effect only for the duration of the COVID-19 public health emergency declared by the U.S. Department of Health and Human Services.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Photograph of John Fuson

John Fuson
Partner – Washington, D.C.
Phone: +1 202.624.2910
Email: jfuson@crowell.com

Photograph of Chalana Netasha Damron

Chalana Netasha Damron
Counsel – Washington, D.C.
Phone: +1 202.624.2566
Email: cdamron@crowell.com

Photograph of Emily Tucker

Emily Tucker
Associate – Washington, D.C.
Phone: +1 202.688.3445
Email: etucker@crowell.com