News Briefs

European Commission Adopts Revised EU CSRD Reporting Standards

Tue, 21 Jul 2026 07:00:00 Z

On 3 July 2026, the European Commission adopted a delegated act setting out revised European Sustainability Reporting Standards (ESRS) and a delegated act setting out voluntary reporting standards for smaller companies. The revised ESRS will replace the previous version of the ESRS (Previous ESRS).

The ESRS are the mandatory reporting standards for European Union (EU) companies subject to the EU Corporate Sustainability Reporting Directive (CSRD). These updates will affect many US companies that fall within the CSRD’s scope through their EU subsidiaries and are required to file CSRD reports starting from fiscal year 2027. The standards are now effectively final – they still require formal adoption by the EU but they can no longer be amended. We anticipate formal adoption to happen in the coming months.

The overarching goal of the revision was to simplify and streamline the Previous ESRS, complementing the changes to the scope of the CSRD introduced by the Omnibus I package (read our alert here). The European Commission states that the mandatory data points have been reduced by over 60%, and as a result, estimates reporting costs will decrease by approximately 30% per company.

Our key takeaways

1. Topics have not changed

The revised ESRS continue to cover the same topics as the Previous ESRS: ESRS 1 and 2 (general requirements and disclosures), five environmental standards (climate change, pollution, water, biodiversity and ecosystems, and resource use and circular economy), four social standards (own workforce, workers in the value chain, affected communities and consumers and end users), and one governance standard (business conduct).

2. Mandatory data points reduced by 60%, but a new ‘fair presentation’ requirement is introduced

According to the European Commission, mandatory data points have been reduced by over 60% and total data points by over 70% compared to the Previous ESRS. However, a new ‘fair presentation’ requirement introduced in ESRS 1 requires that the information disclosed is comparable, verifiable and understandable. It also requires the disclosure of entity-specific information where the topical disclosures do not cover them in sufficient granularity to allow users to understand the material impacts, risks and opportunities. In practice, this gives companies more flexibility but also places a heavier burden on them to justify their conclusions, including to their CSRD assurance provider.

3. Prohibition on reporting nonmaterial information

The revised ESRS generally prohibit reporting disclosure requirements, data points and entity-specific information where they are not material. Nonmaterial information may still be included in the CSRD report where it:

Must be disclosed under other legislation.
Stems from generally accepted reporting standards or frameworks, including nonmandatory or sector-specific guidance published by other standard-setting bodies (such as the Global Reporting Initiative).
Is needed to meet the data demands of a specific user.

Any nonmaterial information must be clearly identified as such, comply with the faithful representation principle, and not obscure material information. Companies that have been using CSRD reporting for broader sustainability disclosures should take particular note of this restriction, which will limit the amount of additional ‘marketing-speak’ that can be included in a CSRD report.

4. Double materiality perspective retained

Companies will still need to consider both financial and impact materiality and when working out what is material, it is still necessary to consider both financial users of the report and nonfinancial users of the report. Financial materiality continues to require consideration of material risks and opportunities attributable to business relationships across the upstream and downstream value chain, unchanged from the Previous ESRS.

5. ‘Top-down’ approach permitted for the double materiality assessment

Revised ESRS 1 introduces the option to use a ‘top-down’ approach. According to the top-down approach, the double materiality assessment (DMA) begins with an analysis of the business model, including sectors, geographies, and the features of the upstream and downstream value chain to identify the most evident material topics. However, companies can continue using the ‘bottom-up’ approach or even combine a ‘top-down’ approach for some topics and a ‘bottom-up’ analysis for others. This provision will apply from FY 2026.

As for refreshing the DMA, revised ESRS 1 requires companies to consider annually whether significant changes – such as changes to activities, structure, business relationships, understanding of impacts, risks or opportunities, assessment methodologies, or the external environment – would affect their materiality assessment conclusions. If so, the DMA must be reviewed and updated. Companies should be aware that any decision not to refresh the DMA is likely to be questioned by their assurance provider.

6. Taking account of mitigating measures in the double materiality assessment

A significant area of uncertainty under the Previous ESRS was to what extent mitigating measures can be taken into account when defining material topics for CSRD reporting. The revised ESRS 1 take the following approach to considering mitigating measures:

For the severity of actual negative impacts, the assessment must not consider remediation activities to address impacts if those activities were undertaken during the reporting period.
For the severity and likelihood of potential negative impacts, the assessment should take into account implemented prevention and mitigation policies and actions only if those policies and actions can reasonably be assumed to effectively reduce the severity or likelihood. Actions or policies that have not yet been implemented must not be considered.
The materiality assessment needs to consider information on policies and actions used to manage negative impacts if they are decision-useful to users, irrespective of how effectively the company manages the impacts or of how effectively the corresponding topics are regulated.
Companies must assess positive impacts “without netting against negative impacts”. Actions to prevent, mitigate, end, minimise or remediate negative impacts or mere compliance with legal requirements do not qualify as positive impacts. Companies should therefore ensure they do not conflate positive impacts with mitigation or prevention measures.

7. Reduced scope for reporting on opportunities

Under the Previous ESRS, it was left open to companies to report on sustainability-related opportunities, including at the sector level. Revised ESRS 1 now prohibits reporting on general sector-level opportunities. Companies must limit their disclosures to opportunities that are currently being pursued or incorporated into their strategy.

8. Greater flexibility to rely on proxies and estimates in value chain reporting

Revised ESRS 1 gives companies greater flexibility to rely on proxies and estimates for value chain information, and removes the previous obligation to “make reasonable efforts” to obtain information from value chain partners. This is a significant practical relief, particularly for companies with complex or fragmented supply chains.

However, important limitations remain:

Data and assumptions used in sustainability reporting must, to the extent possible, be consistent with those used to prepare the financial statements, and any differences must be explained.
For the first three financial years (FY) of CSRD reporting, where not all necessary value chain information is available, the company must explain the efforts made to obtain the information, why it was not available and its plans to obtain it in the future.

9. New ‘undue cost or effort’ relief

Under the revised ESRS, when carrying out the materiality assessment and preparing the CSRD report, the company must “use all reasonable and supportable information that is available to the undertaking at the reporting date without undue cost or effort”. This proportionality mechanism, inspired by the International Sustainability Standards Board’s S1 and S2 standards, means companies need not gather information for materiality assessments or metrics disclosures if doing so would entail an undue cost or effort. “Undue cost or effort” is not directly defined and will depend on a company’s specific circumstances, requiring a balanced assessment of the costs and efforts involved against the benefits of the resulting information for users. What is reasonable and supportable information that is available to the undertaking without undue cost or effort must be reassessed for each reporting period.

10. Disclosures on anticipated financial effects

Disclosure of qualitative and quantitative information on anticipated financial effects remains mandatory for material risks and opportunities. However, this is subject to exceptions and phase-in periods, e.g., allowing companies starting to report from FY 2027 to omit information on anticipated financial effects for the first two reporting years, and to omit quantitative information about anticipated financial effects for their first four reporting years. Qualitative and quantitative information about current financial effects for which there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of assets and liabilities reported in the related financial statements is also mandatory.

In addition, under ESRS 2, companies are also required to disclose the amounts of significant financial resources allocated to key actions taken to manage material impacts, risks and opportunities and achieve the objectives or related policies in the reporting period (if any) and provide an indicative range of significant future financial resources expected to be allocated. Anticipated financial effects from material climate-related physical and transition risks and opportunities must also be disclosed under ESRS E1. However, some of this information on transition risks and opportunities is subject to a two-year grace period (four years for certain quantitative information) for companies starting to report from FY 2027.

11. Changes to environmental and social standards

A number of changes have been made to the environmental and social disclosure standards. For example, if a company does not have a transition plan for climate change mitigation that includes certain key features such as greenhouse gas (GHG) emission reduction targets, key actions, and compatibility with the 1.5°C target, it must disclose this fact and indicate whether and, if so, when it expects to adopt one. For S1-16 (Incidents of discrimination and other human rights incidents), only substantiated and verified instances of human rights incidents need to be reported. This is narrower than under the Previous ESRS, which required reporting of mere complaints.

12. Value chain cap and other reliefs

The revised ESRS reflect the Omnibus I amendments, which introduced a value chain cap to CSRD: companies subject to the CSRD cannot require companies in their value chain that have 1,000 employees or fewer to provide more sustainability information than is required by the voluntary reporting standard adopted alongside the revised ESRS. However, this exemption does not cover ESRS E1-8 metrics (gross Scope 1, 2 and 3 GHG emissions). The exemption will apply from FY 2026.

Additional specific reliefs include the option to exclude activities from metric calculations if they are not a significant driver of the relevant impacts, risks, or opportunities and their exclusion is not expected to impair the relevance and faithful representation of the reported information. If this relief is relied on, that fact should be disclosed in the CSRD report. Another new relief provides that companies which acquire a subsidiary during the reporting period may defer its inclusion in the materiality assessment and sustainability statement to the following reporting period. Conversely, if a subsidiary leaves the group during the reporting period, the company may adjust the scope of its materiality assessment and reporting boundary from the beginning of the current reporting period.

13. Presentation and structuring for machine readability

Companies should also consider how their sustainability statements will be reviewed in practice. Benchmarking bodies, proxy advisors and institutional investors are increasingly using large language models and automated text-analysis tools to review and compare sustainability reports at scale. Clear structure, consistent headings, well-defined key terms and a logical information architecture will play an increasingly important part in determining how a company’s disclosures are interpreted and ranked.

The revised ESRS introduce an optional executive summary and the ability to present EU Taxonomy disclosures in a separate appendix, which may improve accessibility and navigability.

Next steps

The revised ESRS and the voluntary reporting standards have been presented to the Council and the European Parliament, which have two months to scrutinise the texts. They cannot propose amendments. They may only reject the delegated act in full, which is widely considered unlikely. Upon publication in the Official Journal of the EU, the revised ESRS will enter into force on 20 November 2026 and apply to financial years beginning on or after 1 January 2027. We recommend that in-scope companies begin assessing the impact of these changes on their reporting processes and materiality assessments now.

Please reach out to any member of the Cooley ESG team if you have any questions.

VivaTech 2026: Cooley and the French Innovation Ecosystem

Mon, 20 Jul 2026 15:50:00 Z

VivaTech 2026 brought more than 200,000 technology leaders, entrepreneurs, investors and policymakers to Paris for four days of discussion on the forces shaping the global innovation economy. Across the conference, conversations reflected a maturing European ecosystem, where AI, life sciences, enterprise technology and capital formation are increasingly interconnected.

Event summary

For Cooley, the week offered a timely view into the priorities and ambitions of the French and European innovation ecosystems. Our presence at VivaTech focused on engaging directly with founder-led companies, investors and industry leaders across technology, life sciences and AI, as well as better understanding how companies in France and across Europe are navigating growth, funding, regulation and international expansion.

The week also marked the Paris launch of Cooley Off the Record, a discussion series designed to create space for candid exchange among the people building and backing high-growth companies.

Cooley Off the Record, hosted at Hotel Molitor on 17 June, created a new forum in Paris for intimate, practical conversations among founders, investors and industry professionals about the opportunities and challenges of building and scaling companies.

Key takeaways

A global platform with local relevance. VivaTech’s scale underscored Paris’ role as a convening point for the international technology community, while highlighting the strength and ambition of the French market.
AI as both opportunity and operating reality. Discussions moved beyond broad enthusiasm to practical questions about adoption, governance, sector-specific applications and long-term business models.
Cross-sector innovation is accelerating. The overlap among technology, life sciences and data-driven business models was a recurring theme, particularly for companies operating in healthcare, enterprise technology and other regulated or complex sectors.
France’s innovation ecosystem is gaining depth. The market is supported by a growing base of ambitious founders, experienced investors and sector expertise across technology and life sciences.
Responsible adoption is a central theme. The most relevant conversations at VivaTech focused not only on what new technologies can do, but also on how companies can responsibly adopt, commercialize and scale them.
Cross-border growth brings added complexity. As companies scale internationally, legal, regulatory and strategic considerations are becoming increasingly central to growth conversations, particularly for businesses operating at the intersection of innovation and regulated markets.
Sustained engagement matters. Cooley’s engagement in Paris reflects a continued commitment to participating in the French ecosystem, not only around major industry events but through ongoing dialogue with the startups, investors and innovators shaping the market. Visit our France webpage to find out more about our commitment to the French ecosystem.

VivaTech reinforced that innovation ecosystems are built through sustained engagement, shared perspective and practical collaboration. Cooley’s time in Paris, including the launch of Cooley Off the Record, reflected that approach and underscored the importance of continued connection with the people and companies shaping the future of France as a leading global player in the technology and life sciences ecosystems.

Capital Markets Update – July 2026 One-Minute Reads

Mon, 20 Jul 2026 07:00:00 Z

SEC proposes rescission of climate-related disclosure rules

The Securities and Exchange Commission (SEC) announced it has proposed to rescind the climate-related disclosure rules and has requested comments by August 3, 2026. See the proposed rules and the fact sheet. Comments can be submitted or viewed here, and you can also read statements from Chair Paul Atkins, Commissioner Mark Uyeda and Commissioner Hester Peirce. For information and insights on the proposal, see this Cooley alert and this TheGovernanceBeat.com post. For other thoughts on the proposed rescission, see this ESG Dive article, this Responsible Investor article, this Bloomberg Law article, this TheCorporateCounsel.net blog post and this TheCorporateCounsel.net blog post.

SEC settles charges for violating whistleblower protection rule

The SEC announced settled charges against Foot Locker for using separation agreements with a provision that purported to waive employees’ rights to receive SEC whistleblower awards. According to the SEC’s order, approximately 148 departing Foot Locker employees signed separation agreements in order to receive severance payments. The order finds that the agreements contained a provision that purported to waive employees’ rights to receive whistleblower awards from the SEC, and that Foot Locker phased out the award waiver provision in its separation agreements and no longer requires departing employees to waive such rights. The SEC’s order finds that Foot Locker violated Rule 21F-17(a) of the Securities Exchange Act of 1934, which prohibits any person from taking any action to impede an individual from communicating directly with SEC staff about a possible securities law violation. Without admitting the findings in the order, Foot Locker consented to the entry of a cease-and-desist order and agreed to pay a $148,000 civil penalty. For more information, see this CompensationStandards.com blog post.

SEC approves new Nasdaq delisting rule

Per this SEC order, Nasdaq’s proposed rule change (SR-NASDAQ-2026-009), as modified by Amendment No. 1, is approved on an accelerated basis. Nasdaq Rule IM-5101-4 provides that where a security exhibits trading activity that is indicative of potential manipulation, and the SEC has implemented a temporary trading suspension of that security pursuant to Section 12(k) of the Act (Section 12(k) suspension), Nasdaq may exercise its authority under Nasdaq Rule 5101 to delist the security when it determines that doing so is necessary to protect investors. Nasdaq would be permitted to exercise the discretionary authority even when the security and the listed company otherwise satisfy all applicable Nasdaq listing standards at the time of determination. For more information, see this TheCorporateCounsel.net blog post.

Corp Fin posts new CFI – Rights listings in business combinations

The SEC’s Division of Corporation Finance has posted new Securities Act sections corporation finance interpretation (CFI) 142.01, which addresses the contents of a registration statement of securities underlying rights that are to be listed on an exchange. For more information, see this TheCorporateCounsel.net blog post.

Question: A company seeks to list rights on a national securities exchange in connection with a business combination transaction without the underlying securities also being listed. As required by the exchange, the company must have an effective registration statement, prior to the rights being listed, that registers the issuance of the underlying securities upon exercise of the rights. Must the registration statement contain information regarding the specific transaction and the business to be acquired?

Answer: Yes. The registration statement must contain information about the contemplated business combination transaction and the business to be acquired.

Supreme Court validates SEC’s use of disgorgement without investor loss

Per this TheCorporateCounsel.net blog post, the US Supreme Court issued its decision in Sripetch v. SEC, in which it unanimously held that the SEC may obtain a disgorgement award from a defendant in an enforcement proceeding without a showing of pecuniary loss to investors. In his opinion for the Supreme Court, Justice Neil Gorsuch reviewed the history of the SEC’s use of the disgorgement remedy, the Supreme Court’s 2020 decision in Liu v. SEC limiting the agency’s use of disgorgement and federal legislative responses to that decision. Citing a variety of judicial precedent, Justice Gorsuch concluded that neither the Supreme Court’s decision in Liu nor traditional equitable principles required the SEC to establish pecuniary harm in order to use disgorgement as a remedy. For more information, see this SCOTUSblog post.

CapitalXchange offers current SEC rulemaking overview

In this CapitalXchange blog, Cooley’s Liz Dunshee explores the five recent SEC rulemakings (touching capital markets access, scaled disclosure accommodations, reporting cadence, climate disclosure and enforcement practice) and how they fit together and reflect growing momentum for the overarching goal of SEC Chair Paul Atkins to “make IPOs great again.”

SBTi releases finalized new corporate net-zero standard

Per this ESGtoday article, the Science Based Targets initiative (SBTi) announced the release of Corporate Net-Zero Standard Version 2.0, its update to its flagship standard to assess, certify and track companies’ decarbonization commitments and support science-based climate target setting. Among the key changes introduced with the new standard is the use of a “best-efforts” framework, enabling companies to remain in compliance with the standard even if targets are not achieved, with an expectation for companies to utilize “all available levers to drive emissions reductions,” and to be transparent about implementation barriers and mitigating actions, with the SBTi “acknowledging that factors outside a company’s control may affect progress.” See also this article from The Wall Street Journal.

CARB proposes revisions to SB 253 and deferral of reporting deadline

The California Air Resources Board (CARB) announced it is updating its regulatory proposal to defer the reporting deadline for entities to report Scope 1 and Scope 2 greenhouse gas emissions from August 10, 2026, to November 10, 2026. In addition, CARB will be proposing limited changes to the regulation to clarify certain requirements and will make these available for comment as part of a 15-day public comment period. A new proposed reporting deadline of November 10 will help ensure reporting entities have additional clarity following approval of the final regulation before reporting is due. For more information, see this ESG Dive article.

Nasdaq amends proposed $5 million market cap for continued listings

In January, Nasdaq filed a proposal with the SEC to adopt a continued listing requirement of at least $5 million market value of listed securities (MVLS). Since January, the SEC has extended the time to act on the proposal and posted an order instituting proceedings to determine whether to approve the proposed rule change. Now, the SEC has posted a new notice to solicit comments on a revised proposal from Nasdaq. Comments on the amended proposal were due July 10, 2026. To address comments previously received, Nasdaq amended its proposal by giving the Hearings Panel more discretion. Nasdaq proposes to modify the initial proposal, which would have prevented a Hearings Panel from reinstating a company that failed to maintain a minimum of $5 million MVLS. Instead, Nasdaq now proposes to adopt Listing Rule 5815(c)(1)(I) to provide that in the case of a company that received a Staff Delisting Determination due to a failure to maintain MVLS of at least $5 million under Rule 5450(a)(3) or 5550(a)(6), the Hearings Panel, where it deems appropriate, may grant an exception for a period not to exceed 180 days from the Staff Delisting Determination for the company to demonstrate that it meets all requirements for initial listing. For more information, see this TheCorporateCounsel.net blog post.

Enablement Risks for Method of Treatment Claims After Wyeth v. AstraZeneca

Fri, 17 Jul 2026 20:54:00 Z

On July 9, 2026, the US Court of Appeals for the Federal Circuit issued a precedential decision in Wyeth LLC v. AstraZeneca Pharmaceuticals LP, No. 2024-2325. The Federal Circuit affirmed the district court’s holding that the asserted claims were invalid for lack of enablement and granting AstraZeneca judgment as a matter of law to set aside Wyeth’s $107.5 million jury verdict. (Slip op. at 2, 19.)

Following the US Supreme Court’s 2023 decision in Amgen v. Sanofi, the trend toward increased scrutiny for enablement for life sciences patents has continued. The Wyeth decision has implications for patents claiming methods of treatment, which are frequently sought prior to the availability of clinical data.

The patents at issue

The Wyeth patents claimed methods of treating non-small cell lung cancer (NSCLC) that has become resistant to standard drug therapies, using a class of drugs called irreversible epidermal growth factor receptor (EGFR) inhibitors. (Slip op. at 2-3.)

The specification described three candidate drugs and provided experimental cell assay data (not in patients) showing that these compounds could kill cancer cells (the “in vitro” testing). (Slip op. at 3-4). The specification also listed broad daily dose ranges of approximately 1 to 1,000 mg. However, the patents taught that “[p]recise amounts of active ingredient … depend on the judgment of the practitioner and are peculiar to each individual” but contained no examples of any of these drugs administered to human patients. (Id. at 4.)

Claim construction: ‘Unit dosage’ requires more than in vitro activity

An exemplary claim recited a method “comprising administering daily to the patient ... a pharmaceutical composition comprising a unit dosage” of the claimed drug. (Slip op. at 3 (quoting ’314 patent 35:52-60).)

Before trial, the district court construed the term “unit dosage” according to the specification’s own express definition as “physically discrete units suitable as unitary dosage for the subject, each unit containing a predetermined quantity of active material calculated to produce the desired therapeutic effect in association with the required diluents; i.e., carrier, or vehicle.” (Slip op. at 5, citing Claim Construction Decision, 2023 WL 2683559, at *9 (emphasis added).) At the judgment as a matter of law (JMOL) stage, the district court explained the practical consequence of that construction in the context of the full claim was the requirement for an actual repeatable dosing regimen capable of producing a therapeutic effect in a human patient, not merely a compound shown to kill cancer cells in a laboratory setting. In other words, based on the claim language as construed by the court, the claimed dosage must work in a person, not just in the laboratory. (Id. at 6.)

Wyeth argued on appeal that the district court improperly imported clinical safety and efficacy requirements into the claims, contending the claims required nothing more than inhibiting EGFR activity and killing cancer cells in vitro. (Slip op. at 9.) The Federal Circuit disagreed because the claims, as construed, required the daily administration of a dosage “calculated to produce the desired therapeutic effect.” (Id. at 10-11.) This construction drew in patient-level efficacy as a required part of the claim. (Id.) According to the Federal Circuit, however, this does not mean Wyeth’s specification needed to demonstrate US Food and Drug Administration-approved safety or clinical optimality. Instead, the claim as construed required only that the claimed dosage be capable of producing a therapeutic effect when administered to a patient. (Id.)

The Federal Circuit also rejected Wyeth’s argument that the district court had amended its claim construction post-verdict, finding that the district court’s statements in its JMOL order were permissible clarifications of its original pre-trial construction. (Slip op. at 12.)

Enablement: The specification’s in vitro data could not bridge the gap to patient dosing

The Federal Circuit identified several interconnected failures in the disclosure of Wyeth’s specification:

No working patient examples. The specification provided no examples of any irreversible EGFR inhibitor being given to a human patient at a dose that worked. (Slip op. at 14.) The three candidate drugs described in the patents were tested only in in vitro experiments on cancer cells, and the specification gave no guidance on how to convert those lab results into a dose that could safely and effectively be given to a real patient. (Id.)
Broad, unvalidated dose ranges. The dose ranges disclosed in the specification – a per-body-weight range of approximately 0.5 to 1,000 mg/kg, and a total daily dosage range of 1 to 1,000 mg (preferably 2 to 500 mg), which the specification described as “general” and “projected” – came with no explanation of how those numbers were arrived at, how a skilled artisan would select among them for a given compound, or how they related to the claimed unit dosage calculated to produce a therapeutic effect in a (Slip op. at 15.)
Lab doses were toxic in humans. Testimony from Wyeth’s own experts and the inventors confirmed AstraZeneca’s unrebutted evidence that the doses at which at least two of the three described drugs (HKI-272 and EKB-569) appeared to work in the lab exceeded the maximum dose a human patient could safely tolerate. (Slip op. at 15-16.) In other words, the “effective” in vitro dose indicated by the disclosure would translate to a dose that would be dangerous in a person. For example, one of the inventors confirmed that “[t]he concentrations in the test tube are higher than those you can give to patients.” (Id. at 16.) The court acknowledged that the mere presence of nonworking examples in the specification will not always defeat a patent, citing Atlas Powder Co. v. E.I. du Pont De Nemours & Co., 750 F.2d 1569, 1576–77 (Fed. Cir. 1984). (Id. at 16.) Here, however, the nonfunctionality of several of the drug dosages described in the specification played a direct evidentiary role, especially in the absence of any affirmative examples of doses that did work in human patients. The Federal Circuit concluded that the disclosed doses could not serve as a starting point for patient treatment across the claimed category. (Id.)
Specification acknowledges its own gaps. Rather than providing a methodology for calculating a unit dosage, the specification stated that “[t]he skilled artisan is aware of the effective dose for each patient” and precise amounts “depend on the judgment of the practitioner and are peculiar to each individual.” (Slip op. at 17.) The Federal Circuit held that relying on skilled artisan knowledge cannot substitute for the obligation to supply the novel aspects of the claimed invention in the specification. (Id.)

The Federal Circuit emphasized that, in a complex and unpredictable field, the specification must provide greater guidance. (Slip op. at 17.) Because the specification identified only a starting point for further research, leaving the skilled artisan to conduct an iterative, trial-and-error process to identify operative dosing regimens, practicing the claims would require undue experimentation, and therefore the claims were not enabled. (Id. at 17-18.)

Importantly for life sciences innovators, the Federal Circuit acknowledged the generally accepted practice of claiming a method of treatment with a range of doses without providing clinical data from large human trials. (Slip op. at 19.) But it distinguished this general trend from Wyeth’s patents based on the specific facts relevant to those patents. For the court, the problem was not the absence of clinical data per se, but instead the specification’s failure to disclose any actual dosages suitable for patient administration, combined with unrebutted evidence that at least two of the three disclosed compounds could not be administered to patients because all therapeutically effective dosage levels across the disclosed ranges would exceed the maximum tolerated dose in humans. (Id. at 15-16, 19.)

The outcome in Wyeth provides a noteworthy contrast to the Federal Circuit’s recent opinion in Teva Pharmaceuticals International GmbH v. Eli Lilly & Co., No. 24-1094 (Fed. Cir. Apr. 16, 2026), which also concerned method claims in which a class of compounds were defined by their function – a class of humanized antibodies (humanized anti-CGRP antagonist antibodies) to treat headache. Unlike the Wyeth case, in Teva the Federal Circuit held that the claimed antibody class was well known in the prior art, the specification disclosed that all antibodies would work for the claimed purpose (which was unrebutted at trial), and the point of novelty was not the compounds themselves but the application of those compounds to treating headache. (Teva Pharms., No. 24-1094, at 13, 22–23.)

The different outcome in Wyeth seems to have turned on the inventive concept captured by the claims and the state of the specification: The claims at issue in Teva were directed to a novel therapeutic use (treating headache) with a known class of compounds, and the specification directly addressed the novel aspect of the invention (the therapeutic use). In contrast, the claims at issue in Wyeth were directed to a dosing regimen, and the specification left the novel and critical element (a dosing regimen capable of producing a therapeutic effect in a patient) insufficiently addressed, with most of the disclosed compounds proving inoperative at some of the very doses the patents claimed.

Practical implications

For a variety of reasons, life sciences companies need to file patent applications covering methods of treatment before clinical data is available, including publications on clinical trial registries, scientific presentations and fundraising. Companies in this situation should consider two practical points following Wyeth:

Be aware of how claim language and the specification can introduce unintended functional limitations. In Wyeth, claim scope created an unexpected enablement problem through the construction of a single term. The term “unit dosage” appeared in every asserted claim, and the district court’s construction –uncontested on appeal – required “a therapeutic effect.” (Slip op. at 5, 10.)
Avoid unnecessary language about uncertainty in the specification. In Wyeth, the specification’s own statements (“[p]recise amounts of active ingredient … depend on the judgment of the practitioner and are peculiar to each individual” and “[t]he skilled artisan is aware of the effective dose for each patient”) were used by the court as evidence that determining the claimed unit dosage was a complex and individualized task that the specification failed to address. (Slip op. at 17.) Patent drafters should consider avoiding unnecessary language overemphasizing dosing unpredictability or patient-by-patient variability because it can become evidence against enablement when broad method claims are later asserted.

However, life sciences companies should also exercise caution in attempting to enable method-of-treatment applications with speculative and excessive disclosure around doses and dosing regimens. The safe and effective dosing regimen for a particular drug and indication will be discovered in clinical trials, which may occur several years after initial in vitro data. Filing applications for dosing claims contemporaneously with such clinical results can lead to additional – and often more defensible – patents with later expiration dates, potentially adding valuable exclusivity to the commercial product.

Conclusion

Wyeth v. AstraZeneca reinforces the principle the Supreme Court established in Amgen v. Sanofi: Where a claim limitation requires dosage form and/or patient-level efficacy, the specification must provide the guidance necessary to achieve that outcome across the full scope of the claimed compounds. In vitro data, broad projected dose ranges and reliance on skilled artisan knowledge may not suffice.

UK OFSI Fines Tech Company £1M for Sanctions Breach

Tue, 14 Jul 2026 13:58:42 Z

On 26 May 2026, the UK’s Office of Financial Sanctions Implementation (OFSI) imposed a civil monetary penalty of £1,000,920.59 on Sabre Global Technologies Limited (SGTL), a UK-registered technology company, for breaches of UK financial sanctions.

This is the UK’s largest sanctions breach penalty since Standard Chartered was fined £20 million in 2020, and the first penalty that deals with sanctions circumvention under OFSI’s new settlement framework.

One week later, HMRC publicly named Petrofac Facilities Management Limited (PFML), following a £569,157 compound settlement, for breaches of the Russia sanctions regime, although no further details were released. Together, these cases indicate an increasingly assertive UK sanctions enforcement landscape, with penalties appearing to be on an upward trajectory.

The OFSI decision regarding SGTL confirms that software, data services and digital tools constitute “economic resources” under UK sanctions law which must not be made available to designated persons.

The decision also sets out detailed expectations on screening, escalation, self-reporting and senior accountability – and should be read as required reading for sanctions professionals across the technology sector.

Background

SGTL operates a global distribution system (GDS), providing entities within the travel industry with access to travel content from a broad range of travel suppliers. SGTL receives a booking fee from travel suppliers in exchange for distribution of their content via the GDS.

On 14 September 2007, SGTL entered into a contract with Ural Airlines, granting the airline access to its GDS and other related services. The agreement was extended multiple times, with the most recent contract update on 1 December 2021 and an amendment agreement on 1 September 2022. The contract was due to expire on 30 November 2022, though access to the GDS in fact continued until 6 December 2022. This contractual framework is a significant element of the case, as OFSI found that SGTL’s invoicing of Ural Airlines and instruction that funds be paid into its account constituted making funds available for the benefit of a designated person.

On 19 May 2022, Ural Airlines was designated under the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations). SGTL’s legal representatives notified SGTL of the designation on the same day.

Notwithstanding the designation, SGTL continued to provide services to and receive funds from Ural Airlines for a period thereafter. SGTL was repeatedly notified by its UK bank of sanctions concerns in relation to payments received from Ural Airlines. The bank flagged and held payments on 6 June, 27 June, and 5 July 2022, and SGTL’s US bank subsequently flagged a further payment in September 2022. Despite these repeated red flags, SGTL continued to explore alternative payment routes, including testing whether payments from Ural Airlines could be received via its US bank account. SGTL ultimately decided not to renew the contract when it expired on 30 November 2022.

OFSI identified three breaches of the Russia Regulations:

Making funds available for the benefit of a designated person.
Making economic resources available to a designated person.
Circumventing the prohibitions.

The total value of the breaches was assessed as £2,634,001.54 ($3,222,379.89), covering funds and economic resources in breach of regulations 13, 14 and 19 of the Russia Regulations.

Why this decision matters

1. Invoicing, instructing and receiving payment from a sanctioned party can constitute ‘making funds available’

SGTL’s contract with Ural Airlines created a debt obligation. OFSI found that by invoicing Ural Airlines and instructing that funds be paid into its bank account, SGTL made funds available to its bank for the benefit of a designated person.

OFSI found that Ural Airlines received a significant financial benefit because the payments served to discharge its financial obligations to SGTL.

This is an interesting, and perhaps surprising, interpretation of the asset freeze restrictions, since OFSI’s position is that making available funds to a third party for the benefit of the designated person can occur even though the payment is made by the designated person and relates to a debt addressed to the designated person. Unfortunately, no further detail is provided in the penalty notice of why OFSI has taken this approach or how it will seek to interpret this in other situations.

2. Digital services and software as a service (SaaS) products are within scope of ‘economic resources’

OFSI considered that, by enabling Ural Airlines to access and use the GDS platform, SGTL made an economic resource available. Platform operators should take note that providing access to a digital platform or service may itself give rise to sanctions risk.

OFSI explicitly confirms that intangible services – including software platforms, data services and digital tools – can constitute an “economic resource” for the purposes of UK sanctions regulations.

Under the UK sanctions framework, economic resources are defined broadly as assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but which can be used to obtain funds, goods or services. OFSI confirmed that a service which enables a designated person or entity to generate revenue, maintain operations or otherwise obtain an economic advantage may amount to making an economic resource available – regardless of whether that service is intangible or provided entirely digitally.

The decision is a useful reminder for technology companies, including SaaS providers, that deliver software platforms, data feeds, API access or other digital services to customers that the provision of their services can fall squarely within sanctions restrictions.

3. Circumvention will be treated as aggravating

During July and August 2022, SGTL explored alternative routes to receive funds. It engaged with its US bank to scope receiving payments from Ural Airlines into its US account in light of sanctions issues with its UK account. Internal emails show that, if a test payment succeeded, SGTL expected full outstanding GDS fees to be paid via this route.

On 21 September 2022, Ural Airlines sent a £176.48 ($200) test payment to SGTL’s US account.

OFSI’s decision confirms that attempts to restructure or reroute payment pathways to avoid the effect of UK sanctions – including by staging payments through third countries – will be treated as circumvention and may constitute a breach in their own right. Such conduct will be treated as an aggravating factor and will significantly increase the seriousness of any enforcement outcome.

4. UK-specific policies and procedures are required

SGTL’s sanctions documentation at the time focused on general procedures and US requirements, with limited coverage of UK-specific regimes. In addition, its third-party screening tool did not automatically flag the relevant designation to the compliance team, contributing to a delay in identifying and addressing the issue.

OFSI has emphasised that sanctions compliance frameworks must be specifically tailored to the UK sanctions regime. Thus, reliance on groupwide policies designed primarily for other jurisdictions (such as the US Office of Foreign Assets Control regime or EU sanctions) is not sufficient. For a comparison of US and UK economic sanctions authorities, see the joint OFAC-OFSI comparative overview published on 23 June 2026, produced under the OFAC-OFSI Enhanced Partnership established in October 2022, which outlines key similarities and differences between the regimes.

The SGTL penalty notice specifies that firms must ensure that:

Policies and procedures are current and address UK-specific requirements.
Sanctions screening systems are tested and verified to be working as intended.
There are robust escalation protocols for red flags, including blocked payments or notifications of concerns from banking partners.
Clear senior accountability exists at board and executive level for sanctions compliance.

5. Early and comprehensive self-reporting is essential

SGTL voluntarily self-reported the breach without prompting but provided only limited detail and continued servicing a designated person. It later cooperated fully with OFSI when prompted, and overall, this factor was treated as neutral (neither mitigating nor aggravating) by the OFSI when determining how seriously to view this case.

OFSI has reiterated the importance of prompt, comprehensive and detailed self-reporting of suspected breaches, as soon as reasonably practicable. Delays and incomplete submissions are likely to undermine any mitigation argument. In practice:

Firms should contact OFSI early, even where the full picture is not yet clear.
Where full disclosure is not immediately possible, firms should make an early partial disclosure, clearly stating that a further and fuller disclosure will follow.
Firms should provide a timeline for full disclosure and keep OFSI updated if that timeline is likely to slip.
Firms should not allow the process of taking legal advice – while important – to cause unnecessary delay in making initial contact with OFSI.

Key compliance actions

In light of this decision, we recommend that technology and digital services companies take the following steps:

Audit your customer base and product suite. Regularly review whether any existing or prospective customers are designated persons or entities under UK financial sanctions.

Review and update your UK sanctions compliance framework. Ensure your policies, procedures and training materials are specifically tailored to the UK sanctions regime.

Establish clear escalation protocols. Ensure that there are well-understood, documented escalation routes for any potential sanctions, and that these protocols survive personnel changes.

Assess your self-reporting readiness. Ensure your compliance and legal teams have a clear plan for engaging with OFSI promptly in the event of a suspected breach.

Take legal advice where uncertainty exists.

HHS and Congress Push to Streamline and Onshore Clinical Trials

Mon, 13 Jul 2026 14:40:48 Z

Conducting first-in-human clinical trials in the United States is often associated with significant cost, complexity and delay. There is a growing consensus among policymakers that the current US requirements are unnecessarily rigid and burdensome for early-stage clinical development. Companies often view foreign jurisdictions, such as Australia and China, as offering faster, more flexible pathways for initiating clinical trials. On June 22, 2026, the US Department of Health and Human Services (HHS) announced a coordinated, departmentwide effort – Operation TrialBlazer – to reverse that trend and restore American leadership in clinical research. As part of this initiative, the Food and Drug Administration (FDA) and other HHS agencies, including the HHS Office of Inspector General (OIG), are advancing reforms aimed at streamlining the clinical trial process, eliminating inefficiencies, increasing participation and improving transparency for biopharmaceutical companies and other stakeholders. Momentum for streamlining and improving the clinical trial process extends beyond the executive branch, with Congress also actively considering proposals to accelerate early-phase development, reduce administrative burdens and encourage sponsors to keep early-stage clinical research in the US. Companies, particularly small and mid-size biopharma companies, should closely monitor these initiatives and leverage this momentum to engage with FDA, OIG and other HHS agencies to help shape reform efforts.

Efforts to address a long-standing shift of early clinical research overseas

The migration of clinical research from the US to foreign countries is not a recent phenomenon. For example, in 2010, HHS reported that more than half of all clinical trial sites were located outside the US, and that 80% of marketing applications submitted to FDA contained data from foreign studies. In April 2026, then-FDA Commissioner Martin Makary noted that China had four times more Phase 1 trial initiations than the US since at least 2024, and that the average time between a pre-investigational new drug (IND) request and IND go-ahead is approximately 380 days in the US versus 220 days in China, with China having announced plans to reduce that timeline even further.

China is not the only country that has attracted early-stage research; Australia has also become a popular jurisdiction for initiating clinical trials. Australia’s appeal stems in part from its regulatory framework, which allows certain clinical trials to proceed using a streamlined notification process. These competitive pressures have not gone unnoticed. HHS agencies, including FDA and OIG, and Congress have begun taking concrete steps to reclaim the US’s position as the preeminent destination for early-phase clinical research.

FDA’s request for an expedited IND pathway

Before creation of Operation TrialBlazer, in an effort to reshore clinical trials, FDA had already asked Congress to create a risk-based expedited IND pathway for certain Phase 1 clinical trials. This pathway would serve as an alternative to the traditional IND process intended to reduce duplicative and time-consuming requirements that are not necessary to maintain safety and ethical standards. FDA recognizes that such a pathway is particularly important for smaller companies, which face proportionally greater barriers under the current framework. Those barriers that have contributed to the migration of preclinical and early Phase 1 research to jurisdictions like China and Australia. According to FDA’s request, the proposed pathway would be optional and risk-based and rely more heavily on existing preclinical evidence and validated alternative testing methods to accelerate initiation of US-based Phase 1 programs.

FDA RFI on expedited IND pilot program

Without waiting for Congress to act, FDA has also moved administratively to pilot a version of this approach. As part of Operation TrialBlazer, on June 24, FDA published a request for information (RFI) soliciting public comments on a proposed Expedited Investigational New Drug Pilot Program designed to shorten the time from drug identification to first-in-human Phase 1 clinical trials. The pilot would enlist a network of Qualified Research Institutions (QRIs), such as academic medical centers and contract research organizations (CROs), to partner with sponsors in developing and reviewing Phase 1 IND protocols. QRIs would provide advisory recommendations on the pharmacology/toxicology, clinical, and chemistry, manufacturing and controls (CMC) components of an IND submission, with the aim of improving submission quality and reducing the incidence of clinical holds. QRIs would also support parallel activities, such as Institutional Review Board (IRB) review and clinical trial site activation, while FDA retains full oversight and regulatory authority, including the ability to issue clinical holds, disqualify investigators and conduct inspections. The pilot also proposes a rolling IND submission process, which would allow sponsors to receive earlier and more frequent feedback from FDA. According to FDA, the pilot’s core objectives are to improve IND submission quality, reduce FDA review time, and accelerate the interval from nonclinical research to first-in-human study initiation. FDA is seeking input from sponsors, CROs, academic institutions, health networks/systems, IRBs, patient advocacy organizations, investors and other stakeholders on the pilot’s structure, scope and implementation.

Comments are due by July 22, 2026.

FDA AI initiatives

FDA has also been pursuing a related initiative that predated the June 22 HHS announcement. Nearly two months earlier, in late April 2026, FDA published an RFI on a proposed pilot program focusing on improving efficiency and decision-making quality within the existing Phase 1 trial framework. FDA sought input on how AI could support dose selection, safety monitoring, patient recruitment and go/no-go decisions while maintaining FDA’s existing scientific and regulatory standards. The fact that FDA subsequently launched a separate, more sweeping set of initiatives as part of the June 22 HHS announcement suggests the agency concluded that AI-enabled optimization of the current process, while valuable, is not sufficient on its own to close the competitiveness gap with countries like Australia and China. This gap is rooted in the regulatory process itself, which no amount of AI-driven efficiency within FDA’s existing framework can eliminate. The June 22 initiatives, by contrast, take aim at that structural gap directly. FDA received nearly 200 comments in response to the AI RFI, and the comment period closed on June 29, 2026.

OIG RFI on potential fraud and abuse barriers to clinical trial participation

As part of Operation TrialBlazer, OIG issued an RFI seeking public input “on whether any additions or modifications are needed to the safe harbor regulations under the Federal Anti-Kickback Statute [(AKS)] or the exceptions to the civil monetary penalty [(CMP)] provision prohibiting inducements to beneficiaries … for remuneration provided to individuals in connection with their participation in clinical trials.”¹

The inclusion of this RFI within HHS’s broader clinical trial reform framework reflects a recognition that fraud and abuse compliance uncertainty may itself be a barrier to advancing clinical research. To the extent such uncertainty exists and remains, it may undermine the administration’s broader goals of accelerating drug development, increasing participation in clinical research and expanding patient access to innovative therapies.

Clinical trial participation imposes real costs on patients, including transportation to and from trial sites, childcare, time away from work and other out-of-pocket burdens. Financial constraints may result in enrollment failure and participant dropout. These challenges are particularly acute in rare disease research, where enrollment difficulty is compounded by small patient populations. Further, as participants and/or trial sites may be, and often are, geographically dispersed, participants may need to travel substantial distances to reach a qualifying trial site. In such contexts, the ability to offer meaningful logistical and financial support to participants could be determinative of whether certain individuals are able to participate.

However, sponsors seeking to offer such support have faced uncertainty and persistent compliance questions. In the RFI, OIG notes that it has published 10 favorable advisory opinions over the past two decades permitting certain cost-sharing waivers or subsidization of certain federal healthcare program cost-sharing obligations for clinical trial participants in specific situations and circumstances, but that it has “not issued any advisory opinions or guidance relating to other remuneration provided to clinical trial participants, such as transportation costs, childcare costs, or stipends.”² In the absence of clear guidance, sponsors considering whether to offer such support face questions and uncertainty in seeking to assess whether a given arrangement may or may not be viewed as compliant. That uncertainty can have a chilling effect. As a result, sponsors potentially may either forego compensation programs entirely or limit them in ways that could contribute to or perpetuate enrollment challenges.

OIG’s new RFI is a step toward addressing these questions and the uncertainty that sponsors and other organizations currently face. OIG is seeking public input on a number of areas, including, among others:

Whether, and if so, how, clinical trial participation is meaningfully enhanced by providing appropriate remuneration to federal healthcare program enrollees.
Whether clinical trial sponsors, clinical trial sites or other organizations view the AKS and Beneficiary Inducements CMP as barriers to providing appropriate remuneration to clinical trial participants, and, if so, why.
The types and amounts, if applicable, of remuneration stakeholders may seek to provide to clinical trial participants to facilitate participation.
The fraud and abuse risks that may be associated with the offer and provision of such remuneration.
The types of arrangements necessary to provide such remuneration.
Safeguards that may be necessary or prudent to prevent fraud and abuse when clinical trial participants receive remuneration.

OIG states that it is seeking to identify ways in which it might modify or add new AKS regulatory safe harbors or new exceptions to the Beneficiary Inducements CMP’s regulatory definition of “remuneration” to address these considerations. Additionally, OIG seeks to identify other guidance it could publish or amend “to foster arrangements that facilitate clinical trial participation, while also protecting against harms caused by fraud and abuse.”³ The RFI also lists several specific questions for stakeholder input.⁴

Comments are due no later than 5:00 pm ET on August 24, 2026.

FDA draft guidance on substantial evidence of effectiveness

The June 22 HHS announcement also referenced a new FDA draft guidance titled, Demonstrating Substantial Evidence of Effectiveness for Human Drug and Biological Products. While this draft guidance addresses the evidentiary standard for drug approval broadly and not the IND process specifically, it is directly relevant to sponsors conducting early-phase trials in the US, as it signals FDA’s latest interpretation of the statutory standard for the data that will ultimately be required to support approval. This 2026 draft guidance revises a 2019 draft guidance and contains significant substantive updates reflecting FDA’s evolving views on topics such as externally controlled trials and Bayesian statistical analysis. More broadly, the 2026 draft guidance moves away from the rigid examples provided in the 2019 draft guidance toward a more comprehensive view of the overall development program, the broader context of the disease state, and the role of external and real-world evidence when assessing whether a sponsor has met the substantial evidence standard.

Perhaps the most notable example of this shift is the reorganization and reframing of the discussion around the number of clinical trials required to demonstrate effectiveness. While the 2019 draft guidance positioned two adequate and well-controlled clinical trials as the standard approach for demonstrating substantial evidence of effectiveness, the 2026 draft guidance reframes multiple clinical trials as one possible way that sponsors may meet this requirement depending on the needs of the drug development program. Likewise, the 2026 draft guidance expands the potential scenarios in which one adequate and well-controlled trial may be sufficient to meet the substantial evidence standard. Whereas the 2019 draft guidance organized regulatory flexibilities around three scenarios – life-threatening or severely debilitating diseases, rare diseases and situations where human efficacy trials are infeasible – the 2026 draft guidance does away with these distinct categories and instead states that the clinical context is critical to informing the approach to establishing substantial evidence of effectiveness. While regulatory flexibilities may still be warranted for a rare disease, those flexibilities may differ for a life-threatening rare disease with no current treatment options versus one that is less debilitating and/or has available treatment options.

Trial design is another area that received a significant update in the revised draft guidance. The 2026 draft guidance devotes considerable discussion to study designs, such as noninferiority studies and external controls, but expands upon the situations in which these designs can offer meaningful evidence of efficacy, consistent with FDA’s more flexible approach across the updated guidance. The guidance also notes that trial design elements, such as eligibility criteria, a control arm and supportive therapies that reflect standard of care, and a meaningful primary endpoint, should be selected to provide results that are relevant to patients and prescribers. FDA states that trial design is an area where the agency may exercise regulatory flexibility, including by relying on trial designs that generate less certainty regarding efficacy if warranted based upon a holistic view of clinical considerations.

One area where the 2019 and 2026 draft guidance overlap is in the categories of confirmatory evidence that may be considered to demonstrate substantial evidence of effectiveness. Specifically, FDA confirms that mechanistic evidence, natural history data and data from trials in a related disease or condition are examples of types of confirmatory evidence. With the 2026 draft guidance, FDA provides some additional confirmatory evidence considerations. For example, FDA cautions that natural history data used as confirmatory evidence should be separate from any data used as a control for a single and adequately controlled clinical trial. FDA also specifically addresses real-world data as a subset of natural history data that may be appropriate as confirmatory evidence in rare diseases or conditions, depending on considerations such as reliability and relevance of the data source and appropriateness of the study design and statistical methods for studies that leverage this data.

FDA is also accepting comments on the newly released Substantial Evidence of Effectiveness draft guidance. This comment period is an important opportunity for any company seeking drug or biologic approval and is especially relevant for sponsors developing treatments for rare, serious or life-threatening conditions, or those who may be planning to rely on single trial or novel trial designs to support approval.

Comments are due by September 22, 2026.

Bipartisan proposals on Capitol Hill

Along with these FDA and other HHS initiatives, Congress is developing its own proposals seeking to align with and compliment FDA’s recent actions. In May 2026, Rep. Jake Auchincloss (D-MA), a member of the House Energy and Commerce Committee, released a legislative discussion draft of the Cures in Care Initiative, which outlines a broad plan to modernize the US clinical trial system. The draft proposes to revamp FDA oversight of first-in-human and Phase 1 studies, including modernizing IRBs and streamlining Phase 1 processes. It also points to Australia’s notification process as a model and calls on FDA to pilot a third-party oversight framework, termed an “IND alternative pathway,” and issue guidance for pre-certifying third-party organizations.

Similarly, in a February 2026 roadmap of various FDA reforms, Sen. Bill Cassidy (R-LA), chair of the Senate Committee on Health, Education, Labor, and Pensions, proposed that the agency launch a pilot program testing expedited clearance of low-risk Phase 1 studies, similar to the regulatory framework used in Australia.

The House Appropriations Committee made a similar recommendation in a report accompanying its markup of the FDA Fiscal Year 2027 appropriations bill. The committee directed FDA to revise its IND processes and data requirements for initial human trials to streamline administrative requirements, reduce filing burdens and tailor the process and requirements to make them risk and trial phase appropriate. The committee also encouraged FDA to develop and implement a pilot program to test an Australian-style clinical trial notification system in the US.

While committee report directives and draft legislative language do not carry the force of law, they are powerful policy signals from Congress to FDA. These bipartisan, bicameral signals bear watching for future congressional action as the appropriations bills and Prescription Drug User Fee Act (PDUFA) reauthorization work their way through the legislative process.

Opportunities to shape reform efforts

These developments signal a rapidly growing momentum within the government to modernize and accelerate the clinical trial framework in the US. The FDA and OIG RFIs and FDA draft guidance, in particular, represent concrete and time-sensitive opportunities for sponsors and other stakeholders to provide input that can help shape the contours of future US clinical trial reform. For sponsors, especially small and mid-size biopharma companies, these comment periods present important vehicles for communicating ideas and perspectives that could meaningfully accelerate development timelines.

Cooley’s life sciences and healthcare regulatory team will continue to closely monitor these developments and their implications for companies across the clinical and commercial landscape. For any questions on how these proposals might affect your development timelines, how to engage with FDA, or how to submit comments in response to the RFIs or FDA’s guidance documents, please contact one of the lawyers listed below.

Cooley senior regulatory analyst Kelly Marco also contributed to this alert.

Notes

Medicare and State Health Care Programs: Fraud and Abuse; Request for Information Regarding the Federal Anti-Kickback Statute and Beneficiary Inducements CMP, 91 Fed. Reg. 37902 (June 24, 2026).
Id. at 37903.
Id.
Id. at 37904 – 37905.

Illinois Mandates Independent AI Audits: What Developers Should Know

Tue, 07 Jul 2026 19:40:28 Z

I. Illinois SB 315 signals next phase of AI regulation – from transparency to verification

Over the last several years, lawmakers in the United States and around the world have increasingly focused on regulating AI systems through transparency, documentation and internal risk management requirements.

Recent frameworks, such as California’s Transparency in Frontier Artificial Intelligence Act (TFAIA), New York’s amended Responsible AI Safety and Education (RAISE) Act and portions of the European Union’s AI Act, generally require developers to assess and disclose how they identify, evaluate and manage AI-related risks. Common obligations include transparency reports, system/model cards, risk assessments, governance frameworks and incident reporting.

Illinois’ recently enacted Artificial Intelligence Safety Measures Act (AISMA) builds on these existing frameworks by introducing a significant new requirement: independent verification. Rather than relying solely on developer-created documentation and self-reported compliance measures, AISMA requires covered large frontier model developers to undergo audits by independent third parties. This move reflects a broader shift in regulatory efforts from requiring companies to document how they manage AI risk to requiring them to demonstrate that those processes are actually operating as intended. This is a significant change from self-reported compliance, mirroring a trend in third-party audit requirements in content regimes like the EU’s Digital Services Act and South Carolina’s Age-Appropriate Code Design.

AISMA may represent the next phase of AI regulation – one focused not only on disclosure, but also on third-party verification.

II. Key elements of the law

Who does Illinois’ law apply to?

Developers responsible for the most advanced foundation models.

The law regulates “frontier models” (models trained using more than 10²⁶ floating-point or integer operations) and imposes obligations on frontier developers broadly. However, its most significant requirements fall on “large frontier developers” – those with annual gross revenues exceeding $500 million.

When does it go into effect?

January 1, 2028

What does the law require?

Mandatory framework: Large frontier developers must establish, implement, comply with and publicly publish a Frontier AI Framework that:

Describes how the developer incorporates national and international standards and industry best practices.
Defines and assesses catastrophic risk thresholds.
Applies mitigation measures to address potential catastrophic risks.
Reviews risk assessments and mitigations before deployment and significant internal use.
Uses third-party evaluators.
Updates and maintains its framework over time.
Protects unreleased model weights through cybersecurity controls.
Identifies and responds to critical safety incidents.
Implements internal governance processes.
Assesses catastrophic risks arising from internal use of frontier models, including risks associated with models circumventing oversight mechanisms.

Transparency report: Before deploying a new frontier model, or a substantially modified version of an existing model, a frontier developer must publish, among other things, the model’s release date, supported languages, output modalities, intended uses, applicable use restrictions and contact information for the developer.

Large frontier developers must also disclose summaries of catastrophic risk assessments, assessment results, involvement of third-party evaluators and other measures taken to comply with their Frontier AI Framework.

Developers may satisfy many of these disclosure requirements through existing system cards or model cards.

Ongoing reporting to regulators: Large frontier developers must provide the Illinois Emergency Management Agency and Office of Homeland Security (Agency) every three months (or on another reasonable schedule) with summaries of assessments regarding catastrophic risks arising from internal use of frontier models.

In addition, frontier developers must report any “critical safety incident” to the Agency and the Illinois attorney general within 72 hours after learning facts sufficient to establish a reasonable belief that such an incident has occurred, or within 24 hours to an appropriate authority where the incident “poses an imminent risk of death or serious physical injury.”

Independent audits: Developers must annually retain an independent third party to audit compliance with AISMA, which:

Evaluates whether the developer has substantially complied with AISMA.
Assesses the developer’s internal controls and governance processes.
Identifies any material deviations from statutory requirements.
Provides recommendations for improvement where appropriate.

Auditors must possess appropriate expertise, operate free from specified conflicts of interest and conduct their reviews in accordance with generally accepted auditing standards and best practices.

Within 30 days of receiving the report, the developer must publish a high-level summary of the audit findings, publish a redacted version of the audit report and provide the audit report to the Agency and the Illinois attorney general.

III. Illinois compared with California and New York

What do all three state laws have in common?

Illinois joins a growing number of states seeking to regulate the development and deployment of frontier AI models. Before Illinois enacted AISMA, both California and New York had enacted regulatory frameworks for frontier model developers. Although the details differ, California’s TFAIA and New York’s RAISE Act impose a common set of obligations, including AI framework requirements, transparency and reporting obligations, catastrophic risk assessments, critical safety incident reporting and enforcement by the state attorney general. Together, these laws reflect a broader trend toward requiring frontier model developers to document and disclose how they identify, assess and manage catastrophic AI risks.

Like California’s law, AISMA includes whistleblower protections and internal reporting mechanisms intended to surface AI safety concerns before they develop into critical incidents.

Like New York’s law, AISMA requires large frontier developers to make registration-style disclosures, identify responsible contacts and pay assessments supporting administration of the regulatory regime.

What ultimately sets Illinois’ law apart?

Against this shared backdrop, what distinguishes Illinois from both states is its audit requirement. Neither California’s TFAIA nor New York’s RAISE Act require covered developers to undergo independent audits of their compliance programs. Illinois moves beyond transparency toward independent auditing. The statute reflects the view that AI governance programs should not only be self-reported, but also undergo external verification.

IV. AI audits in the global context

Although Illinois is the first US state to require annual independent audits of frontier model developers, the concept of independent review and ongoing audits is not unique to AISMA. Similar themes are increasingly appearing in AI regulatory frameworks around the world. For example:

EU AI Act: Providers of certain high-risk AI systems must satisfy conformity assessment requirements and maintain technical documentation, risk management procedures and post-market monitoring processes – reflecting a similar push for documented and verifiable compliance measures.
EU Digital Services Act (DSA): Very large online platforms and search engines must conduct systemic risk assessments and undergo independent audits. Though not AI-specific, the DSA reflects the same regulatory shift toward requiring organizations to demonstrate governance effectiveness through independent, external review.
Vietnam’s AI law: Vietnam’s AI law takes a risk-based framework tied to particular AI systems based on their risk classification. High-risk AI systems must undergo conformity assessments, audits and independent testing before deployment and following significant changes. Medium- and low-risk systems are subject to key obligations, such as transparency and incident reporting. Both the Illinois and Vietnam frameworks reflect a similar underlying interest in independent review of AI systems.

Taken together, AISMA’s audit requirement may be less of an outlier than it initially appears. Instead, it represents a growing trend toward companies not only maintaining governance programs, but also programmatically demonstrating that those programs are operating effectively.

V. How AI audits differ from audits clients already know – and why that matters

Most companies are already familiar with financial, cybersecurity and privacy audits. While there are some common elements, AI audits are different in several important ways.

Unlike traditional compliance exercises, AI audits require organizations to evaluate and substantiate complex judgments regarding:

Evaluating and substantiating judgments about model safety and catastrophic risks.
Assessing internal governance processes and deployment decisions.
Demonstrating and verifying the actual effectiveness of risk mitigation measures.

This expanded evaluation scope creates both strategic advantages and potential legal vulnerabilities for frontier developers.

Opportunities include:

Independent audits can help organizations concretely demonstrate compliance with evolving AI governance and regulatory obligations – mitigating the risk of regulatory inquiries.
External verification increases confidence in model safety and security among regulators, customers, investors and the public.
Rigorous audits can identify weaknesses in internal risk management programs before they escalate into enforcement or litigation issues.

Risks include:

Audit reports may inadvertently become roadmaps for regulators by exposing governance deficiencies, unresolved risks or gaps between documented policies and actual practices.
Although these audits can improve governance, the findings may also become relevant evidence in regulatory investigations, enforcement actions or litigation.

VI. Practical steps companies should consider now

Although AISMA’s audit requirement does not take effect until January 1, 2028, or 90 days after an organization first qualifies as a large frontier developer, companies should begin their preparations well before the first audit cycle arrives.

Frontier labs looking to prepare for the audit should consider:

Assessing whether current or anticipated AI development activities could trigger audit requirements.
Building and operationalizing audit-ready governance structures, which can take a long time to design and launch.
Reviewing documentation practices with a view to maintaining consistent model evaluations, safety testing, risk assessments and incident response records.
Reviewing the role of legal privilege in audit processes.

While independent third-party audits represent a new frontier for AI regulation, navigating first-of-their-kind statutory audit frameworks is not new territory for Cooley. Combining market-leading AI legal acumen with proven, practical experience guiding clients through novel external audit regimes around the globe, Cooley serves as a trusted strategic advisor to technology companies on their most complex digital regulation challenges.

Navigating the SFC’s Operational Rulebook on Listed Closed-Ended Alternative Asset Funds

Tue, 07 Jul 2026 14:27:14 Z

On June 30, 2026, the Securities and Futures Commission (SFC) published Frequently Asked Questions on Listed Closed-ended Alternative Asset Funds (FAQs), accompanied by the Takeovers Executive’s Practice Note 28 (PN 28). Together, these instruments signal a shift of regulatory focus from the gating criteria of the February 2025 Circular – which established the baseline eligibility framework for listed closed-ended alternative asset funds (LAFs) – to the day-to-day operational requirements that govern LAFs after listing. For alternative asset managers, accessing Hong Kong’s retail capital markets via an LAF entails public company governance obligations, robust investor protection safeguards and exit rights enforceable by investors.

This alert provides a practical operational roadmap for alternative asset managers, cross-referencing the Code on Unit Trusts and Mutual Funds (UT Code), the Main Board Listing Rules (MBLRs), the Codes on Takeovers and Mergers and Share Buy-backs (Codes) and the Overarching Principles (OAP).

1. Structural thresholds

1.1 Segregation of liquidity profiles

The SFC enforces a strict alignment of liquidity profiles within umbrella entities. To prevent systemic cross-contamination, the SFC prohibits comingling LAFs with open-ended unlisted funds or conventional exchange-traded funds (ETFs) under a single umbrella. Open-ended structures require liquid portfolios to meet periodic redemptions, whereas LAFs warehouse private, illiquid alternative assets.

However, multi-strategy managers can establish multiple LAFs under a single, dedicated LAF umbrella, provided all sub-funds are closed-ended (e.g., separate sub-funds for private equity buyouts, private credit and infrastructure debt). This provides commercial economies of scale by consolidating establishment costs and regulatory filings on the Stock Exchange of Hong Kong (SEHK), subject to a case-by-case demonstration of robust asset and liability ring-fencing.

1.2 Master-feeder integration

International asset managers can deploy master-feeder architectures to channel Asian retail and institutional capital into established offshore master funds (e.g., in the Cayman Islands, Delaware or Luxembourg), enabling fund managers to list a Hong Kong feeder into an existing flagship strategy.

The master fund must be acceptable to the SFC. Principles and rules under the UT Code and the Circular on streamlined requirements for eligible exchange-traded funds adopting a master-feeder structure will generally be applicable to the feeder fund structure.
The listed Hong Kong feeder fund must mathematically align its investment restrictions, borrowing limits and valuation methodologies with the SFC retail product standards.
Managers must ensure feeder investors receive proportionate voting and economic rights equivalent to direct master fund investors, mitigating structural subordination.

1.3 Capital deployment window

Unlike institutional “blind pools” with multi-year capital calls, LAFs raise capital upfront via an initial public offering (IPO). To mitigate early-stage uninvested capital drag, the SFC permits an operational ramp-up period:

The investment period to build out the portfolio must generally not exceed one year from the IPO.
Uninvested capital during this 12-month window may be held in cash, cash equivalents or highly liquid money market instruments.
Sponsors must explicitly disclose the deployment timeline and interim cash-management strategy in offering documents (pre-listing assets must be disclosed as well), balancing rapid deployment against their fiduciary duty of rigorous due diligence under OAP General Principle 6 (diligence).

2. The governance mandate

Because LAFs are listed and available to retail investors, the SFC mandates a governance architecture that mirrors Chapter 3 of the MBLRs. These provisions must be hardwired into the LAF’s constitutive documents (trust deed, articles of incorporation or limited partnership agreement).

2.1 Board composition and independent oversight

The SFC requires independent oversight to police subjective valuations of illiquid assets and connected transactions. Constitutive documents must stipulate that at least one-third of the board (with an absolute minimum of three) are independent nonexecutive directors (INEDs). The structural application depends on the legal form:

Corporate LAFs: The requirement applies directly at the fund board level.
Noncorporate LAFs (e.g., unit trusts): The requirement is pushed upward to the board of the management company. This requires global managers to reconstitute the boards of their private Hong Kong management subsidiaries to include at least three INEDs.
Audit committee: An audit committee matching MBLRs standards must be established at the fund level (corporate) or management company level (unit trust) to scrutinize financial reporting, risk management and Level 3 asset valuations.

2.2 Enhanced unitholder rights

Departing from manager-friendly offshore private equity terms, the FAQs empower retail unitholders by enhancing minority control:

Requisition of meetings: Minority holders with a maximum threshold of 10% of voting rights can convene an extraordinary general meeting (EGM) and add resolutions.
Removal of management company: Can be achieved via an ordinary resolution. Crucially, the manager and its associates can vote their own units and count toward the quorum, allowing sponsors with significant co-investment stakes to defend against hostile removals.
Replacement manager and auditor: Appointing a replacement manager requires SFC’s prior approval and an ordinary unitholder resolution. Removing an auditor also requires an ordinary resolution, preventing managers from unilaterally dismissing auditors over valuation disputes.
Proxy mechanics: Constitutive documents must expressly entitle the Hong Kong Securities Clearing Company to appoint proxies, ensuring beneficial owners holding units through the Central Clearing and Settlement System can vote.

2.3 Contractual replication of SFO Part XV disclosures

To maintain market transparency regarding concentrated ownership, LAFs must replicate the substantial shareholder disclosure regime. For corporate LAFs, Part XV of the Securities and Futures Ordinance (SFO) applies statutorily. For noncorporate unit trusts, the trust deed must contractually replicate Part XV, forcing unitholders crossing the 5% ownership threshold to notify the manager and the SEHK. This identifies potential concert parties and alerts the market to hostile takeover threats.

3. Takeovers, mergers and application of Practice Note 28

To prevent regulatory arbitrage stemming from the fact that unit trusts and partnerships fall outside the strict statutory definition of a “company” under the Codes, the SFC mandates that constitutive documents for all LAFs must explicitly bind the fund, its managers and its investors to the Codes.

3.1 The REIT analogy under PN 28

PN 28 establishes that because LAFs share governance and yield-focused profiles with real estate investment trusts (REITs), the Takeovers Executive will treat them equivalently:

The 30% mandatory general offer (MGO) trigger: If an investor or concert party accumulates 30% or more of an LAF’s voting rights, they must launch a mandatory general offer to all unitholders at the highest price paid in the preceding six months.
Concert party aggregation: The Takeovers Executive will scrutinize relationships between parallel funds managed by the same sponsor to determine if their holdings must be aggregated against the 30% threshold.
Frustrating actions: Under Rule 4 of the Codes, once a bona fide offer is communicated, the management company is strictly prohibited from taking frustrating actions (e.g., issuing units or selling material assets) without unitholder approval.

This framework protects retail investors from creeping takeovers while restricting activist hedge funds from aggressively buying out discounts to net asset value (NAV) without triggering a public offer.

4. Share buyback mechanics

Closed-ended alternative funds routinely trade at a discount to NAV due to the illiquidity premium of their underlying assets. Share buybacks are indispensable tools to support secondary market prices, and the FAQs integrate the UT Code requirements with MBLRs Rule 10.06.

4.1 On-market versus off-market execution

On-market execution: Independent unitholders may grant the management company a specific approval or general mandate by ordinary resolution, permitting on-market buybacks up to a cap of 10% of total issued units/shares (excluding treasury shares) per financial year, enabling tactical interventions when the NAV discount widens.
Off-market execution: These require specific unitholder approval by independent holders. Where the buyback targets specific holder(s), approval must be by extraordinary resolution; where the buyback is structured as a general offer to all holders, approval may be by ordinary resolution. Both mechanisms mitigate the risk of related-party bailouts.

4.2 The dual-cap pricing mechanism

To safeguard fund assets and protect nonselling investors, repurchases under MBLRs 10.06 are bound by a strict dual-cap pricing mechanism. The purchase price cannot exceed the lower of:

A 5% premium over the average closing price of the units for the five preceding trading days on the SEHK.
The most recently published NAV per unit.

4.3 Pricing limits and manager duties

If an LAF trades at a 30% discount to NAV, the 5% premium cap means the manager executes the buyback at a deep discount to actual asset value. Buybacks at such prices are generally expected to be accretive to the NAV of remaining long-term holders.

Managers must execute a rigorous fiduciary assessment prior to any buyback, ensuring that the intervention will not impair working capital, breach the 30% borrowing limit or force a fire sale of illiquid assets.

5. Pre-listing asset injections, valuations and connected transactions

Valuing private equity, private credit or unlisted infrastructure relies heavily on subjective, Level 3 discounted cash flow models. The FAQs impose precautions against valuation conflicts.

5.1 Pre-listing asset injections and due diligence

When a sponsor seeds an LAF with assets transferred from its proprietary balance sheet, the valuation must be transparently disclosed in the offering documents and included in the audited financial statements.

If the listing agent assumes the dual role of sponsor, it is legally accountable for conducting independent due diligence on these underlying valuations.
The management company must establish and document valuation policies and processes, which should be subject to the oversight of the audit committee of the LAF.

5.2 Connected transactions (MBLRs Chapter 14A)

Asset transactions between an LAF and its management company, investment delegates or connected persons trigger compliance with the UT Code and the Fund Manager Code of Conduct, including the arm’s length and best interests requirements under 10.11 of the UT Code. Beyond OAP General Principle 4, which mandates that providers avoid conflicts of interest, the SFC may also, on a case-by-case basis with reference to MBLRs Chapter 14A, impose additional requirements tailored to the specific transaction. By way of illustration, such additional requirements may include:

Formal review and approval by the INEDs.
A detailed shareholder circular and/or an independent financial adviser’s fairness opinion.
Affirmative approval from independent unitholders at a general meeting; where applicable, the connected sponsor may be required to abstain from voting.

5.3 Co-investment and allocation policies

Where managers concurrently run parallel commingled funds or separately managed accounts, they must implement documented allocation measures. The LAF’s offering documents must outline the precise methodology used to distribute limited capacity private market opportunities (e.g., pro rata based on uncalled capital). Strict adherence to this policy must be disclosed annually in the fund’s audited report to ensure retail vehicles are not systematically disadvantaged in favor of institutional offshore flagship funds.

6. Investor exit rights and winding-up mechanics

A structural vulnerability of listed closed-ended funds is the NAV discount trap: When secondary market prices trade at a sustained and severe discount to underlying asset value, investors lacking a direct redemption mechanism are effectively locked in. The experience of an earlier-generation-listed, closed-ended vehicle in Hong Kong demonstrated this vulnerability. Where a fund held cross-border assets subject to foreign exchange controls or regulatory approval requirements, investor exit was further constrained because the orderly repatriation of underlying assets could not be guaranteed. The absence of a functioning market maker compounded the discount, and investors had no contractual mechanism to demand liquidation. The FAQs’ exit provisions are a direct regulatory response to these observed pathologies.

6.1 Unitholder-initiated voluntary winding up

Q&A 5(k) of the FAQs introduces a mandatory exit mechanism that fundamentally recalibrates the balance of power between retail investors and fund managers. The constitutive documents of every LAF must empower unitholders to initiate a voluntary winding up, delisting and withdrawal of SFC authorization by extraordinary resolution at any time after one year from the listing date. This right to mandatory withdrawal cannot be contractually disapplied or deferred beyond the initial one-year lock-up period.

Practically, this provision represents a significant departure from the traditional general partner/limited partner dynamic. Unlike institutional private equity where capital is commonly locked for 10 to 12 years without unilateral right of exit, the LAF regime now empowers the investors: If a fund trades at an insurmountable NAV discount, underperforms post-listing or fails to deploy capital efficiently within the mandated window, retail investors hold the right to initiate a voluntary winding up after 12 months, compelling a distribution of the underlying net assets.

6.2 Contested wind-downs and change of control

The legal right to wind up is distinct from the ability to execute a wind-down smoothly. Fund managers and investors should anticipate several friction points:

(a) Phased liquidation timelines. Where the underlying portfolio includes assets subject to regulatory approval prior to repatriation, for instance, assets held under QFII quotas that require tax clearance from PRC authorities, interim distributions may be made from offshore liquid assets while onshore positions remain suspended. This bifurcated realization process can span several months, during which investors receive only partial value and the fund remains in a protracted limited-operation phase.

(b) Regulatory waivers during wind-down. During liquidation, the SFC has demonstrated willingness to grant case-by-case operational relief from ongoing disclosure obligations that have become commercially impractical, including relief from continuous suspension announcements under UT Code 10.7, relief from updating offering circulars and publishing closing NAVs under UT Code 8.11, and permission to consolidate annual reporting with a final termination audit under UT Code 11.6. Managers should engage the SFC proactively at the earliest stage of a wind-down to identify and secure the appropriate waivers.

(c) Cost provisioning. Constitutive documents should require the manager to set aside an appropriate liquidation reserve from fund assets once a termination notice is issued. Failure to adequately discharge liquidation costs (including trustee fees, regulatory filings, tax advisers and asset disposal expenses) can erode the final distribution to unitholders. Where a voluntary winding-up resolution is requisitioned by a minority bloc or coincides with a change-of-control situation, the interaction with the Codes demands careful navigation. Once a bona fide offer for an LAF has been communicated, Rule 4 of the Codes prohibits frustrating actions by the management company without unitholder approval. In a contested wind-down scenario, managers must therefore assess whether any portfolio disposal, asset transfer or restructuring proposed during the liquidation period constitutes a frustrating action, and if so, whether independent unitholder consent is required before proceeding. The overlap between the UT Code wind-up mechanics and the Codes’ offer period restrictions creates a compliance window that must be managed with precision and care.

7. Integration with MPF pension capital

The commercial scalability of the LAF regime is significantly bolstered by the Mandatory Provident Fund Schemes Authority’s (MPFA) recent policy alignment. The MPFA issued guidance indicating a case-by-case willingness to approve “listed PE funds” for Mandatory Provident Fund (MPF) portfolios under Section 8(2)(c) of Schedule 1 to the Mandatory Provident Fund Schemes (General) Regulation.

The MPFA will evaluate whether an LAF maintains acceptable volatility, charges reasonable fees and adheres to core MPF investment restrictions. Inclusion on the MPFA-approved list could provide LAFs with access to long-term retirement capital, subject to case-by-case approval, potentially broadening the investor base beyond the retail segment.

Strategic implications for alternative asset managers

The updated regime is another major step toward the maturation of Hong Kong’s capital liquidity profile. The regulatory intent is unmistakable: to democratize access to private markets while imposing uncompromising, public market governance standards and robust exit mechanisms. For asset managers, the structural implications are profound.

The ability to launch multiple LAFs under a single, segregated umbrella presents an efficient capital-raising mechanism. However, the price of admission to the SEHK is full compliance with public company governance norms. Managers must prepare for board structures dominated by INEDs (even within private management subsidiaries running unit trusts), rigorous scrutiny of pre-listing asset valuations by listing agents, and the right of minority unitholders to requisition EGMs and, after one year from listing, to initiate a voluntary winding up.

Furthermore, navigating the Codes under PN 28 requires meticulous ownership monitoring. Sponsors must track concert party aggregations relentlessly to avoid inadvertently triggering a 30% MGO, while simultaneously utilizing MBLRs 10.06 buyback mechanics to surgically manage NAV discounts.

Ultimately, the success of the LAF regime will depend on how effectively managers can deploy capital within the mandated one-year window, how transparently they navigate connected transactions and whether they can actively manage secondary market liquidity to avoid structural traps. The regulatory architecture provides a rigorous pathway for alternative fund formation in Asia. The onus now shifts to the market to execute within these boundaries.

FCC Proposes Expansive E-Rate Program Review

Mon, 06 Jul 2026 13:55:00 Z

The Federal Communications Commission (FCC) adopted a Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking on June 25 on how it can ensure E-Rate-funded services are advancing educational outcomes. The FCC proposes to narrow the scope of services and equipment eligible for E-Rate support and to adopt new rules aimed at protecting children online and providing oversight of third-party consultants.

Evaluating E-Rate Program success

The FCC seeks input from interested parties on whether and to what extent the E-Rate Program has fulfilled its mission to ensure that schools and libraries in the United States “have access to advanced telecommunications services.” Citing the increase in broadband connectivity across schools nationwide, the FCC seeks comment on whether continued support for special construction of networks and managed internal broadband services is necessary. The FCC is also considering reducing support for internet access.

The FCC uses the National School Lunch Program eligibility and urban/rural status to determine an applicant’s discount rate. The FCC seeks comment on whether this is still an appropriate method for calculating support and whether it should limit E-Rate support to areas where applicants face the highest costs for E-Rate-supported services. In practical terms, such a change likely would reduce funding to suburban and urban areas and could direct more funding to rural areas. It also seeks comment on whether continued support for self-provisioned network construction and dark fiber is necessary, given private investment and other federal infrastructure funding programs, such as the Broadband Equity, Access, and Deployment (BEAD) program.

Children’s safe use of E-Rate-funded services

Under E-Rate Program rules, applicants must certify that the services requested through the program will be used primarily for educational purposes. The FCC seeks comment on how it can ensure that E-Rate-funded networks and services are being utilized for these purposes, and also requests input on the measures schools and libraries are taking to limit screen time.

Reexamining CIPA

The FCC currently interprets the Children’s Internet Protection Act (CIPA) restrictions to apply only to the use of devices owned by schools or libraries receiving E-Rate support for internet access, internet service or internal connections. The FCC seeks comment on this interpretation. The FCC also seeks comment on whether social networking sites are “harmful to minors” under CIPA and whether the FCC can impose additional protections to limit screen time.

Strengthening oversight of consultants and consulting firms

Consultants and consulting firms support E-Rate Program applicants across all phases of the program, including assisting with the submission of FCC Form 471 applications, responses to program integrity assurance review and audit inquiries. The FCC seeks to prevent the potential for fraud due to consultants’ influence on the competitive bidding process and lack of direct oversight by the Universal Service Administrative Company or the FCC.

Defining ‘consultant’

The FCC proposes defining a “consultant” as “any non-employee working on behalf of a school, library, consortium that includes an eligible school or library, or service provider that participates in or is seeking to participate in the E-Rate program and who assists the school, library, consortium that includes an eligible school or library, or service provider, whether or not for a fee, with any aspect of participating in the E-Rate program, including, but not limited to, the application, competitive bidding, or disbursement processes.”

The FCC seeks comment on whether the proposed definition should exclude certain individuals, such as certain nonemployees working on behalf of service providers in the ordinary course of their commercial relationship (e.g., channel partners, resellers, agents, authorized dealers). It also asks for comment on whether there is anything unique about the service provider-channel partner relationship and how channel partners are compensated that warrants excluding them from the definition.

Consultant certification and registration

The FCC proposes requiring service providers to submit an annual consultant certification and disclosure form and establishing a consultant registration database for individual consultants. The certification would require consultants to certify compliance with E-Rate Program rules.

Prohibiting percentage-based fee arrangements

The FCC is concerned that fees based on a percentage of money received under E-Rate may be contrary to the efficient use of limited funding and create incentives for consultants to encourage applicants to request more E-Rate funding than needed. The FCC proposes, and seeks comment on, strict prohibition on applicants and service providers from entering into any fee arrangement based on a percentage of the E-Rate contracts with and/or disbursements to the applicant or service provider the consultant represents.

Lowest corresponding price (LCP)

The LCP rule requires service providers to offer equipment and services to E-Rate eligible schools and libraries at prices less than or no higher than the lowest price the service provider charges similarly situated nonresidential customers for the same or similar equipment or services. The FCC seeks to clarify the scope and meaning of the rule and invites comment on whether it should modify the E-Rate rules to deter violations of the LCP rule.

For more information on the proposed rules and the potential impact, please reach out to one of the Cooley lawyers listed below.

Show Me the Money (or the Wage Range): New State Pay Transparency Laws

Mon, 06 Jul 2026 07:00:00 Z

Several states recently enacted new pay transparency laws imposing salary history bans, wage range disclosures, recordkeeping and other obligations on employers. Below is a summary of key provisions in Virginia, Maine, Connecticut and Delaware, along with recommended compliance steps.

Virginia: Salary history ban, wage range disclosure and private right of action

Effective July 1, 2026, Virginia employers must disclose the wage or salary range in all public and internal job postings (including promotions and transfers). Notably, the law has no minimum employee threshold and broadly applies to “employers,” defined in the state Labor Code as any entity “doing business in or operating within this Commonwealth who employs another to work for wages, salaries, or on commission.”

The range (minimum and maximum wage or salary for the position) must be set in good faith by reference to applicable pay scales, prior ranges, equivalent-position salaries or the budgeted amount. The range’s breadth is relevant to whether it has been set in good faith. In addition, employers are also prohibited from seeking or relying on an applicant’s wage or salary history, except where voluntarily disclosed, in which case the employer may use it only to support a higher offer consistent with federal and state equal pay laws. Unlike some other pay transparency laws, the law does not require a description of benefits in postings. It is unclear whether the law’s pay disclosure requirements cover remote positions that could be performed in Virginia or only positions physically performed in Virginia.

The law provides for attorney general enforcement and a private right of action. For attorney general enforcement, employers may face civil penalties of up to $1,000 for a first violation and up to $5,000 for subsequent violations, plus legal and equitable relief. For the private right of action, an aggrieved individual must sue within one year. In this case, for posting or good-faith range violations, the individual must first give the employer a 15-business-day written cure period; if the employer corrects the posting, no action may be brought. A written notice received from any person relating to a particular posting constitutes adequate notice for the duration of such posting. Employees may recover actual damages, plus legal and equitable relief.

Maine: Wage range disclosure and recordkeeping

Effective July 29, 2026, Maine employers with 10 or more employees must include the prospective pay range in all job postings, whether made directly or through a third party. Commission-only positions, however, need not include the range, but must indicate that the position is commission-only. The “range of pay” means the range the employer anticipates relying on when setting wages, determined by reference to:

Any applicable pay scale.
Previously determined range of wages for the position.
Actual range of wages for those currently holding equivalent positions.
The budgeted amount for the position.

Upon request, employers must also disclose to current employees the pay range for their position. Employers must maintain records of each position and the employee’s pay history for the duration of employment and three years after termination. The Maine Department of Labor will enforce the law.

Connecticut: Existing obligations expanded to include upfront wage ranges and benefits

Effective October 1, 2026, Connecticut’s HB 5003 expands existing pay transparency requirements, which currently only require disclosure of wage ranges in certain circumstances. Under HB 5003, which broadly applies to all employers regardless of size, employers must now include the wage or wage range and a general description of benefits in all internal and public job advertisements. The “wage range” must be set in good faith and may include references to any applicable pay scale or previously determined range for the position. “Benefits” include health insurance, retirement benefits, fringe benefits, paid leave and any other compensation other than wages offered with the position. HB 5003 also clarifies that the law covers positions performed in Connecticut and positions where the employee works outside the state but reports “directly to a supervisor, office or other worksite located within the state.”

Existing disclosure requirements for applicants and employees have also been expanded. For applicants, if the position has not been advertised, employers must provide the wage range and general description of benefits upon the earlier of the applicant’s request, or before any discussion of compensation or offer is made. For employees, employers must provide the wage range and benefits information upon hire, upon a change in position or upon the employee’s first request.

The law also expands anti-retaliation protections to cover refusal to interview, hire, promote or retain employees who exercise their rights under the law. Private actions must be brought within two years, and punitive damages are no longer recoverable in such actions.

Delaware: Wage range disclosure and recordkeeping

Effective September 26, 2027, Delaware employers with more than 25 employees must disclose the hourly or salary compensation or hourly or salary compensation range and a general description of benefits and other compensation applicable to the position in all internal and external job postings. The range must reflect the minimum to maximum pay for the position, set in good faith by reference to any applicable pay scale, previously determined range, equivalent-position salaries or the budgeted amount. The breadth of the disclosed range is a factor in assessing good-faith compliance. The law covers jobs located in Delaware and noninternational remote positions offered by Delaware-based employers. Notably, the law does not clarify whether the 25-employee threshold includes only Delaware-based employees or also those located outside the state.

Commission-based roles must disclose that fact but are not required to include a wage range, while tipped roles must disclose that fact and the base wage or range. If a posting was not made available to an applicant, the employer must provide the range and benefits description before any offer or compensation discussion and at any time at the applicant’s request. Temporary or immediate-hire positions are exempt from wage range disclosure obligations, with the Department of Labor tasked with promulgating regulations for these job opportunities necessitating immediate hire. Employers must retain job descriptions and salary history for each employee for at least three years. Employers are not liable for job postings that are digitally replicated or reposted by third parties without their consent. The Department of Labor will enforce the law. For a first offense, employers will receive a written warning; subsequent offenses carry civil penalties of $500 to $10,000 per violation.

Next steps

Employers operating in Virginia, Maine, Connecticut and Delaware should take the following steps to ensure compliance:

Audit job postings. Confirm that all postings for covered jurisdictions include good-faith compensation ranges and, where required, benefits descriptions.
Update salary history practices. If not done already, eliminate wage history inquiries from applications, interview protocols and recruiter instructions, and train hiring managers accordingly.
Establish recordkeeping protocols. Maintain job descriptions, compensation ranges and employee pay histories for the required retention periods.
Map jurisdictional coverage. Identify which positions are covered under each state’s law, with careful attention to remote work positions.
Strengthen anti-retaliation compliance. Where applicable, train managers and supervisors on the anti-retaliation protections under each law, including prohibited conduct, such as refusing to interview, hire, promote or retain employees who exercise their rights.
Monitor guidance and implementing regulations. Several of the new laws leave important implementation questions unanswered, and agency rulemaking or regulatory guidance may provide further clarity. Employers should track developments as new guidance emerges.
Monitor pay data reporting developments. The Equal Employment Opportunity Commission (EEOC) recently proposed eliminating EEO-1 Component 1 pay data reporting, which may prompt states and localities to enact their own workforce data collection requirements, and some already have. For example, Massachusetts’ pay transparency law requires employers required to file EEO-1 reports with the EEOC to also submit those reports to the state annually, and New York City recently enacted a multistage pay data reporting and pay equity study law, which will require large employers to report pay data to a designated city agency. Other jurisdictions, including Colorado, have enacted or proposed similar measures. Employers with multistate operations should monitor this evolving landscape closely and build state-level reporting compliance into their broader pay equity programs.

If you have questions about pay transparency laws or are interested in conducting a privileged pay equity audit, please contact the Cooley employment team.

Small State, Big Bite: What Sets Vermont’s New Privacy Law Apart

Tue, 30 Jun 2026 20:32:00 Z

Vermont became the 23rd state to enact a comprehensive consumer privacy law with the Vermont Data Privacy and Online Surveillance Act (VDPOSA), which was signed into law on June 16, 2026. At a high level, the VDPOSA takes the now-familiar US state law approach of a controller/processor framework with consumer rights. But it also includes a number of more expansive and distinctive provisions – such as low applicability thresholds for sensitive data and stand-alone provisions for consumer health data – that put it alongside Connecticut at the more aggressive end of the state consumer privacy law spectrum. As a result, despite Vermont’s small size, companies may need to reevaluate and update their multistate privacy compliance programs to account for these new requirements from the Green Mountain State.

Below, we describe key features of the VDPOSA and what companies should do to evaluate and update their compliance status before the law takes effect on January 1, 2028.

Low applicability thresholds

The VDPOSA’s general applicability thresholds encompass companies that:

Control or process personal data for at least 35,000 Vermont residents.
Control or process sensitive data for at least 3,000 Vermont residents.
Offer for sale in trade or commerce personal data of at least 3,000 Vermont residents.

The regular personal data threshold of 35,000 residents is not particularly low relative to Vermont’s population. However, the VDPOSA’s thresholds for sensitive data and sales of personal data are more aggressive than similar laws in most other states. Vermont does not go as far as Connecticut, whose similar thresholds are triggered by processing any amount of sensitive data or selling any amount of personal data, but its thresholds of 3,000 are still quite low. As a result, they could easily ensnare companies that are handling sensitive data or selling personal data at any sort of scale, particularly given the law’s broad definitions of “sensitive data” and “sale.”

Consumer health data

The VDPOSA also includes consumer health data protections that only a few other states – such as Connecticut via its consumer privacy law, Washington via its stand-alone My Health My Data Act and Nevada’s similar law – have enacted laws to protect. Companies that handle any amount of consumer health data must meet the law’s provisions related to such data, regardless of whether they meet the general VDPOSA thresholds discussed above.

The law’s requirements for consumer health data include requiring an affirmative opt-in consent before selling, or offering to sell, consumer health data and prohibiting geo-fencing within 1,850 feet of any healthcare facility (for the purpose of identifying, tracking, collecting data from or sending any notification to consumers regarding their health data). The VDPOSA also requires a company’s employees and contractors to be subject to a contractual or statutory duty of confidentiality before accessing consumer health data. Companies processing consumer health data must ensure that they comply with these requirements, which may also require updating existing applicable contracts to include a contractual duty of confidentiality.

Due to the VDPOSA’s broad definition of consumer health data, and the relevant obligations being triggered if a company handles any amount of consumer health data, companies could easily become subject to these requirements, even if they do not think of themselves as a healthcare-related business.

Expansion of sensitive data and additional obligations

As referenced above, the VDPOSA’s definition of sensitive data is, like Connecticut’s, one of the broadest among the 23 state consumer privacy laws. For example, Vermont includes financial account numbers with login credentials and certain government-issued identification numbers as sensitive data. Vermont also – similar to California, Colorado and Connecticut – treats neural data as a type of sensitive data, albeit limiting it only to data generated by the central nervous system, instead of both the central and peripheral nervous systems. Vermont also follows recent privacy laws’ trend of explicitly including nonbinary or transgender status as sensitive data.

In addition to the VDPOSA being triggered by a company’s control or processing of sensitive data of only 3,000 Vermont residents, handling such sensitive data triggers heightened obligations, including a requirement to obtain affirmative opt-in consent from consumers before processing their sensitive data. Additionally, Vermont requires companies to only process data that is necessary in relation to the purpose they disclose to consumers when they collect their data, and to obtain opt-in consent from consumers before selling any sensitive data.

Companies should assess their sensitive data collection and disclosure practices to ensure that their handling of data elements treated as sensitive data in Vermont complies with the VDPOSA.

Transparency about AI training

Reflecting recent regulatory and legislative concerns about AI, Vermont, like Connecticut, imposes a transparency obligation on companies regarding large language models (LLMs). Companies must include, in their privacy notice, a statement disclosing whether they collect, use or sell personal data for the purpose of training LLMs. For the many companies that leverage personal data in training their AI models, or sell personal data to train LLMs, this obligation will likely require updates to their current privacy disclosures and could generate additional consumer friction.

Broadening the right to access

Vermont has followed the lead of Connecticut and Minnesota in expanding a consumer’s right to access information about a company’s handling of their personal data. Under the VDPOSA, a consumer can obtain a list of third parties to which the company has sold the particular consumer’s personal data – or, if the company does not maintain this list, it must instead provide the consumer with a list of all third parties to which the company sells personal data of consumers generally. Even if companies take the latter, less granular approach that is not specific to the particular consumer making the access request, for many companies preparing to honor such requests is likely to require nontrivial back-end data mapping and other compliance work.

Derived data

Data derived from other information about a consumer is commonly understood to be personal data. However, the VDPOSA goes a step further by including derived data as a stand-alone defined term and explicitly including it as a type of personal data.

Enforcement and cure period

The VDPOSA does not contain a private right of action, so like most other state consumer privacy laws, it will be enforced exclusively by the state attorney general. Similar to some other state laws, Vermont also includes a 60-day cure period for a limited time following the law’s initial rollout – between January 1, 2028, and June 30, 2029 – to help businesses ease into compliance with the VDPOSA.

Interestingly, Vermont’s legislators also included a statement that if additional resources are not provided to the Office of the Attorney General to enforce the VDPOSA, then the General Assembly may consider adding a private right of action. This statement is unique among state consumer privacy laws, and the addition of a private right of action would represent a seismic shift in enforcement and potential exposure for companies. However, it appears unlikely that such a private right of action will make it into law in Vermont, as it would undoubtedly face vociferous opposition from industry.

What should companies do?

Due to Vermont’s relatively aggressive and distinctive provisions for certain types of personal data and activities, companies should work closely with privacy counsel to assess potential exposure under the VDPOSA, as well as similar provisions under Connecticut’s amended consumer privacy law. Relevant steps should include:

Assess whether you are in scope of the VDPOSA. Vermont’s relatively low and distinctive thresholds for certain activities – such as selling personal data or handling sensitive data or consumer health data – will bring many companies within scope of the law. Companies should carefully assess whether they are engaging in such activities, particularly given the broad ways that terms like “sensitive data,” “consumer health data” and “sale” are defined under the VDPOSA.
Revisit your sensitive data and consumer health data practices and obligations. Vermont includes many additional data elements as sensitive data and expands companies’ obligations for handling of sensitive data. It also has separate obligations that trigger if a company handles any amount of consumer health data (which is also defined as a type of sensitive data). These obligations related to specific data types may require additional compliance efforts.
Update privacy notices. Vermont requires companies to disclose in their privacy notice whether any personal data is collected, used or sold for training LLMs. Companies should also review their privacy notice for other updates needed to address the VDPOSA, such as whether their disclosures about their handling of sensitive data are accurate under the VDPOSA’s broad definition of that term.
Track data flows for sales of personal data. Under the VDPOSA, consumers have the right to obtain a list of all third parties to which their personal data is sold, so companies should conduct internal data mapping and similar exercises to ensure that they can fulfill this obligation. Companies also need to understand their personal data sales to assess whether they meet the VDPOSA’s applicability thresholds, one of which triggers if a company sells personal data of at least 3,000 Vermont residents.

Summer Doldrums – or Time to Think About 2027 Executive Compensation Programs?

Tue, 30 Jun 2026 13:23:31 Z

‘Let’s go surfin’ now
Everybody’s learnin’ how
Come on and “comp safari” with me!’

School is out, and vacations are in full force. At the risk of throwing cold water on hot summer fun, one question you nonetheless should be asking yourself now as a professional responsible for executive compensation is, in the fall, what will you wish you had done last summer? Some more surfing? Of course. But that still leaves enough time to get ahead of the compensation curve so that, when November rolls around, you’re well clear of where you need to be (and perhaps even feeling a bit smug) instead of wishing there were just a couple more weeks to prepare.

And so, what does that type of summer reading list look like? The most logical first step probably is to look at your compensation committee meeting checklist and identify those items that would benefit from a head start, even (and perhaps especially) those items that are not fully ripe for some time, which could include things like the following:

Evaluate how in-flight 2026 compensation programs are faring, and, as a result, whether there may be reason to give early thought to changes for the 2027 programs.
Evaluate whether the existing programs are resulting in any unanticipated risks due to changes in economic and geopolitical circumstances since grant.
Evaluate whether new-hire practices remain generally appropriate to avoid undue scrambling at the time of hire.
Evaluate the adequacy of share reserves given dilution projections so that you can start marshaling support for an increase.
Consider whether any additional clawback protections may be appropriate considering your circumstances.
Evaluate the adequacy of compensation governance procedures generally and whether changes should be put in place for the coming compensation season.
Give thought to whether the annual proxy disclosure could benefit from a fundamental refresh, which is a notoriously time-consuming exercise and ill-fitted to a pivot late in the year.
Make sure any annual stockholder outreach is on track and preferably ahead of pace, whether driven by reason of say-on-pay results or otherwise.

Of course, if you don’t already have a compensation committee meeting checklist, one thing that should be near the very top of your summer list is to develop one. And, for companies that do have a checklist, another item for consideration is whether any changes in content or timing are appropriate.

One of the best ways to do that is to find time for an informal meeting with the compensation committee chair to get their views on what is and is not working and what might be best handled differently. Having that meeting when there actually is time for quiet reflection will be most effective and likely also greatly appreciated by the chair.

That also might give rise to discussion about the need for collateral actions that could be scheduled for the fall, such as committee member education sessions about, for example, the status of the proposed executive compensation disclosure rule changes, shifts in market practices and any other noteworthy trends.

In a similar and complementary vein, a reach-out to your compensation consultant (if you have one) to get their views on the foregoing and any other items they see as important to the coming compensation season will better position you to address those matters when the time comes.

Finally, similar considerations to all of the foregoing apply where a compensation committee has been delegated responsibilities that often are lodged with other board committees, such as succession planning and human capital issues generally.

* * *

Sorry to bum you out when all you want to do is surf and then surf some more, but it’s just a word to the wise: A little time found and spent now likely will save you a lot of time later and result in a much smoother process when time is short and you are wishing it were still the dog days of summer.

Cooley’s compensation and benefits group is ready to help you craft an efficient review of the type contemplated here so that you still have plenty of time to rejoice in those summer doldrums. For our friends attending the 2026 Society for Corporate Governance National Conference in Nashville from July 7 to 10, please reach out – we’d love to connect with you!

What Employers Should Know About Washington’s New Ban on Noncompete Agreements

Mon, 29 Jun 2026 07:00:00 Z

On March 23, 2026, the Evergreen State became the latest state to enact a near wholesale ban on all employment noncompete agreements, effective June 30, 2027. The new law has significant implications for employers – voiding existing agreements retroactively, broadening the definition of what constitutes a now banned noncompete (including certain repayment agreements, such as sign-on or retention bonus agreements) and narrowing permissible nonsolicitation agreements. Below is a summary of the key changes, what remains permissible and steps employers should take to prepare.

The recent history and current landscape of Washington’s noncompete law

Washington’s crackdown on noncompetes began in 2020, when the state imposed restrictions – including a minimum compensation threshold for entering into a noncompete (equal to $126,858.83 as of January 1, 2026); an 18-month noncompete duration limit; a “garden leave” provision requiring employers to pay base salary during enforceable post-layoff periods; a prohibition on adjudication outside Washington or application of choice-of-law principles or substantive law of any jurisdiction other than the state of Washington; and moonlighting and anti-poaching provisions.

Initially, the restrictions applied only to traditional noncompetes and not to:

Confidentiality agreements.
Agreements not to solicit an employee to leave an employer.
Agreements not to solicit a current or former customer of an employer to cease or reduce the extent to which it is doing business with the employer.
Certain restrictions in connection with the sale of a business.

In 2024, the state again expanded its restrictions on noncompete agreements, broadening the definition of noncompetes to include agreements that directly or indirectly prohibit accepting or transacting business with a potential customer, clarifying that the customer nonsolicitation exception applies only to current customers. Further, the amended noncompete law narrowed the sale-of-business exception and required employers to provide notice of a noncompete “no later than the time of the initial oral or written acceptance of the offer.”

Washington’s new near-total ban

In enacting HB 1155, the legislature found that earlier reforms “did not go far enough,” citing that noncompetition covenants “restrict workers’ mobility, impede efforts to correct inequities, and significantly suppress workers’ wages across all sectors.” Washington joins several other states that have banned noncompetes, including California, Minnesota, North Dakota and Oklahoma.

Scope of the prohibition

The new ban voids nearly all noncompetes regardless of an employee’s salary or when an employee entered into the noncompete agreement. Similar to California’s law on noncompetes, Washington’s amended noncompete law defines a noncompete broadly as “every written or oral covenant, agreement, or contract that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind.” As of June 30, 2027, employers are prohibited from entering into, attempting to enter into, enforcing, attempting to enforce or threatening to enforce a noncompete. Employers will also be prohibited from representing that an employee or contractor is subject to a prohibited noncompete covenant (to such employee, contractor or any third party).

Repayment agreements included in prohibition

Following the recent trend on restricting certain repayment agreements (e.g., New York, California), Washington also joins the bandwagon by expanding the definition of a noncompete to also include any agreement that “threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.” As a result of this expanded definition, agreements requiring repayment of retention bonuses, advanced payments or similar benefits upon departure may constitute prohibited noncompetes. Employers should review any such repayment agreement or provision to determine whether they fall within this expanded definition.

The law applies retroactively: All existing noncompete agreements, including repayment agreements, are void and unenforceable as of the effective date, regardless of when they were signed. However, legal proceedings filed before the effective date remain governed by the prior version of the law.

Notice requirement

Similar to California’s AB 1076 playbook, which required employers to notify current and former employees that noncompete clauses in their agreements were void, HB 1155 imposes its own notice requirement. By October 1, 2027, employers must make “reasonable efforts” to provide written notice to all current and former employees and contractors with active noncompetes that their agreements are void and unenforceable. The legislative history of HB 1155 does not clarify what constitutes a “reasonable effort” to provide written notice. However, to err on the conservative side, employers may consider providing both physical mail and email notice to current and former employees that any active noncompete clauses in their agreements are void and unenforceable.

Permissible covenants

The following provisions are excluded from the noncompete ban:

Nonsolicitation agreements: Nonsolicitation agreements remain enforceable in limited circumstances. Nonsolicitation of current employees is permissible and includes agreements prohibiting solicitation “of any employee of the employer to leave the employer.” Further, current or prospective customer nonsolicitation provisions are permissible only if they:

Are limited to preventing an employee from shifting business away from the employer where the employee established or substantially developed a direct relationship with the customer or prospective customer “through the employee’s work for the employer.”
Do not exceed 18 months following employment.

Notably, unlike the current law, which prohibits all prospective customer nonsolicitation agreements, HB 1155 appears to now permit them, provided that they meet the foregoing requirements. Importantly, any agreement that directly or indirectly prohibits a worker from accepting or transacting business with a customer is treated as a noncompete – not a nonsolicitation agreement – and is therefore banned.

Confidentiality and trade secret agreements: Agreements that protect confidential information, trade secrets or inventions are not affected by the ban.
Sale of business: Noncompetes entered into in connection with the purchase or sale of the goodwill of a business remain enforceable, but only if the person signing the agreement holds an ownership interest of 1% or more in the business.
Franchise agreements: A noncompete entered into by a franchisee in connection with a franchise sale that complies with applicable franchise law is still permitted.
Educational expense repayment: Employers may still require repayment of out-of-pocket educational expenses, provided the agreement:

Expires within 18 months of the employee’s start date.
Limits repayment to a pro rata portion of the remaining time in that 18-month period.
Releases the employee from the repayment obligation if the employee separates for “good cause,” as defined in the state’s unemployment benefit statute.

Further, the noncompete ban does not affect Washington’s existing moonlighting limitations under RCW 49.62.070, which remain unchanged. Under that provision, employers cannot restrict, restrain or prohibit employees earning less than twice the applicable state minimum wage (or, less than $34.26 an hour as of 2026) from working for another employer, working as an independent contractor or being self-employed. In addition, employers may continue to impose moonlighting restrictions on employees earning at or above that threshold.

Penalties for noncompliance

As before, persons “aggrieved” by a violation of the law have a private right of action. Further, the Washington attorney general may bring enforcement actions on behalf of affected workers. If a court or arbitrator finds a violation, the employer must pay the greater of the worker’s actual damages or a statutory penalty of $5,000, plus reasonable attorneys’ fees, expenses and costs. Notably, liability is triggered even when an employer merely attempts to enforce a noncompete or suggests that one still applies.

Next steps for employers

Because employers must provide written notice to all employees and contractors subject to an active noncompete by October 1, 2027 (regardless of when it was signed), employers should consider updating their practices before the June 30, 2027, effective date.

Employers can take the following steps to prepare for compliance:

Audit all existing agreements. Review all employment and contractor agreements, offer letters and related documents to identify provisions that may qualify as a noncompete under the law’s expanded definition. Beyond just noncompete and certain customer nonsolicitation agreements, this includes stay-or-pay agreements, training repayment agreement provisions (TRAPs) and other repayment obligations that could be construed as prohibited noncompetes.
Plan for mandatory worker notices. By October 1, 2027, employers must make reasonable efforts to notify current and former workers still within the term of a noncompete that those provisions are void. Employers should begin compiling a list of affected individuals, verifying contact information and identifying what “reasonable efforts” they will take to ensure compliance with this notice requirement. Note that this requirement also covers employees or contractors with repayment agreements that qualify as noncompetes under the law.
Evaluate and strengthen alternative protections. As noted, confidentiality and trade secrets agreements are not affected by the ban. Employers should assess whether such agreements, along with narrowly tailored nonsolicitation agreements, provide sufficient protection for the company’s legitimate business interests under the new law. Where insufficient, consult with counsel to strengthen these provisions and/or identify additional lawful strategies to safeguard the company’s interests.
Update templates and policies. Revise all standard employment agreement templates, confidential information and invention assignment agreement templates, restrictive covenant agreement templates, offer letter templates, contractor agreements and repayment agreements to remove or restructure any provisions that will be void under the new law.
Train HR and management. The law prohibits employers from representing to a worker that they are subject to a noncompete or attempting to enter into one. Employers should therefore ensure that HR personnel, managers and recruiters understand these broad prohibitions, as even an informal suggestion of enforceability could expose the company to liability.
Consider enforcement of existing noncompetes/repayment agreements. As noted above, the amended noncompete statute will not apply to legal proceedings commenced before June 30, 2027. Therefore, as such date approaches, employers may consider whether it may be prudent to commence litigation to enforce noncompete agreements (which, as emphasized above, also include repayment agreements) and to otherwise address breaches of any such agreements that have occurred before June 30, 2027.

If you have any questions about these laws or how to comply, please contact your Cooley employment lawyer or one of the lawyers listed below.

AI Chatbot’s Medical Claims Draw Regulatory Scrutiny

Fri, 26 Jun 2026 17:46:00 Z

On May 1, 2026, the Pennsylvania State Board of Medicine filed a complaint in the Commonwealth Court of Pennsylvania against Character Technologies, the corporate entity operating the Character.AI generative artificial intelligence platform.¹ The complaint raises immediate questions about state licensing board enforcement, but the regulatory picture it reveals extends further – to US Food and Drug Administration (FDA) oversight and an accelerating wave of state legislation targeting AI in healthcare. Character Technologies also faces a separate lawsuit brought by the Kentucky attorney general, which alleges that the company preys on children and leads them to self-harm.²

Background

The platform and the investigation

Character.AI is a generative AI platform with 20 million+ monthly users that allows users to create chatbot characters with specific personalities. A Pennsylvania Professional Conduct Investigator created an account, searched “psychiatry” and interacted with a character named “Emilie” described as a “Doctor of psychiatry.” Note that the character had approximately 45,500 user interactions as of mid-April, during which “Emilie” claimed to have medical credentials, offered to conduct a psychiatric assessment and represented that it held a valid Pennsylvania medical license, providing a fabricated license number.

Character Technologies does not hold a license to practice medicine in Pennsylvania.

The commonwealth’s case

Pennsylvania asserts that Character Technologies engaged in the unauthorized practice of medicine and surgery.³ The crux of the state’s allegations is that Character Technologies permitted its chatbot to hold itself out as a licensed psychiatrist by claiming a Pennsylvania license, using the title “psychiatrist” and providing a fabricated license number.

Character.AI contests the suit, reasoning that its user-created characters are fictional and intended for entertainment and roleplaying. The company points out that the platform includes in-chat disclaimers stating that characters are not real people and all statements should be treated as fiction, along with additional disclaimers warning users not to rely on characters for professional advice.⁴

Legal issues

State licensing

In Pennsylvania, medicine and surgery is defined as “[t]he art and science of which the objectives are the cure of diseases and the preservation of the health of man, including the practice of the healing art with or without drugs, except healing by spiritual means or prayer.”⁵ Medical doctors, including psychiatrists, as with most distinct healthcare professions (e.g., nurses, physician assistants, etc.), are licensed at the state level.

Further, Pennsylvania, like other states, prohibits the unauthorized practice of medicine, which includes:

Practicing medicine.
Purporting to practice medicine.
Holding forth as authorized to practice medicine through use of a title.
Otherwise holding forth as authorized to practice medicine.⁶

Given the breadth of these statutory prohibitions, the bar for demonstrating the unauthorized practice of medicine appears low. For example, a platform need not deliver clinical care in the traditional sense to run afoul of the statute; merely holding itself forth as authorized to practice medicine, whether through the use of a title, the assertion of credentials or other representations of licensure, may be sufficient. In this case, the complaint expressly alleges that the “Emilie” character represented that it was a medical doctor, claimed to have attended medical school at Imperial College London and to have been practicing psychiatry for seven years, asserted that it was licensed to practice medicine in Pennsylvania, and provided a fabricated Pennsylvania license number. Each of these allegations, standing alone or in combination, may be used as evidence that the chatbot held itself out as authorized to practice medicine.

‘Intended use’ and FDA’s medical device regulatory framework

The Character.AI matter also raises significant questions under federal law – specifically, whether a chatbot that performs diagnostic or treatment-related functions could be classified as a medical device⁷ subject to FDA oversight. Platform operators and their counsel should not assume that the absence of FDA enforcement to date reflects a settled regulatory position; to the contrary, the agency’s existing statutory and regulatory framework is more than sufficient to reach AI chatbot platforms with these types of functions, and the Pennsylvania complaint may accelerate federal attention to this space.

Under the Federal Food, Drug, and Cosmetic Act (FDCA), a product qualifies as a “device” if it is “intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease” or is “intended to affect the structure or any function of the body” – provided that, unlike a drug, it does not achieve its primary intended purposes through chemical action within or on the body and does not depend on being metabolized to achieve such purposes.⁸ Critically, FDA does not simply accept a company’s characterization of what its product is intended to do. Under 21 CFR § 801.4, a product’s “intended use” can be established by, among other things, its design, the circumstances surrounding its distribution, website claims, advertising, and oral and written statements. FDA evaluates the totality of the circumstances – how a product is actually used, what it actually communicates and what the objective evidence shows about the manufacturer’s intent.

Importantly, FDA regulates Software as a Medical Device (SaMD) in the same manner as other products, unless the software is subject to one of the statutory carve-outs from the 21st Century Cures Act, such as software intended for general wellness purposes.⁹ Thus, software that is intended for use in the diagnosis or treatment of a disease or condition is subject to regulation as a medical device under the FDCA.

While the FDCA may already provide a basis for reaching chatbot operators, enforcement to date has largely been driven by state attorneys general rather than FDA. That gap likely reflects issues of timing and resource constraints rather than any meaningful limitation in federal authority. In the current environment, states like Pennsylvania also appear more willing to devote their limited resources to enforcement in this space. For platform operators, that combination of latent federal authority and active state-level activity means the question is not whether regulatory scrutiny is coming, but how to be ready as it continues to evolve.

The best defense is a good offense

So, what can platform operators do now to get ahead of the regulatory curve? First, they can start with a regulatory risk assessment to map the landscape of applicable state laws across all jurisdictions in which the platform operates before deploying health AI features.

Based on that assessment, platforms can strengthen their regulatory position by calibrating their compliance practices either to the highest applicable state standards or to emerging national frameworks. The Federation of State Medical Boards, for example, announced in May 2026 the formation of a new workgroup charged with developing recommendations and model guidelines for state medical boards on the regulation of AI tools used in the practice of medicine. At the federal level, and as discussed further below, the Trump administration has also signaled its desire to establish a uniform federal framework for AI.¹⁰

Platform operators should also define and implement clear boundaries around what their AI systems can do in all healthcare contexts. This does not mean shutting down all health-related conversations, but it does mean drawing a line between providing educational information or a general wellness function and conduct or messaging that may appear to be providing clinical advice requiring a professional license, which is a distinction that matters equally under state unauthorized practice statutes and the FDA’s device classification framework. A chatbot offering generic stress-management tips will be analyzed differently than one that asks about symptoms, offers a diagnosis or recommends a treatment course. Those boundaries should be enforced through content moderation systems and model-level constraints, not through user-facing disclaimers alone, given that a company’s disclaimers may actually be used to demonstrate knowledge of the law and do not change a product’s status as a device under the FDCA.¹¹> Platforms that build these guardrails in before a regulator comes knocking will be in a far stronger position than those that wait and react.

Will the Character.AI case open the floodgates?

It is too early to say whether the Character.AI lawsuit will open the floodgates for state enforcement actions, but the conditions are there. State licensing boards now have a live case that hands them a roadmap for going after AI platforms whose responses stray into regulated territory. And they are not the only ones: A growing number of state legislatures have moved to regulate AI systems directly (e.g., California, Texas and Illinois), and more will follow.

These developments suggest a regulatory landscape that may become both broader and more varied over time – though federal pressure on state AI regulation is mounting. On December 11, 2025, President Donald Trump signed an executive order directing federal agencies to establish “a minimally burdensome national policy framework for AI.” While the order does not preempt existing state AI laws, it identifies several mechanisms for challenging state AI laws inconsistent with that policy, including Department of Justice litigation, Commerce Department review of “onerous” state laws, and a White House mandate to prepare a legislative recommendation establishing a uniform federal framework that would preempt state laws conflicting with the administration’s policy of sustaining and enhancing US global AI dominance through a minimally burdensome national framework.¹²

For now, state AI compliance obligations remain in effect. The scope of these regulations varies considerably from state to state, ranging from disclosure requirements mandating that users be informed they are interacting with an AI agent to data privacy obligations, advertising restrictions and other consumer protection measures. Of particular relevance to the issues raised by the Character.AI matter, Delaware recently enacted legislation that expressly prohibits a “nonhuman entity,” including an “agent powered by artificial intelligence,” from using professional titles or abbreviations associated with licensed healthcare professions, including, but not limited to, “advanced practice registered nurse,” “registered nurse,” “doctor” and similar designations.¹³ The Delaware law further prohibits the licensure of a nonhuman entity to practice medicine, nursing or related healthcare professions, and bars any such entity from engaging in the practice of medicine within the state. Legislation of this nature may reflect a growing desire among state legislatures to expressly address this practice in an attempt to rein in AI platforms that offer medical advice without state oversight – though their durability will depend on whether federal legal challenges to these laws materialize and succeed, or whether Congress moves to preempt them through a federal AI framework.

What makes the Pennsylvania case especially notable is how it started – not with a purpose-built health app, but with a single chatbot on a general-purpose platform that a state investigator found by searching “psychiatry.” The takeaway: Regulators are looking at what the AI actually says, and if those responses look like the practice of a licensed profession or the function of a regulated device, disclaimers may not be enough. That said, enforcement is not the only model. Some states have signaled a preference for regulatory partnership over litigation. Utah, for example, has entered into a regulatory mitigation agreement with mental health chat app ElizaChat, under a framework created by Utah law¹⁴ that allows companies to operate under agreed terms in exchange for regulatory flexibility. Whether other states follow Utah’s lead remains to be seen, but the gap between a regulatory partnership and an enforcement action may come down to whether the platform drew the lines itself before a regulator had to – or, where a regulator has already drawn them, whether the platform engaged constructively with those boundaries rather than ignoring them.

Notes

The Pennsylvania State Board of Medicine operates under the Pennsylvania Department of State, Bureau of Professional and Occupational Affairs.
Commonwealth of Kentucky ex rel. Coleman v. Character Technologies, Inc., No. 26-CI-00029 (Ky. Franklin Cir. Ct. filed Jan. 8, 2026).
In violation of Sections 422.10 and 422.38 of the Medical Practice Act.
Cailey Gleeson, “Pennsylvania Sues Character.ai Over AI Chatbot Allegedly Presenting Itself as Licensed Medical Professional,” Fierce Healthcare, May 7, 2026.
63 Pa. Stat. Ann. § 422.2.
63 Pa. Stat. Ann. § 422.10.
21 USC § 321(h)(1).
Id.
21 USC § 360j(o). See also, Cooley, “FDA Opens Aperture for Wearables in Latest General Wellness Guidance,” January 20, 2026.
“Ensuring a National Policy Framework for Artificial Intelligence,” Exec. Order No. 14365, 90 FR 58499, December 11, 2025).
See, e.g., United States v. 789 Cases of Latex Surgeons’ Gloves, 799 F. Supp. 1275, 1285 (D.P.R. 1992) (“Whether a product’s intended use makes it a device depends, in part, on the manufacturer’s objective intent in promoting and selling the product. All of the circumstances surrounding the promotion and sale of the product constitute the ‘intent.’ It is not enough for the manufacturer to merely say that he or she did not ‘intend’ to sell a particular product as a device.”).
“Ensuring a National Policy Framework for Artificial Intelligence,” Exec. Order No. 14365, 90 FR 58499, December 11, 2025. See also, Cooley, “Showdown: New Executive Order Puts Federal Government and States on a Collision Course Over AI Regulation,” December 12, 2025.
Del. H.B. 191, 153d Gen. Assemb. (2026).
UT Code § 13-72-302.

A New AIM: Key Proposed Reforms Impacting Innovative High-Growth Companies

Tue, 23 Jun 2026 15:38:21 Z

The London Stock Exchange (LSE) has set out significant proposed reforms to the AIM Rules for Companies (AIM Rules), with the important aim of refocusing and repositioning AIM compared to the Main Market and other international markets.

For innovative high-growth companies – particularly those in the technology and life sciences sectors, which make up a significant part of AIM’s growth-company ecosystem – several of the proposed changes are directly relevant. Below, we highlight the developments we consider most significant and share our perspective on each.

Shaping the future of AIM

The proposals – recently published in AIM Notice 62 and building on the broadly positive market reception to the LSE’s November 2025 Feedback Statement – are designed to modernise AIM, reduce unnecessary admission burdens and give founder-led, innovative and growing companies greater flexibility to operate when listed on AIM. A consultation on the proposals is open until 2 July 2026.

Running through all of these proposals is AIM’s explicit “buyer beware” market model. For the first time, the LSE is proposing to include this characterisation in the introduction to the AIM Rules themselves – making clear that AIM is a market for growth companies that carry a higher risk profile than the LSE Main Market, and that investors must form their own view of the merits and risks of any AIM investment. A proposed reduced regulatory burden for companies is, in other words, matched by an unambiguous statement of investor responsibility.

The working capital statement is going – a meaningful change for pre-revenue companies

Under the current AIM Rules, directors are required to include in the admission document a clean working capital statement confirming that the company has sufficient working capital for the next 12 months following admission. That requirement is supported by a working capital report prepared by a firm of accountants. The working capital diligence exercise can be costly and time-consuming, and the end result – the working capital report – is a private document not available to end investors, only covering a 12-to-18-month horizon.

In practice, this has been a pain point we frequently encounter for early-stage companies considering AIM. For tech and life sciences businesses – particularly those that are pre-profitability, reliant on milestone-linked financing or building out commercial infrastructure post-approval – making the unqualified positive statement that the current rules require has often been extremely difficult.

The LSE is proposing to replace the working capital statement with a requirement to clearly disclose the company’s capital resources, financial obligations and anticipated fundraising needs over the 12 months following admission. The shift – from a binary statement to a qualitative, disclosure-based framework – is more proportionate and better reflects how sophisticated investors in these sectors assess financial risk. It is also more honest. Early-stage companies should be able to tell their story clearly, including the fact that they expect to return to market for further capital, without that disclosure being treated as a disqualifying factor.

One practical issue remains worth flagging. Auditors must still be satisfied as to going concern status when signing off on a company’s annual accounts – and for early-stage companies with limited cash runway or uncertain funding outlooks, obtaining that sign-off can be a challenging process. If this process results in the accounts being published after the six-month deadline required by AIM Rule 19, this will trigger a suspension of the AIM listing, an outcome that the removal of the requirement for the working capital statement in the Admission Document does not prevent. Early and ongoing dialogue with auditors on going concern status therefore remains as important as ever, despite the other benefits of the proposed reform package.

UK GAAP is now accepted – a significant cost saving at admission

AIM companies incorporated in the UK may now use UK generally accepted accounting principles (GAAP) (FRS 102) rather than International Financial Reporting Standards (IFRS). Other local GAAPs may also be permitted where IFRS equivalency can be demonstrated. This change has already been applied in practice following the Feedback Statement and is now being formally incorporated into the AIM Rules.

For many UK tech and life sciences companies – particularly those whose sector peers also report under UK GAAP – this removes a significant and often costly accounting conversion exercise at the point of admission. It is worth noting, however, that companies with longer-term ambitions to step up to the LSE’s Main Market or list on US markets (including Nasdaq) as foreign private issuers will ultimately need to report in IFRS or US GAAP. Forward planning on accounting standards, and on the timing of upgrades to internal financial controls and reporting processes, remains important.

The Capital Access Window – managing fundraisings more effectively

For AIM companies – and particularly for life sciences businesses that regularly return to market for follow-on capital – one of the persistent practical challenges has been managing a fundraising process without inadvertently creating price volatility or information leakage. The dispersed investor bases that are common among AIM-listed life sciences companies compound the problem: Coordinating an approach to retail investors alongside institutional investors, while a live share price moves, has been a real execution risk.

The proposed Capital Access Window addresses this directly. AIM companies undertaking an equity fundraise will be able to voluntarily request a temporary trading suspension, creating a controlled window in which to approach investors – including retail investors – without the pressure of a live market. This builds on the framework introduced by the UK’s Public Offers and Admissions to Trading Regulations 2024 which permit greater retail investor participation in secondary offers on AIM (and the Main Market) without a prospectus.

The LSE has confirmed that requests for a Capital Access Window will be considered on a case-by-case basis, without a prescribed duration. That flexibility is the right approach; it reflects the reality that the needs of a seasoned life sciences issuer undertaking its fifth follow-on financing will differ from one accessing the market for the first time post-admission. Engaging early with your legal advisors, your Nominated Adviser and the LSE’s AIM team as a fundraising takes shape will be essential to making effective use of this mechanism.

Founder-friendly structures – dual-class shares and remuneration flexibility

Two of the proposed changes are particularly targeted at the founder-led companies that are central to AIM’s growth-company ecosystem.

First, special voting shares will be permitted at admission, enabling founders to retain control while accessing public capital markets. This mirrors the dual-class share structures that have been available on the Main Market substantively since 2025 and brings AIM into line with several of its international competitors. It removes what has been a structural barrier for ambitious founder-led businesses that have considered – and in some cases ruled out – an AIM admission.

Second, Nominated Advisers will no longer be required to provide a fair and reasonable opinion on nonstandard director remuneration arrangements where they are satisfied that reasonable commercial protections are in place. Where there is uncertainty, it can be resolved by putting the matter to a shareholder vote – a mechanism that aims to strike a balance between founder-friendly flexibility and investor protection. For tech and life sciences companies, where competitive remuneration packages are essential to attracting and retaining specialist talent, this is a practical and welcome change.

Governance – five areas and an issuer-specific approach

AIM companies will no longer be required to adopt and “comply or explain” against a specific corporate governance code. Instead, they will be expected to provide disclosure across five areas that investors have identified as consistently important: board composition; directors’ roles and responsibilities; remuneration and performance; risk and controls framework; and approach to investor relations.

This is a meaningful shift, in line with the proposed move toward greater investor responsibility and the aim of effective regulation. Many innovative growth companies have governance structures that are well-designed for their stage of development and investor base but do not map neatly onto any recognised code. The obligation to “explain” departures from a prescribed template has, in practice, often generated boilerplate disclosure – even if comparative benchmarking was a commendable aim. Requiring disclosure against five investor-prioritised areas, while leaving companies free to design governance arrangements appropriate to their circumstances, is arguably a more intelligent approach and has the potential to deliver more meaningful governance reporting. For investors, while there may be a little more work to do to understand, substantively and comparatively, the governance arrangements of each company, the hope would be that improved quality of governance disclosures will not make this burdensome.

The LSE is also proposing to give AIM companies the ability to disclose engagement with proxy advisors and a voluntary “right of reply” to third-party commentary, speculation or criticism – including on social media and investor bulletin boards. The LSE has been clear that misleading and sometimes abusive content posted anonymously about AIM companies and their directors on bulletin boards has been damaging to market confidence. AIM companies will now have the ability to respond formally and “on the record”.

Acquisitions – reduced friction for ‘buy-and-build’ strategies

Two changes reduce the regulatory friction associated with acquisition activity. The threshold for a transaction to constitute a “substantial transaction” – triggering shareholder disclosure requirements under AIM Rule 12 – is proposed to increase from 10% to 25% of class test thresholds, aligning AIM with the Main Market.

More significantly, an acquisition will no longer automatically be classified as a reverse takeover simply because it exceeds 100% in the class tests. What will matter is whether the acquisition results in a fundamental change to the company’s business, board or voting control. Under the previous approach, major acquisitions could trigger a full reverse takeover process – including a suspension of trading, a new admission document, a working capital report and updated financial statements – solely because of their size, regardless of whether they were genuinely transformative or fundamental to the company’s business. Many issuers and advisors will be aware of instances in which the old regime could apply disproportionate requirements for acquisitive companies, and the effort to correct this is notable.

For AIM companies pursuing buy-and-build strategies – a growth model that is particularly common among tech businesses assembling complementary capability stacks – these proposed changes have the potential to meaningfully reduce both cost and execution risk.

Other changes worth noting

AIM Notice 62 also proposes a new Express Market route to replace the current AIM Designated Market admission route. The new route is designed to give a broader range of international companies – those listed on markets operating to International Organization of Securities Commissions (IOSCO) standards – a streamlined path to AIM admission. There is also a new dual-market applicant route for companies seeking simultaneous admission to an Express Market and AIM, reducing the documentation burden for those transactions.

A separate consultation (AIM Notice 63) covers proposed changes to the AIM Rules for Nominated Advisers, including a reorientation of the Nominated Adviser role toward public corporate finance expertise rather than compliance monitoring – a shift that is likely to be welcomed by AIM companies and their advisors alike.

Conclusions

Taken together, the proposals in AIM Notice 62 represent the most substantive recalibration of AIM’s regulatory framework in years – and, for innovative and growing companies, the proposals appear to be, largely, in the right direction. The shift from binary compliance requirements to proportionate, disclosure-based frameworks; the removal of structural barriers to founder control; and the practical improvements to how fundraisings and acquisitions are managed, all show thoughtful consideration of the role of AIM in the changed public markets landscape, as well as promise in understanding AIM’s core constituency of companies and investors and their needs. The consultation closes on 2 July 2026.

If you would like to discuss how the proposals affect your specific situation, please reach out to the Cooley capital markets team.

From Maple to Mind Taps: New Vermont Law Puts Neurotech on Notice

Tue, 23 Jun 2026 07:00:00 Z

Vermont, a state famous for tapping maple trees, is now tapping into something far more complex: the human brain. With the enactment of S.71, the Vermont Data Privacy and Online Surveillance Act, the Green Mountain State has become the fifth state in the nation (after California, Colorado, Connecticut and Montana) to classify “neural data” as “sensitive data” subject to the most stringent privacy protections under state law. For the rapidly expanding consumer neurotech industry – from EEG-enabled meditation headbands and neurofeedback wearables to emerging brain-computer interfaces – the law imposes consent requirements, purpose limitations and assessment obligations that impact how companies collect, use and monetize the data generated by measuring the activity of the human brain. Crucially, the law contains no revenue threshold, meaning even early-stage startups processing neural data from as few as 3,000 consumers will find themselves subject to its full reach. However, the law contains exceptions for HIPAA protected health information, healthcare components of HIPAA covered entities and HIPAA business associates. Neurotech companies who make their products available to patients through the healthcare system might enjoy one of these exceptions.

What is neural data under the act?

The act defines “neural data” as “any information that is generated by measuring the activity of an individual’s central nervous system.” This broad definition is technology-neutral and captures data from a range of consumer neurotechnology devices and applications, including electroencephalography (EEG) headsets, neurofeedback devices and emerging brain-computer interface technologies. At the same time, Vermont’s definition is narrow relative to the other four states except Connecticut, because the definition references the central nervous system but not the peripheral nervous system.

The act classifies neural data as a category of “sensitive data,” placing it alongside other specially protected categories that include biometric data, genetic data, precise geolocation data, consumer health data, data revealing racial or ethnic origin, religious beliefs, sexual orientation, citizenship or immigration status, and data concerning mental or physical health conditions. This classification subjects neural data to the act’s most restrictive requirements for collection, processing and sale.

Who does the law apply to? A low bar for emerging companies

The act’s applicability thresholds are notable for what they do not require: revenue. Unlike some state privacy laws that apply only to businesses meeting certain revenue benchmarks, Vermont’s law is triggered by data volume alone. A company falls within the act’s scope if, during the preceding calendar year, it meets any one of three independent thresholds:

Controlled or processed the personal data of not fewer than 35,000 consumers (excluding data processed solely for completing a payment transaction).
Controlled or processed the sensitive data (such as neural data) of not fewer than 3,000 consumers (excluding data processed solely for completing a payment transaction).
Offered for sale in trade or commerce the personal data of not fewer than 3,000 consumers.

Because neural data is classified as sensitive data, the second threshold is the critical one for the neurotech industry. A pre-revenue wearable neurotech startup that has distributed devices to 3,000 consumers and collects neural data from those users would be subject to the full weight of the act’s obligations – regardless of the company’s size, stage, revenue or financial resources. This means that new and emerging companies in the business-to-consumer neurotech space cannot assume the law does not apply to them simply because they are small or have limited revenue. This makes the new Vermont law similar to the Connecticut law passed around the same time last year, which applies to any business that processes sensitive personal data regardless of revenue or volume of data.

Consent is required – but it is not a blank check

Under the act, a company may not process sensitive data, including neural data, “unless the consumer has provided consent and unless the processing is reasonably necessary in relation to the purposes for which the sensitive data are collected.”

This two-part test imposes a meaningful constraint that goes well beyond a simple notice-and-consent model. Even where a consumer has affirmatively consented to the collection of neural data – for example, in connection with a meditation, focus-training or cognitive wellness application – the company may only use that data for purposes that are “reasonably necessary” in relation to the specific purposes for which it was originally collected.

The “consent” required by the act is itself defined with precision. “Consent” means “a clear affirmative act signifying a consumer’s freely given, specific, informed, and unambiguous agreement to allow the processing of personal data relating to the consumer.” Consent does not include acceptance of general or broad terms of use, hovering over or closing content, or agreement obtained through the use of dark patterns.

The practical implication is significant. A neurotech company that collects neural data to provide a brain wellness or cognitive performance service cannot repurpose that same data for unrelated secondary uses – such as generating advertising insights, training third-party AI models, licensing data to pharmaceutical researchers or developing entirely new product lines – even if it has obtained the consumer’s consent to collect the data in the first instance, unless the additional uses meet the “reasonably necessary” standard. The “reasonably necessary” standard effectively prevents consent from operating as a blank check for unlimited downstream processing. A company may still de-identify data and use de-identified data for secondary purposes, but to do so it would need to effectively de-identify the data in a way that satisfies the law’s de-identification standards.

This limitation has the potential to directly disrupt the business models of consumer neurotech companies that rely on secondary data monetization as a revenue stream. Companies that have built financial projections around the ability to leverage neural data beyond their primary service offering – for example, by licensing aggregated neural response patterns to advertisers or by using neural engagement data to optimize third-party content – will need to reassess those assumptions in light of the act’s purpose-limitation framework.

Perhaps the most consequential open question under the act – and the question that every neurotech business will be grappling with – is where, exactly, the line falls on the “reasonably necessary” standard. Consider a neurotech company that collects neural data to power a focus-training application. If that company uses the neural data it collects to train its own AI models to improve the accuracy and performance of that same focus-training product, is that use “reasonably necessary in relation to the purposes for which the sensitive data are collected?” There is a credible argument that it is: Improving the core product the consumer signed up for through machine learning could be viewed as integral to the very service for which the data was collected. But the act does not explicitly address this question, and the answer may ultimately depend on how broadly or narrowly the attorney general and the courts interpret the required nexus between AI training and the consumer-facing service.

A far more difficult question arises when a company attempts to expand the boundaries of “reasonably necessary” by defining its collection purposes broadly at the outset. Could a neurotech company inform consumers at the point of collection that one of the purposes for which it is collecting their neural data is to license it to third parties, use it for targeted advertising or train external AI models – and then argue that these uses are “reasonably necessary in relation to the purposes for which the sensitive data are collected” because they were disclosed as purposes from the very beginning? Neurotech companies exploring this strategy should proceed with the advice of experienced privacy counsel.

No sale of neural data without consent

The act separately prohibits the sale of sensitive data, including neural data, unless the consumer has provided consent. This prohibition applies independently of, and in addition to, the consent required for processing data. For neural data, any transfer to a third party in exchange for monetary or other valuable consideration requires its own affirmative consumer consent.

The act defines “sale of personal data” as “the exchange of a consumer’s personal data by the company with a third party for monetary or other valuable consideration.” Certain disclosures are excluded from the definition of a sale, including disclosures to a processor acting on the company’s behalf, disclosures to affiliates, disclosures directed by the consumer and transfers in connection with a merger or acquisition. However, the core commercial sale of neural data to third parties for their independent use will require consent.

Mandatory data protection assessments

The act requires companies to “conduct and document a data protection assessment” for each processing activity that presents “a heightened risk of harm to a consumer.” The processing of sensitive data, which expressly includes neural data, is specifically enumerated as one such heightened risk activity.

Each assessment must identify and weigh the benefits that may flow from the processing – to the company, consumer, other stakeholders and the public – against the potential risks to the rights of the consumer, as mitigated by safeguards the company can employ. The company must also factor in the use of deidentified data, the reasonable expectations of consumers and the context of the processing relationship.

For neurotech companies, this means that before processing neural data, they must prepare a formal, documented assessment analyzing the risks and benefits of each neural data processing activity. These assessments are not merely internal paperwork; the attorney general may require a company to disclose any data protection assessment relevant to an investigation, and the attorney general may evaluate the assessment for compliance with the act. While the assessments are confidential and exempt from public records disclosure, companies should prepare them with the understanding that they may be reviewed by enforcement authorities.

The data protection assessment requirements apply to processing activities created or generated after January 1, 2028, and are not retroactive.

Enforcement and timeline

The act takes effect on January 1, 2028. A violation of the act is deemed a violation of the Vermont Consumer Protection Act, enforceable by the attorney general. Notably, the act does not create a private right of action for consumers, although it leaves open the possibility for the legislature to add one if the attorney general is not given adequate funding and resources to enforce the law.

During a transitional period from January 1, 2028, through June 30, 2029, the attorney general must issue a notice of violation 60 days before initiating an enforcement action, provided the attorney general determines that a cure is possible. A controller or processor of data that receives such a notice has 60 days to cure the violation. After June 30, 2029, the attorney general is no longer required to provide a cure opportunity before bringing an enforcement action.

The General Assembly has also directed that the attorney general provide, and update as necessary, guidance to companies for compliance with the act.

The ‘other’ Vermont neural rights law

The Vermont Legislature separately enacted H.814, titled “An act relating to neurological rights and the use of artificial intelligence technology in health and human services,” which was adopted on May 18, 2026 – roughly a month before S.71. Despite its ambitious original billing, H.814 lost its teeth during the amendment process. As introduced, the bill proposed to create enforceable privacy standards for neural data and prohibit electronic devices from bypassing an individual’s conscious decision-making without consent. By the time it was adopted, however, all of those operative provisions had been stripped out.

What remains is an aspirational statement “recognizing” that individuals have rights to mental and neural data privacy, freedom of thought and protection from neurotechnological interventions – but without any enforcement mechanism, compliance obligations, consent requirements or penalties for businesses. The bill’s only operative substance is a directive to Vermont’s Artificial Intelligence Advisory Council to study the issues and report back to the legislature by January 15, 2027, with recommendations for future protections and proposed definitions. In short, H.814 is a study bill, not a regulatory one. It creates no new obligations for neurotech companies and requires no action. S.71, discussed above, is the law that demands attention and compliance planning.

Key takeaways for neurotech companies

Assess whether you are in scope. Any company that processes neural data from 3,000 or more Vermont consumers in a calendar year is subject to the act, regardless of revenue, company size or stage of development.
Obtain proper consent. Consent for processing neural data must be a clear affirmative act that is freely given, specific, informed and unambiguous. Buried terms-of-use provisions or dark-pattern-driven consent flows will not satisfy the act’s requirements.
Audit your data uses against the purpose-limitation standard. Even with valid consent, neural data may only be processed for purposes reasonably necessary in relation to the purposes for which it was collected. Secondary monetization strategies – advertising insights, third-party AI training, data licensing – that are untethered to the primary service must be risk tolerant.
Prepare for the sale consent requirement. Any sale of neural data to third parties for monetary or other valuable consideration requires separate consumer consent.
Conduct and document data protection assessments. Before processing neural data, prepare a formal assessment weighing the benefits against potential risks to consumers. These assessments may be reviewed by the attorney general in the context of an investigation.
Reevaluate business models built on secondary neural data monetization. The act’s purpose-limitation framework may foreclose revenue streams that depend on repurposing neural data beyond the service for which it was originally collected. Companies should assess their data practices and adjust their business strategies well in advance of the January 1, 2028, effective date.

Update on California’s VC Diversity Reporting Law: DFPI Comment Period and Legal Challenge

Tue, 23 Jun 2026 07:00:00 Z

Two notable developments have recently emerged under California’s Fair Investment Practices by Venture Capital Companies Law (FIPVCC). While neither such development requires action by covered entities, as the 2026 compliance deadlines for FIPVCC remain suspended, both developments are worth monitoring closely. First, on May 26, 2026, the California Department of Financial Protection and Innovation (DFPI) opened a public comment period, closing July 17, 2026, seeking input on the law’s interpretation and implementation. Second, on May 28, 2026, a Colorado-based venture capital firm filed a lawsuit alleging that the law is unconstitutional and seeking an injunction blocking enforcement of the law against the plaintiffs.

DFPI opens comment period with deadline of July 17, 2026

Following its March 2026 suspension of the FIPVCC, the DFPI on May 26, 2026, issued an invitation for comments on the law’s registration, survey and reporting requirements. In issuing this invitation, the DFPI is soliciting feedback prior to publication of a formal Notice of Proposed Rulemaking. Such feedback will shape how the law is ultimately interpreted and implemented.

The DFPI is seeking stakeholder input on a range of open questions, including:

Who qualifies as a “covered entity” (and what counts as a “significant presence” in California).
Whether covered entities that made no venture capital investments in the prior calendar year should still be required to register with the DFPI.
Whether covered entities’ reporting should be limited to new, first-time investments in the relevant calendar year or whether follow-on investments should also be included.
Whether consolidated reporting by a controlling entity is permitted, and under what conditions.
The scope of the survey distribution obligation and related privacy considerations.
What information covered entities should be required to report, including which formulas to use in making certain calculations.
Fees requirements, including whether there are factors the DFPI should consider in determining the fee charged per report.
Records retention requirements, including what records must be kept and how to best protect the privacy and anonymization of the founding team member’s demographic data.
Any additional matters related to the FIPVCC that the DFPI should consider when proposing regulations.

Comments are due July 17, 2026, and may be submitted electronically. The DFPI notes that for comments recommending rules, “commentors are encouraged to propose specific rule language and provide an estimate, with justification, of the potential economic impact on business and individuals that would be affected by the language.” Further, the agency notes that all comments should include information about “economic impacts, metrics, or quantitative analysis to support comments.”

The DFPI’s solicitation for comments is a meaningful opportunity to influence the regulations that will govern FIPVCC compliance in the future. Several of the DFPI’s open questions on key interpretive issues were noted in Cooley’s March 2026 letter to the agency.

Legal challenge filed

On May 28, 2026, venture capital firm 1517 Fund (through its management company and four associated funds) filed a complaint in the US District Court for the Eastern District of California (1517 Management Company, LLC, et al. v. Mohseni, No. 2:26-cv-01957) challenging the FIPVCC on constitutional grounds. The complaint asserts four claims:

Violation of the First Amendment, on the basis that the law compels speech and imposes a content-based restriction by requiring use of a state-prescribed form.
Violation of the equal protection clause, on the basis that the law “requires venture capital companies to consider race” and exerts pressure on the plaintiffs to alter their investment decisions to favor founders of particular races.
Violation of the dormant commerce clause, on the basis that the law purports to regulate transactions occurring outside California and involving persons having no connection with California.
Violation of the due process clause, on the same extraterritorial grounds.

Notably, plaintiffs seek a declaration that the FIPVCC, on its face and as applied, to the plaintiffs, is unconstitutional and seek a permanent injunction against its enforcement only as to the plaintiffs. Though any injunctive relief would thus be limited to the plaintiffs to this lawsuit, any merits-based ruling by the court (including a declaration or other order finding that the FIPVCC is unconstitutional) may have significant implications for the law’s future viability.

Next steps

Notwithstanding ongoing litigation, the DFPI appears to be pressing ahead with rulemaking, and the outcome of that process will shape compliance obligations if the law survives legal scrutiny.

Cooley is monitoring developments and is available to assist clients navigating this evolving landscape. Please reach out to us if you would like to discuss submitting comments to the DFPI or would like to assess your organization’s obligations under FIPVCC.

EEOC Issues New National Enforcement Plan

Thu, 18 Jun 2026 22:56:00 Z

On June 4, 2026, Equal Employment Opportunity Commission (EEOC) Chair Andrea Lucas signed a directive rescinding the agency’s Biden-era Strategic Enforcement Plan for Fiscal Years 2024 – 2028 and replacing it with a new National Enforcement Plan for Fiscal Years 2025 – 2029 (NEP). The NEP took effect immediately and guides the agency’s work across outreach, public education, technical assistance, enforcement and litigation. It reflects a marked shift in substantive enforcement priorities.

Lucas identified the following enforcement areas as “Chair priorities”: remedying race and sex discrimination related to diversity, equity and inclusion (DEI) efforts; protecting American workers from anti-American national origin discrimination; defending women’s rights to single-sex spaces at work and workers’ rights to express the “binary nature of sex”; and protecting workers’ religious liberty rights to receive accommodations and be free from religious discrimination, harassment and related retaliation. She described the NEP as reaffirming the agency’s “unwavering commitment to merit-based, evenhanded enforcement of our nation’s civil rights laws.”

Key priorities

The new NEP identifies several categories of substantive priorities, including the following:

Disparate treatment prioritized over disparate impact

Consistent with executive order 14281, which declared a federal policy to eliminate the use of disparate impact liability “in all contexts to the maximum degree possible,” the NEP explicitly deprioritizes disparate impact theory despite acknowledging its codification in Title VII. While the NEP acknowledges that Congress amended Title VII in 1991 to address disparate impact liability, it characterizes disparate treatment (intentional discrimination) as “inherently … more egregious” than disparate impact, and states that the agency will not commence, develop or continue to pursue disparate impact litigation. Consistent with following EO 14281, the NEP also states that as “an executive branch agency,” the EEOC will “use its discretion in its deployment of its enforcement authority to advance the Administration’s policy objectives and comply with relevant Executive Orders.”

DEI programs

The NEP targets employment policies, programs or practices framed as DEI, or “similar euphemisms,” particularly those adopted by “large corporations, prominent universities, and other elite institutions.” Examples cited in the NEP include race- or sex-based quotas (including aspirational goals “that are proxies for quotas or otherwise encourage or incentivize race- and sex-based decision making, in any employment action”); diverse slate policies; requirements that candidates submit diversity statements; employee race or sex data shared with managers, the public, or non-human resources or non-legal personnel; and executive compensation or bonuses tied to race- or sex-based demographic or diversity goals.

Promoting the development of law

The NEP also prioritizes development of anti-discrimination law, with particular focus on the application and scope of recent US Supreme Court decisions and unresolved issues of statutory interpretation. Priority areas include:

The application of Title VII to DEI programs following the Supreme Court’s decisions in Ames v. Ohio Department of Youth Services, Muldrow v. St. Louis and Students for Fair Admissions, Inc. v. President and Fellows of Harvard College.
The “some harm” standard under Muldrow.
Religious accommodation obligations under Groff v. DeJoy.
The scope of Bostock v. Clayton County regarding single-sex spaces, the right to express the binary nature of sex and religious accommodations for sincerely held
The scope of liability under the Pregnant Workers Fairness Act.

The NEP also states that the agency will prioritize cases involving circuit conflicts on NEP priority issues or cases presenting an opportunity for Supreme Court resolution.

Other priorities

In addition to the above priorities, the NEP states that the agency will target the following:

Matters on an individual, class or systemic basis that raise issues presenting a substantial likelihood of broader enforcement significance beyond the parties to the dispute (including cases involving repeated or overt discrimination).
Cases protecting “vulnerable workers,” including teenage workers, persons with limited literacy or education, individuals employed in low-wage jobs, sexual assault survivors, and workers with developmental or intellectual disabilities.
Cases involving the integrity or effectiveness of the agency’s enforcement process, including cases where persons are retaliated against for participating in EEOC proceedings or a respondent’s defense is rooted in a challenge to EEOC policy documents.

Considerations for employers

The priorities in the NEP track the administration’s federal employment policy direction over the past 18 months. Employers should pay particular attention to the types of DEI initiatives and other employment practices the NEP identifies as targets. The agency also notes that it will collaborate with the Department of Justice, Department of Labor and Department of Education, as well as state and local agencies, through coordinated investigations, litigation, information sharing and other cooperative enforcement efforts, extending the practical reach of NEP enforcement.

In light of the NEP, employers should consider the following steps:

Audit programs and policies. Review all existing DEI initiatives, hiring programs, mentorship and fellowship opportunities, and compensation structures to ensure equal access for all, regardless of protected characteristics.
Review job postings and recruiting materials. Ensure that job advertisements do not use language that could discourage or encourage applicants on the basis of a protected characteristic. For example, the NEP specifically flags as “overt discrimination” job ads that, based on protected characteristics such as race or national origin, exclude or discourage certain individuals from applying, or encourage certain individuals to apply. This includes terms that function as race-based proxies (e.g., “diverse candidates”) or national origin proxies (e.g., “guest worker visa holders” or “PERM applicants”).
Assess immigration and visa-related hiring practices. Programs that preference guest worker visa holders or Program Electronic Review Management (PERM) applicants may result in national origin discrimination claims or liability. Recent EEOC enforcement actions have targeted alleged anti-American bias and preferences for foreign workers.
Exercise caution when navigating religious accommodation requests. Employers should confirm that their accommodation requests and interactive processes are well-documented, consistently applied and defensible under the Groff standard and in light of heightened EEOC scrutiny.

UK Tax and LLCs: An End to Double Taxation?

Wed, 17 Jun 2026 16:00:00 Z

In welcome news, on 10 June 2026, the UK government signalled its intention to resolve a frequently encountered problem for UK taxpayers holding interests in cross-border structures: the tax mismatch – and consequent high effective tax rates – that can arise for UK members of limited liability companies (LLCs).

The UK tax authority (HMRC) published a consultation document (ConDoc) setting out the government’s proposals.

The ‘tax mismatch’ explained

The underlying issue concerns the UK tax classification of LLCs. The ConDoc focuses on US LLCs, but all LLCs are in scope.

LLCs are a type of corporate entity commonly used to hold investments and businesses, combining operational flexibility with limited liability. Whilst LLCs are popular in the US and many other jurisdictions, UK corporate law does not allow the creation of UK LLCs.

Under US tax rules, a US LLC is treated as “transparent” for US tax purposes (either as a partnership or as a disregarded entity if it has only one member), unless a “check-the-box” election has been made to treat it as “opaque” (as a corporation). In principle, therefore, an individual UK member of a (transparent) US LLC is subject to US tax on that member’s proportion of the income and gains of the LLC, taxed at applicable US tax rates.

The tax mismatch arises because it is current HMRC practice to treat almost all US LLCs as opaque for UK tax purposes. Consequently, a UK member of a US LLC is treated for UK tax purposes not as receiving a proportion of the income and gains of the LLC, but instead as receiving a distribution from the LLC, as and when its income and gains are treated as distributed by the LLC. In the UK, distributions are generally taxed at income tax rates of up to 39.35%.

HMRC’s position is that, except in limited circumstances, the US tax cannot be credited against the UK tax (including under the UK/US treaty) because credit for tax can only be given in respect of the same profits, income or gains – and LLC profits, income and gains, on the one hand, and dividends, on the other, are inherently different.

This purely technical mismatch can result in double taxation for UK individual members of an LLC – indeed, the ConDoc notes that effective tax rates can exceed 75%.

Proposed reforms

The ConDoc states that the UK government is minded to introduce legislation that would, going forward, automatically treat LLCs that are fiscally transparent in their home country as transparent for UK tax purposes. In theory, this should eliminate (or at least substantially reduce) the risk of double taxation. The ConDoc does, however, also seek views on two alternative proposals, being a deduction regime (reducing UK taxable receipts to the amount net of non-UK tax already paid) or a credit regime (effectively the status quo but with credit for non-UK tax on underlying profits given against UK tax on distributions).

Some important issues have not yet been addressed. In particular, the proposed reforms are stated to apply only to UK individuals, with UK corporates expressly carved out of scope (the current mismatch is typically less of a problem for UK corporates, because of a UK tax exemption for dividends received by companies, but LLCs can cause other complications for UK companies, including around the application of grouping tests). Transparent treatment would also not apply to LLCs that are themselves subject to UK taxation, either as resident in the UK or through a UK permanent establishment – leaving the door open to the risk of high effective tax rates for UK individuals in some scenarios. There are also likely to be complications around any transition into the new rules. Even after the mismatch between transparent and opaque treatment has been resolved, problems could still arise as a result of a different type of mismatch, between the timing and calculation of profits and gains arising to the LLC under separate UK and US tax rules.

Concluding thoughts and next steps

If implemented, the proposal to treat many US LLCs as transparent on an automatic basis could be a neat solution to what has long been a thorny issue for UK taxpayers and their advisors. It should also make it more attractive for LLC-holding US citizens to relocate to the UK.

The announcement also supports wider shifts in UK tax policy aimed at making the UK tax system more user-friendly for US-facing business structures and transactions. Another relatively recent example is the publication by HMRC of guidance indicating its view that UK tax deferral (under section 135 of the Taxation of Chargeable Gains Act 1992) may be achieved in US merger transactions, which historically has been far from clear.

The consultation runs until 31 July 2026. Individuals potentially impacted by the government’s proposal should continue to monitor for updates, including the publication of any draft legislation.

What Can You Tell Payors Preapproval? FDA Clarifies Safe Harbors

Wed, 17 Jun 2026 14:48:44 Z

On June 3, 2026, the US Food and Drug Administration (FDA) issued new draft guidance titled, “Drug and Device Manufacturer Communications With Payors, Formulary Committees,and Similar Entities — Questions and Answers” (2026 draft guidance). Once finalized, the 2026 draft guidance will replace the 2018 final guidance of the same title. FDA is accepting public comments through August 3, 2026.

The 2026 draft guidance implements statutory changes introduced by the Pre-approval Information Exchange (PIE) Act (Section 3630 of the Consolidated Appropriations Act, 2023), which added Section 502(gg) to the Federal Food, Drug, and Cosmetic Act (FDCA). While the guidance does not represent a wholesale overhaul to how FDA considers preapproval payor communications, several updates carry meaningful compliance implications for both drug and device manufacturers seeking to communicate with certain third parties about unapproved products or uses.

Background

Under both the 2018 guidance and long-standing FDA policy, manufacturers have been permitted to communicate certain information about unapproved products and unapproved uses of approved or cleared products to payors, formulary committees and similar entities – such as healthcare economic information (HCEI) – in advance of FDA approval or clearance. The 2018 guidance established a nonbinding framework under which FDA “did not intend to object” to such communications when conducted within specified parameters. The PIE Act added an explicit statutory safe harbor to that framework, and the 2026 draft guidance implements and elaborates on that statutory structure.

Like the 2018 guidance, and consistent with the relevant statutory language, the 2026 draft guidance applies only to communications with payors, formulary committees and similar entities with knowledge and expertise in healthcare economic analysis. Communications directed at other audiences, such as healthcare providers or consumers, regarding unapproved medical products or unapproved uses of approved or cleared medical products “are beyond the scope of this guidance.” FDA acknowledges the role that these payor communications can play in coverage and reimbursement assessments and determinations, “recogniz[ing] that in some situations, payors need to plan for and make coverage and reimbursement decisions for medical products and uses far in advance of the effective date of such decisions.” The agency further recognizes “the value of payors receiving truthful and not misleading information about unapproved medical products and unapproved uses of approved/cleared medical products, as described in [Section 502(gg) of the FDCA], in order to inform their decision-making.”

Key updates in the 2026 draft guidance

Incorporation of the statutory safe harbor under Section 502(gg)

The PIE Act created a statutory safe harbor under Section 502(gg) of the FDCA, providing that a drug or device shall not be deemed “misbranded” solely on the basis of qualifying payor communications. The 2026 draft guidance incorporates this statutory language, replacing the 2018 guidance’s prior nonbinding “does not intend to object” policy with the binding statutory conditions. To qualify for the safe harbor, communications must:

Fall within the enumerated “product information” types – including product descriptions, anticipated approval or clearance timelines, pricing information, patient utilization projections and factual presentations of study results that do not characterize safety or effectiveness.
Be truthful and not misleading.
Include required disclosures regarding the product’s unapproved or uncleared status, stage of development, study design limitations, current approved labeling (if applicable) and any material updates to previously communicated information.
Not include representations that the product has been approved or cleared, or that its safety and effectiveness has been established.

Medical devices now expressly on equal footing with drugs

One of the more significant structural changes under the PIE Act, also incorporated into the 2026 draft guidance, is the full integration of medical devices (in addition to drugs) into the statutory framework. The PIE Act amended Section 502(a) of the FDCA to explicitly extend the HCEI provisions to medical devices. Under the 2018 guidance, devices were addressed only through a nonbinding “generally applicable” FDA policy – meaning device manufacturers lacked a statutory hook when engaging in these communications. Consistent with the PIE Act, the 2026 draft guidance expressly applies to both drugs and devices. More specifically, it consolidates drugs and devices under a single unified framework and removes the prior separate device section entirely. Device manufacturers can now point to a formal statutory safe harbor when participating in preapproval/clearance HCEI communications with payors.

Mandatory follow-up communications

Perhaps the most operationally significant change reflected in the PIE Act and incorporated into the 2026 draft guidance is the elevation of the follow-up obligation from a nonbinding recommendation to a statutory requirement. Under the PIE Act and the 2026 draft guidance, manufacturers must provide updated information to payors if previously communicated information becomes materially outdated – for example, due to failure to meet a primary endpoint, a clinical hold or a determination that an application is not ready for approval.

This change creates a meaningful compliance infrastructure challenge. Many manufacturers – especially those working through their first product approval – may not have a systematic process to track which payors or formulary committees received which preapproval communications, making it difficult to reliably trigger follow-up obligations when information becomes outdated. Manufacturers should assess whether their existing policies and procedures are adequate to meet this statutory requirement.

Greater disclosure about clinical development

FDA reaffirms its policy of not objecting to payor communications about unapproved uses of approved or cleared products, even where such uses are not actively under investigation, provided the communication is consistent with Section 502(gg). However, the 2026 draft guidance picks up on key language in Section 502(gg) that is not present with the Section 502(a) HCEI language – the requirement to disclose “[i]nformation related to the stage of product development” (e.g., the status of any study or studies in which the product or new use is being investigated and how that relates to the overall development plan, whether a marketing application for the product or new use has been submitted to FDA, or when such a submission is planned), as well as material aspects of any such study designs, methodologies and limitations.

This disclosure obligation appeared in a single Q&A response in the 2018 guidance but is now a statutory requirement under the PIE Act. Sponsors must now consider whether and when they are ready to share this type of information with payors, formulary committees and/or similar entities to remain within the Section 502(gg) safe harbor. Doing so will necessarily require sponsors to assess how to protect confidential commercial information while still making the disclosures needed to qualify for the statutory safe harbor.

Implications for sponsors

Although the 2026 draft guidance does not represent a dramatic departure from the previous FDA guidance about HCEI practice, the elevation of key conditions to statutory requirements means that existing payor communication frameworks, templates and policies should be reviewed and updated as appropriate. In particular, companies should consider the following action items:

Review disclosure language. Assess whether current disclosure language in payor-facing materials satisfies the Section 502(gg)(1)(A) statutory requirements, which are now binding rather than advisory.
Align device communications with the unified statutory standard. Device manufacturers should review their payor communication programs in light of the updated statutory framework that expressly applies to devices.
Build or update follow-up communication-tracking processes. Sponsors should evaluate whether they have sufficient infrastructure to identify which payors received which preapproval communications, and to trigger mandatory follow-up when material information changes. Existing policies should be reviewed – and, where needed, a separate policy covering payor and formulary committee interactions should be developed.
Reinforce MLR review for HCEI materials. To ensure that communications satisfy the disclosure requirements and all other conditions under Section 502(gg), sponsors should route HCEI materials through a Medical, Legal and Regulatory (MLR) review or similar formal review process to confirm that the materials are accurate, nonmisleading and appropriately contextualized within the overall medical product development plan.

Comment deadline: August 3, 2026

FDA is soliciting public comments on the 2026 draft guidance through August 3, 2026. Companies that engage in preapproval/clearance payor communications – particularly those with comments on the mandatory follow-up obligation, the disclosure of medical product development information or device-specific implementation questions – may wish to consider submitting comments.

If you have questions about the 2026 draft guidance, how it affects your existing payor communication program or whether to submit comments, please contact your Cooley relationship attorney or any member of Cooley’s life sciences and healthcare regulatory practice group.

Hikma v. Amarin: What the Supreme Court’s Decision Means for Pleading Induced Infringement

Wed, 17 Jun 2026 07:00:00 Z

On June 4, 2026, the US Supreme Court unanimously decided Hikma Pharmaceuticals USA Inc. v. Amarin Pharma, Inc., holding that induced patent infringement under § 271(b) requires a plaintiff to plausibly allege affirmative steps to encourage infringement, and that “passive” statements that recipients merely could read as instructions to infringe were not sufficient. In doing so, the Supreme Court explicitly rejected the US Court of Appeals for the Federal Circuit’s approach that focused on “whether the relevant statements could be read by medical providers as instructions to infringe.”¹ While finding that Amarin’s complaint did not sufficiently allege affirmative steps to encourage infringement, the Supreme Court left open the possibility that induced infringement can be implicit. Hikma involved induced infringement in the “skinny-label” context, but the Supreme Court’s analysis could apply to induced infringement more broadly.

The Hatch-Waxman skinny-label pathway

The Hatch-Waxman Act allows generic manufacturers to seek US Food and Drug Administration (FDA) approval through an abbreviated new drug application (ANDA) that piggybacks on the brand manufacturer's clinical data, avoiding the costly and time-consuming studies required for a pioneer drug. A generic manufacturer whose product would infringe a patented method of use has three main options: wait until the patent expires to enter the market, file a paragraph IV certification asserting the patent is invalid or will not be infringed (which constitutes an act of infringement and triggers litigation), or submit a “skinny label” that removes (i.e., “carves out”) the patented use and only includes unpatented methods of use and file a so-called section viii statement informing FDA of the carve-out. Even if a generic manufacturer pursues a skinny label, the branded company may still sue for induced infringement if the generic takes affirmative steps to encourage use of its product for the patented method of use, including for failing to successfully carve out the patented use from the skinny label. Cases like GlaxoSmithKline LLC v. Teva Pharms. USA, Inc., 7 F.4th 1320, 1323 (Fed. Cir. 2021) and AstraZeneca LP v. Apotex, Inc., 633 F.3d 1042, 1060 (Fed. Cir. 2010) make this clear.

Amarin’s complaint and the proceedings below

Amarin markets Vascepa (icosapent ethyl), which FDA approved in 2012 for severe hypertriglyceridemia (SH Indication).² At that time, Vascepa was not yet approved for cardiovascular uses, and its original label included a statement that its effect “on cardiovascular mortality and morbidity in patients with severe hypertriglyceridemia has not been determined” (CV Limitation of Use).³ In 2016, Hikma submitted an ANDA for its generic icosapent ethyl for the SH Indication.⁴

In 2019, FDA approved Vascepa for a second use, reducing cardiovascular risk in patients who already take statins (CV Indication).⁵ At that time, Amarin removed the CV Limitation of Use from Vascepa’s label and obtained two method-of-use patents covering the CV Indication and listed those patents in the Orange Book.⁶

In response to the new patents, Hikma supplemented its ANDA with a section viii statement that it was seeking a skinny label for only the SH Indication and not the CV Indication. Hikma also removed the CV Limitation of Use from its label.⁷ In 2020, after Amarin’s SH patents were found invalid, FDA approved Hikma’s ANDA with a skinny label limited to the SH Indication, assigning Hikma’s generic an “AB” rating indicating therapeutic equivalence to Vascepa when used according to its labeling.⁸ Amarin alleged that because Hikma’s generic is therapeutically equivalent to Vascepa, it is routinely dispensed in place of Vascepa under generic substitution laws, including for the patented CV use, despite the carve-out on Hikma’s label.

Amarin sued in the US District Court for the District of Delaware, alleging Hikma actively induced infringement of its CV Indication patents based on the totality of Hikma’s statements across several documents.⁹ Specifically, Amarin made allegations based upon:

The Hikma label’s omission of the CV Limitation of Use, while retaining information about a clinical study in which some patients were taking statins.¹⁰
A Hikma patient information leaflet that warned about possible side effects for “people who have heart (cardiovascular) disease,” which is the target population for the CV Indication, noting that “[m]edicines are sometimes prescribed for purposes other than those listed in a Patient Information leaflet.”¹¹
Hikma’s website that described its icosapent ethyl drug as “AB” rated and listed its therapeutic category as “hypertriglyceridemia,” a category that includes, but is broader than, the approved SH Indication.¹²
Pre-launch press releases that described Hikma’s product as “generic Vascepa” without disclosing that the approved use was limited to the SH Indication, and that featured Vascepa’s sales figures attributable to both indications.¹³

Hikma moved to dismiss the complaint for failure to state a claim, and the district court granted the motion. The Federal Circuit reversed, finding it “at least plausible that a physician could read” Hikma’s label, website and press releases “as an instruction or encouragement to prescribe [Hikma’s generic] for any of the approved uses of icosapent ethyl.”¹⁴

The legal framework for pleading induced infringement

The Supreme Court’s analysis begins with the “well-established” Iqbal-Twombly standard for pleading that “asks for more than a sheer possibility that a defendant has acted unlawfully.”¹⁵ A complaint that “pleads facts that are merely consistent with a defendant’s liability” “stops short of the line between possibility and plausibility of entitlement to relief.”¹⁶ Therefore, to “nudge a claim ‘across the line from conceivable to plausible,’” the “plaintiff must plead facts that ‘allo[w] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,’” and “rule out ‘obvious alternative explanation[s]’ for the defendant’s conduct.”¹⁷

The three elements of inducement are: (1) direct infringement by a third party; (2) knowledge that “the induced acts constitute patent infringement;” and (3) “active steps … to encourage direct infringement.”¹⁸ The question before the Supreme Court was limited to whether Amarin had satisfied the pleading standard for the third element.

The ‘active steps’ requirement

The Supreme Court held that a plausible inducement claim must include “active steps” to encourage infringement and, by contrast, that “ordinary acts incident to product distribution” are not enough.”¹⁹ The Supreme Court explained that active steps require “statements or actions directed to promoting infringement” and cited with approval previous inducement cases that required “‘the taking of affirmative,’ as opposed to passive, ‘steps to bring about the desired result’ of patent infringement” or “purposeful, culpable expression and conduct.”²⁰

Nor can allegations of inducement “be based only on ‘vague’ language ‘combined with speculation about how others may act.’”²¹ The Supreme Court drew a line between the insufficiency of alleging “a plausible chain of events” that merely “could lead a healthcare provider … to prescribe or dispense” the generic drug in an infringing manner,²² and statements “designed to stimulate others to commit violations.”²³ The Supreme Court noted that “statements designed to stimulate others form a narrower category than statements that could stimulate others.”²⁴ The Supreme Court explicitly “reject[ed]” the Federal Circuit’s “recent approach … which has increasingly trained its focus on whether the relevant statements could be read by medical providers as instructions to infringe.”²⁵

Importantly, the Supreme Court rejected Hikma’s argument that active inducement must always be “express.”²⁶ “But implicit or explicit, the necessary inducement must be ‘clear’ to the relevant audience and ‘affirmative.’”²⁷

Applying the standard: Three reasons Amarin’s complaint failed

The Supreme Court reasoned that the statements Amarin relied on fell into three categories.

Category 1: Obvious alternative explanation

The Supreme Court determined that some of Hikma’s statements had an “obvious alternative explanation” besides inducing infringement.²⁸ The Supreme Court pointed out that Hikma’s label omitted the CV Limitation of Use and retained clinical study information about patients taking statins because the duty-of-sameness statute, 21 USC §355(j)(2)(A)(v), required it to mirror Vascepa’s label except for the carved-out indication.²⁹ The Supreme Court concluded Hikma’s press releases describing its product as “generic Vascepa” reflected “normal industry practice” of “truthfully describ[ing]” a generic drug as “equivalent” to the brand-name comparator.³⁰ The Supreme Court reasoned that finding statements “complying with the law or with standard industry practice” to also be “affirmative steps to encourage infringement” would “put generic manufacturers between a rock and a hard place.”³¹

Category 2: Mere omissions and inactions

The Supreme Court also found that “mere omissions, inactions, or nonfeasance” did not amount to “affirmative ‘statements or actions.’”³² Therefore, the Supreme Court determined Hikma’s omission of the CV Limitation of Use from its label and silence about the SH-only approval in its press releases were not enough to plausibly allege liability. The Supreme Court reasoned that it must “look for affirmative ‘statements or actions’ precisely to avoid ‘trenching on regular commerce,’” and doing otherwise could make “ordinary merchants … liable for any misuse of their goods and services, no matter how attenuated their relationship with the wrongdoer.’”³³

Category 3: Vague statements combined with speculation

The Supreme Court found the remaining statements Amarin invoked to support inducement liability were too vague to constitute plausible active steps.³⁴ The patient leaflet’s cardiovascular side effect warning and off-label use disclaimer were considered “implausibly roundabout ways to induce” infringement.³⁵ The Hikma website’s reference to its product as a treatment for “hypertriglyceridemia,” as opposed to “severe hypertriglyceridemia,” was considered merely a description of the category of drugs, “akin to describing a drug for leukemia as a “cancer drug.’”³⁶ The Supreme Court concluded the Hikma website’s clarification that its generic is “indicated for fewer than all approved indications” of Vascepa negated any inference of deliberate promotion.³⁷ And the Supreme Court considered Hikma’s press release sales figures as “the vaguest of ‘vague’ statements” that would require multiple, speculative steps to occur for those statements to result in infringement – a chain of events that is “possible” but not “plausible.”³⁸

Practical implications

For brand-name patent owners, the decision sets the bar for pleading induced infringement but does not close the door to finding infringement where a generic uses a skinny label. The Supreme Court did not foreclose inducement claims in skinny-label cases based on a totality-of-circumstances theory and confirmed that implicit encouragement can suffice. However, the totality of statements must plausibly reflect affirmative steps by the defendant to encourage infringing use. Allegations that depend on assuming a subjective, inferential leap by the healthcare provider are more likely to be found “possible” but not “plausible.” Statements or conduct directed at the patented use that cannot be explained by regulatory obligation or industry practice are likely to provide more plausible allegations of active inducement.

Brand-name patent owners should also consider patent strategies that are not susceptible to indication carve-outs – for example, by patenting safety and efficacy information that relates to all approved indications. This can include dose adjustments based on patient characteristics, such as renal, hepatic or metabolizer status, and dose adjustments to address interactions with other drugs. Because this information is required to appear in a generic label, it will provide clearer evidence of induced infringement.

For generic manufacturers, Hikma demonstrates that companies that pursue the skinny-label pathway, mirror the brand label as required by statute and describe their products using standard industry terminology may be better positioned to avoid induced infringement liability.

Conclusion

Hikma v. Amarin is a significant decision for pleading induced patent infringement claims. Patentees should heed the Supreme Court’s emphasis that “the key question is whether a defendant actively encouraged infringement through its statements, not merely how others may understand those statements,”³⁹ because “implicit or explicit, the necessary inducement must be ‘clear’ to the relevant audience and ‘affirmative.’”⁴⁰

Notes

Slip op. at 9 n.3.
Slip op. at 5.
Id.
Id.
Id.
Id.
Id.
Id. at 6, citing the Federal Circuit decision, 104 F.4th 1370, 1373–1374.
578 F.Supp. 3d 642, 645–647 (D. Del. 2022); slip op. at 6–7.
Slip op. at 6.
Id.
Id.
Id. at 6–7.
104 F.4th 1370, 1378–1380 (Fed. Cir. 2024).
Slip op. at 7, quoting Ashcroft v. Iqbal, 556 US 662, 678 (2009).
Id.
Id. at 7–8, quoting Iqbal, 556 US at 678, 680, and Bell Atlantic Corp. v. Twombly, 550 US 544, 567 (2007).
Id. at 7–8, quoting Iqbal, 556 US at 678, 680, and Bell Atlantic Corp. v. Twombly, 550 US 544, 567 (2007).
Id. at 8, quoting Global-Tech, 563 US at 760.
Id. at 8, quoting Global-Tech, 563 US at 760, and Grokster, 545 US at 935, 937.)
Id. at 10, citing Takeda Pharms. v. Westward Pharm. Corp., 785 F.3d 625, 632 (Fed. Cir. 2015).
Id. at 8, quoting Amarin’s brief.
Id. at 9, quoting Grokster, 545 US at 937.
Id., emphases in original.
Id. at 9 n.3.
Id. at 10.
Id., citing Grokster, 545 US at 937.
Slip op. at 10–11, quoting Twombly, 550 US at 567.
Slip op. at 11.
Id., citing Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 US 844, 847–848 (1982).
Id. at 10-11.
Slip op. at 11–12 (emphasis in original).
Id. (emphasis in original), citing Grokster, 545 US, at 935, 937, and Twitter, Inc. v. Taamneh, 598 US 471, 489 (2023).
Slip op. at 12.
Id.
Id. at 13.
Id. at 12–13.
Id. at 13–14.
Slip op. at 9 n.3.
Id. at 10.

Rest Assured: Virginia Enacts Paid Sick Leave Law

Tue, 16 Jun 2026 13:14:22 Z

Virginia recently enacted HB 5, a paid sick leave (PSL) law, requiring all commonwealth employers to provide paid sick leave on a phased schedule beginning July 1, 2027. Employees will accrue up to 40 hours of PSL annually. Below is a summary of key provisions and recommended compliance steps.

Phased effective dates and employer coverage

PSL applies to employers on the following phased schedule based on workforce size:

July 1, 2027: Employers with 50 or more employees
January 1, 2028: Employers with 25 or more employees
January 1, 2029: Employers with one or more employees

Whether the employee count is based on total headcount or Virginia-based employees remains unclear and may be addressed in forthcoming regulations. The law exempts certain employees, including home health workers and certain licensed healthcare professionals.

Accrual and carryover requirements

Employees accrue one hour of paid sick leave for every 30 hours worked, beginning at the start of employment. Any accrued but unused leave must carry over from year to year, though employees may not accrue or use more than 40 hours of leave in a year, unless the employer sets a higher limit. Employees exempt from the Fair Labor Standards Act (FLSA) are assumed to work 40 hours per week for accrual purposes, unless their normal work week is shorter.

Employers may frontload the full 40 hours at the start of the year to satisfy the accrual requirement, in which case they are not required to allow carryover of unused leave into the following year. Employers with existing paid leave policies that provide leave in an amount and under conditions and purposes sufficient to meet the new law’s requirements are not required to provide additional paid sick leave. Similarly, employers subject to collective bargaining agreements that meet the requirements of the law are exempt from providing additional paid sick leave.

Employers need not pay out accrued, unused leave upon separation. However, if an employee is rehired within 12 months, previously accrued leave must be reinstated, unless it was paid out at separation.

PSL uses

Employees may use PSL for the following purposes:

The employee’s own mental or physical illness, injury or health condition, including the need for medical diagnosis, treatment or preventive care.
Care of a family member with a mental or physical illness, injury or health condition, or who needs medical diagnosis, treatment or preventive care.
Absences related to domestic violence, sexual assault or stalking, provided the leave is used to seek or obtain medical or mental healthcare, counseling, legal services, relocation or securing an existing home, or other victim services for the employee or the employee’s family member.

The law defines “family member” broadly to include:

A child (biological, adopted, foster, stepchild, legal ward or child to whom the employee stands in loco parentis).
A parent (biological, adopted, foster, stepparent, adoptive, legal guardian or an individual who stands in loco parentis).
A spouse or domestic partner.
Grandparent, grandchild or sibling.
Individuals for whom the employee provides or arranges health or safety-related care.
Any other individual related by blood or affinity whose “close association with an employee is the equivalent of a family relationship.”

Requesting leave

Employees may request leave orally, in writing, electronically or “by any other means acceptable to the employer.” For foreseeable leave, employees must make a good faith effort to provide advance notice and avoid unduly disrupting operations. Employers requiring notice must provide a written notice policy; failure to do so precludes denying leave for noncompliance with notice requirements.

Documentation

For absences of three or more consecutive workdays, employers may require reasonable documentation that leave was used for a covered purpose. A healthcare professional’s note suffices for health-related leave. For domestic violence, sexual assault or stalking-related leave, acceptable documentation includes a police report, court document, documentation from a victim services advocate or other professional, or the employee’s own written statement.

Confidentiality

Employers may not require disclosure of detailed health information or details of domestic violence, sexual assault or stalking as a condition of providing leave. Any such information must be treated as confidential and may not be disclosed without the employee’s consent, except as required by law.

Notice and recordkeeping

The law directs the commissioner of labor and industry to promulgate regulations governing employee notice and employer recordkeeping. Employers must notify employees of their rights (including the right to file complaints or bring civil actions) in writing and through workplace postings, maintain records of leave accrual and use for at least three years, and ensure the confidentiality of any health or domestic violence-related information.

Anti-retaliation protections

The law prohibits retaliation, including discharge, discipline, threats or discrimination, against employees who request or use PSL, allege violations, participate in investigations or inform others of their PSL rights. PSL may not be counted as an absence under an absence control policy. These protections extend to individuals who allege a violation in good faith, even if the allegation is ultimately mistaken.

Enforcement and penalties

The commissioner of labor and industry will promulgate implementing regulations to enforce the law. Aggrieved individuals may file a complaint with the commissioner within one year of the date they knew or should have known of the violation, and the commissioner may also initiate investigations at their own discretion.

Employers that knowingly violate the law are subject to civil penalties of up to $150 for a first violation, $300 for a second violation within two years and $500 for each successive violation within that period. In determining the amount of the civil penalty, the commissioner must consider the size of the business and the gravity of the violation. Notably, the law provides that no civil monetary penalty will be assessed, and no action will be brought against an employer alleged to have violated the law if the employer corrects the alleged violation within a reasonable time to be established by regulation.

In addition, employees also have a private right of action without first exhausting administrative remedies. A prevailing employee is entitled to:

Twice the amount of uncompensated sick leave.
Twice the amount of actual damages.
Injunctive relief.
Legal or equitable relief, including reinstatement.
Lost wages, benefits and other remuneration, plus interest, attorneys’ fees and costs.

The statute of limitations for a civil action is two years from the violation or the date the employee knew or should have known of it.

Next steps

In light of the new law, Virginia employers should consider the following steps:

Review existing leave policies. Evaluate whether current paid time off policies (e.g. sick leave, vacation, etc.) satisfy the law’s requirements and consider whether to update them to comply with PSL or establish a separate PSL benefit for Virginia employees.
Prepare to update employee handbooks, notices and systems. Update handbooks, policies and workplace postings to reflect the new requirements, including employees’ rights to file complaints or bring civil actions. Employers should also align payroll and timekeeping systems to track accrual and usage accurately.
Train supervisors and managers. Train management on the law’s anti-retaliation provisions and confidentiality protections, among other key provisions.
Monitor regulatory developments. Key issues remain unaddressed, including employer threshold coverage, notice and recordkeeping obligations. Employers should monitor the commonwealth’s rulemaking process for additional guidance.

Virginia’s most recent legislative session closed with significant new obligations for employers, including a newly enacted paid family and medical leave law; for more detail about the new leave law, please see this May 1 Cooley alert. If you have questions about these new laws, contact the Cooley employment team or one of the lawyers listed below.

Washington’s CEMA Amendments Take Effect June 11 – What Consumer-Facing Companies Should Know

Tue, 09 Jun 2026 18:42:32 Z

Background: The litigation wave

Recent court decisions have significantly expanded the reach of Washington’s Commercial Electronic Mail Act (CEMA), a statute enacted in 1998 in response to dial-up era concerns. The claims driving today’s litigation wave follow a recognizable pattern: A merchant sends a promotional email with a subject line announcing that a sale “ends tonight” or “ends today” – and then, days or a week later, announces the sale has been extended. Under the expansive reading of CEMA adopted by the Washington Supreme Court in April 2025, that sequence could give rise to a statutory claim for each email sent, regardless of whether the email body contains qualifying language.

In Brown v. Old Navy, 4 Wn. 3d 580 (2025), the court rejected a narrower reading of CEMA, under which the statute reached only false or misleading subject-line information concerning the commercial nature of the email. Instead, the court held that CEMA’s prohibition on “false or misleading” email subject lines reaches any inaccurate subject line claim – including otherwise routine promotional language like “ends tonight,” “today only” or “50% off” – regardless of whether the email body clarifies the claim. Separately, CEMA prohibits sending or “assisting” the sending of unconsented commercial text messages.

The result has been a surge in class action filings. With $500 in statutory damages per violation – and no express statutory requirement that the plaintiff prove actual harm or intent on the part of defendants – the potential aggregate exposure from a single campaign often reaches into the tens or hundreds of millions of dollars for large retailers. A CEMA violation is also automatically deemed an “unfair or deceptive act in trade or commerce and an unfair method of competition for the purpose of applying” Washington’s Consumer Protection Act (CPA), enabling plaintiffs to sue retailers and other defendants under both statutes. More than 100 CEMA lawsuits were filed in the 12 months following Brown, compared to just eight over the preceding two decades.

What the 2026 amendments change

On March 23, 2026, Washington Gov. Bob Ferguson signed HB 2274 into law, providing tailored reforms to CEMA that take effect on June 11, 2026.

Reduced statutory damages. Per-violation statutory damages are reduced from $500 to $100. This is significant, but high-volume senders remain exposed to substantial aggregate liability even at the lower amount. A campaign reaching one million Washington recipients could still generate up to $100 million in statutory exposure.
Knowledge requirement. For email subject line claims, the statute now includes an express requirement that the sender knew, or that knowledge was fairly implied from objective circumstances, that the subject line was false or misleading at the time of sending. In practice, this may provide a defense where a sender can document that a sale’s end date was set in good faith and an extension was genuinely unplanned, but it may not help where internal records show that extensions were routine or anticipated. For text message claims, the knowledge standard remains unchanged.
Prospective application only. The amendments apply only to lawsuits “commenced on or after” June 11, 2026.

Geographic reach: Risk is not limited to businesses in Washington

CEMA has been interpreted to apply to commercial emails and text messages sent to Washington residents, regardless of where the sender is located. Any retailer or consumer-facing business with customers in Washington faces potential exposure, even if it has no physical presence in the state.

Practical risk mitigation: What companies should do now

Audit existing campaigns for subject lines that contain duration, discount or urgency claims that were later qualified or extended.
Ensure subject lines are independently accurate – do not rely on email body text to correct or qualify a claim in the subject line.
Document the good-faith basis for subject line representations at the time each email is sent, including promotional calendars and approval records.
Audit third-party and affiliate email partners to ensure their practices meet the same standards.

European Union: The Single Market’s Invisible Borders

Tue, 09 Jun 2026 16:00:00 Z

Brussels has territorial supply constraints in its sights. The European Commission has opened a public consultation on one of the most politically charged supply-chain issues in the European Union (EU). Brand owners, manufacturers and distributors should pay close attention.

The direction of travel is clear. Political support for action is broad and growing, and Brussels has set an ambitious timetable. Where this ends up, however, is far from certain. Soft measures – voluntary codes or nonbinding guidelines – are unlikely to satisfy the political appetite that has built around the issue. Harder legislative options carry real legal and commercial risk. For those who have not gotten involved already, now is the time.

Borders without barriers? Not quite

Territorial supply constraints (TSCs) are business practices that restrict customers – especially retailers and wholesalers – from engaging in cross-border arbitrage: buying products in “low-price” EU Member States and reselling them in “high-price” ones. A manufacturer in Spain, say, who receives an order from a Danish retailer may refer that retailer to its Danish subsidiary. If the retailer cannot source at the lower Spanish price, it is less able to compete on price in the higher-cost Danish market.

The EU’s single market does not aim to ensure a single price for every product. But its rules on free movement and nondiscrimination are meant to facilitate cross-border trade. TSCs, in effect, partition the market along national lines. Views differ as to why they exist. Some see them as strategies by manufacturers to create and preserve fat profit margins. Others blame divergent national regulation. Still others regard them as mechanisms that balance commercial relations within domestic value chains. If perspectives differ on the disease cause, they differ on the cure, too.

Are trustbusters not enough? Not always

TSCs are not new. For decades, the Commission has wielded the EU’s antitrust rules against practices that partition the single market: parallel trade restrictions, cross-border price discrimination and the like. The courts have mostly backed this approach, and a rich body of case law has evolved.

Enforcement remains vigorous. Mondelēz was fined €337.5 million for anticompetitive arrangements limiting cross-border sales of chocolates, biscuits and coffee. AB InBev paid €200 million for abusing a dominant position in Belgian beer by hindering cheaper imports of its Jupiler beer from the Netherlands into Belgium. In April 2026, the Commission sent inspectors on dawn raids at Ferrero on suspicion of market segmentation between Member States and obstacles to multicountry purchases.

Yet, despite decades of enforcement, the Commission in 2025 designated TSCs one of the “Terrible Ten” – the 10 most harmful barriers to trade in the single market. Its single-market strategy promised “new tools” to tackle unjustified TSCs beyond the reach of antitrust law, which has inherent limits. Enforcement presupposes either an “agreement” between firms or unilateral action by a “dominant” one. Investigations drag on: The Mondelēz case took four-and-a-half years; AB InBev’s took six or seven. A perceived regulatory gap has been identified, particularly for unilateral practices by firms that are not dominant.

A bandwagon gathers speed

TSCs may not be new, but the political momentum for regulatory action is – and it is considerable. For instance:

Enrico Letta, Italy’s former prime minister, called TSCs out by name in his 2024 report on the single market. He argued that they recreate internal economic frontiers contrary to the fundamental freedoms of movement and the principle of nondiscrimination and recommended strengthening national authorities’ capacity to tackle suspected TSCs through a formal procedure for cross-border cases.
In May 2025 the European Parliament published a briefing paper calling TSCs “an unaddressed barrier to single market integration”. It noted that regulatory progression – from partial regulation through competition law to full internal-market legislation – may be required.
The European Council followed suit. In its conclusions of 19 March 2026, it called for measures to address the negative impact of TSCs as a high priority.

Four ways to fill the gap

On 28 May 2026, the Commission launched the next formal step: a 12-week public consultation on regulatory options, open until 20 August. The indicative timetable for a proposal is tight: the fourth quarter of 2026.

The consultation seeks input from all stakeholders on the sources, prevalence, nature and justifications of TSCs. Crucially, stakeholders can submit evidence and real-world experience to help define the problem and shape potential solutions.

Four policy options are on the table:

Option 1 – Self-regulatory action (e.g. a code of conduct). Stakeholders identify practices that hamper the sourcing of products from across the EU and when these practices may be justified.
Option 2 – Guidelines for national authorities and market operators. The Commission identifies practices that hamper the sourcing of products from across the EU and when these practices may be justified.
Option 3 – Legislation based on the concept of economic dependence that would cover territorial supply constraints resulting from unilateral decisions by nondominant operators (assessment on a case-by-case basis).
Option 4 – Legislation identifying a list of prohibited practices and when they may be justified.

Brace for impact

Critics may call this a broad regulatory initiative in search of a problem. There is genuine debate about root causes – whether TSCs stem from imperfect national regulation, corporate rent-seeking or some combination of the two.

No matter. Political calls for intervention are strong. Member States, the European Parliament, the Commission and various stakeholders all want action – and an expansion of regulatory powers beyond the existing, well-oiled antitrust framework.

The regulatory options under consideration are wide-ranging, and they center on corporate business practices rather than regulatory barriers. Both suppliers and buyers of goods in the EU would be wise to engage in the consultation and the debate that surrounds it. The goal should be regulation that is well-calibrated and proportionate – aimed at real-world distortions, not a phantom menace.

AI Executive Order Creates Voluntary Framework for Frontier Models, Advances Critical Infrastructure Cybersecurity

Mon, 08 Jun 2026 14:40:51 Z

On June 2, 2026, President Donald Trump signed a new executive order (EO) addressing the intersection of artificial intelligence and cybersecurity. This EO has direct implications for AI developers, critical infrastructure companies, and any business operating at the intersection of AI and cybersecurity. The EO directs federal agencies to take a series of actions (many within 30 to 60 days) with the purposes of upgrading the cyber defenses of government information systems, establishing a voluntary framework for the deployment of advanced AI models and reinforcing criminal enforcement against the misuse of AI. Below, we summarize the key provisions of the EO and highlight potential implications for AI developers, critical infrastructure operators and other stakeholders.

Importantly, the EO does not impose mandatory licensing or pre-clearance; the EO’s voluntary framework for frontier model deployment creates a structured pathway for engagement with the federal government, but participation is not mandatory. The EO also does not create new civil liability, and it does not address AI governance beyond the cybersecurity context.

Background

The EO frames the United States’ continued leadership in AI as a product of private-sector innovation and a regulatory environment that avoids overly burdensome restrictions. At the same time, the EO acknowledges that advanced AI capabilities introduce new national security considerations requiring coordinated federal action.

Key issues for developers

The most significant provision for AI developers is the direction to the secretary of the Treasury, the secretary of Defense (through the director of the National Security Agency (NSA)) and the secretary of Homeland Security (through the director of the Cybersecurity and Infrastructure Security Agency (CISA)), in consultation with other senior officials, to develop within 60 days:

A classified benchmarking process. This classified benchmarking process will assess the advanced cyber capabilities of AI models and determine the threshold at which a model should be designated a “covered frontier model” for purposes of the EO. The director of NSA will make such designations in consultation with the National Cyber Director, the assistant to the president for Science and Technology, the director of CISA and other Department of Defense representatives. The benchmarking will be classified, and the process is to be “developed and maintained,” presumably to reflect the changing “frontier” of development, in contrast with the EU AI Act's publicly available risk-tier classification criteria.

A voluntary developer framework. The EO provides for a voluntary framework through which AI developers would be able to:
- Engage the federal government to determine whether models under development meet the “covered frontier model” designation.
- Provide the government with access to covered frontier models for up to 30 days before releasing them to trusted partners (subject to confidentiality, cybersecurity, insider risk and intellectual property protections).
- Collaborate with the government to select trusted partners for early access to promote secure innovation and strengthen critical infrastructure cybersecurity.

Notably, the EO expressly provides that nothing in that portion of the EO shall be construed to authorize the creation of a mandatory governmental licensing, preclearance or permitting requirement for the development, publication, release or distribution of new AI models, including frontier models. This voluntary framing is consistent with the administration's broader deregulatory posture.

Additional elements of the EO

In addition to the benchmarking process and voluntary developer framework, the EO imposes additional instructions to other government agencies regarding AI.

Upgrading federal cyber defenses

The EO imposes aggressive 30-day deadlines on federal agencies to prioritize and enhance the cybersecurity of government information systems. The Committee on National Security Systems and the secretary of Defense are each directed to prioritize the cyber defense of National Security Systems and Department of Defense information systems, respectively. The secretary of Homeland Security, acting through the director of CISA, is directed to release Binding Operational Directives and other guidance to:

Expedite the cyber defense of civilian federal information systems.
Establish or expand federal programs that enhance AI-enabled defensive tools.
Facilitate access to cybersecurity tools and services – including, where appropriate, covered frontier models – for agencies, state and local authorities, and critical infrastructure operators, such as rural hospitals, community banks and local utilities.

AI cybersecurity clearinghouse

The secretary of the Treasury, in consultation with the National Cyber Director, the secretary of Defense(through the director of the NSA) and the secretary of Homeland Security (through the director of CISA), is directed to establish an AI cybersecurity clearinghouse. This clearinghouse would operate in voluntary collaboration with the AI industry and critical infrastructure operators to coordinate and deconflict vulnerability scanning, discover and validate such vulnerabilities, and coordinate and prioritize remediation and distribution of vulnerability patches.

Grant funding and workforce

The director of the Office of Management and Budget, in coordination with the National Cyber Director and the director of CISA, is directed to identify federal grant programs with available funding that can be directed toward advanced AI vulnerability detection. Separately, within 60 days, the director of the Office of Personnel Management must expand the US Tech Force information cybersecurity specialist hiring and placement pathways.

Deadline	Agency/actor	Required action
30 days	CISA	Release Binding Operational Directives on cyber defense of civilian federal systems
30 days	Committee on National Security Systems/ secretary of Defense	Prioritize cyber defense of National Security Systems
60 days	Treasury, NSA, CISA	Develop classified benchmarking process and voluntary developer framework
60 days	Office of Personnel Management	Expand US Tech Force cybersecurity hiring pathways
Ongoing	Attorney general	Prioritize enforcement against AI-facilitated cyber crimes

The EO also directs the attorney general to prioritize enforcement of 18 USC §§ 1028 (identity fraud), 1030 (computer fraud and abuse) and 1343 (wire fraud), and all other applicable federal criminal laws, against anyone who utilizes AI to illegally access or damage a computer without authorization, or who utilizes AI in furtherance of such illegal access to commit other crimes. This includes breaching any public or private information technology system or employing AI agents to unlawfully access data or information that is subsequently used for a criminal or unlawful purpose. While these statutes already apply to AI-facilitated conduct, the EO signals the administration’s intent to make such prosecutions a priority.

Key next steps

The EO’s voluntary framework for frontier model deployment creates a structured pathway for engagement with the federal government, but participation is not mandatory.

For AI developers

Monitor the forthcoming classified benchmarking process and assess whether models may meet the "covered frontier model" threshold.
Establish an internal working group to evaluate the costs and benefits of voluntary framework participation before the 60-day window closes.
Ensure IP, confidentiality and cybersecurity protocols can accommodate government pre-release access if you choose to participate.

For critical infrastructure operators (healthcare, financial services, utilities)

Monitor CISA for Binding Operational Directives expected within 30 days.
Evaluate participation in the AI cybersecurity clearinghouse.
Assess eligibility for federal grant funding for AI vulnerability detection.

For all companies

Review cyber incident response plans in light of the heightened federal enforcement priority.
Assess whether your AI deployments introduce any potential liability exposure under the prioritized statutes.

Importantly, the EO does not impose mandatory licensing; it does not create new civil liability; and it does not address AI governance beyond the cybersecurity context.

How Cooley can help

Cooley’s AI and cyber/data/privacy teams are available to advise on voluntary framework participation, IP and confidentiality protections, and incident response planning.

2026 Shareholder Proposal Season Early Review and Look Ahead to 2027

Fri, 05 Jun 2026 17:48:00 Z

’Cause when life looks like Easy Street, there is danger at your door

Despite the heightened drama of the 2026 shareholder proposal season – precipitated by the landmark announcement from the staff of the Division of Corporation Finance of the SEC (SEC staff) that it would generally not respond to no-action requests during the 2026 proxy season – the year-over-year trends remained largely consistent with the prior year. Overall proposal volume continued to decline, driven primarily by fewer environmental and social (E&S) proposals, while governance and anti-ESG proposal activity and support levels remained broadly consistent with last year.

This alert provides an overview of proposal submissions and early voting trends for the 2026 season, examines exclusion and litigation developments under the SEC staff’s new no-action policy, as well as evolving proponent tactics, and considers the implications for what may be an even more chaotic 2027 season.

Key takeaways so far:

Overall submission and voting trends in 2026 are consistent with 2025: Aggregate proposal volumes continue to decline, driven primarily by fewer E&S proposals, which continue to attract low shareholder support, while governance proposals remain steady with continued robust support.

The SEC staff’s effective withdrawal from the Rule 14a-8 no-action process introduced significant uncertainty in 2026, contributing to a likely increase in negotiated withdrawals and a marked reduction in companies submitting unilateral Rule 14a-8(j) exclusion notices relative to prior-year no-action requests.

A significant uptick in proponent litigation in 2026 may introduce a disruptive dynamic into the 2027 season, further complicating how companies navigate shareholder proposal management.

The prospect of an SEC rulemaking to substantially revise or rescind Rule 14a-8 altogether may shape proponent strategies in 2027, though any such rule change would almost certainly face substantial legal and procedural challenges and would likely not take effect before the next proxy season.

Shareholder proponents and activists have continued to deploy innovative strategies in 2026, which may preview the pressure tactics companies can expect in 2027 or following a potential Rule 14a-8 rescission.

Recap of SEC actions

In September 2025, SEC Chairman Paul Atkins indicated that the SEC staff would explore ways to give companies additional tools to challenge shareholder proposals. In that speech, Atkins suggested the SEC staff might take a favorable view of companies submitting Delaware law opinions asserting that precatory proposals are improper under state law or adopting bylaw amendments that impose submission requirements beyond those in Rule 14a-8. Atkins also signaled the SEC was considering a comprehensive reassessment of Rule 14a-8’s role and purpose. Although amendments to Rule 14a-8 are on the SEC’s current rulemaking agenda, the SEC has not yet advanced a rule proposal.

In November 2025, the SEC staff announced a new policy for the 2026 proxy season under which it would no longer provide substantive responses to Rule 14a-8 no-action requests from companies seeking to exclude shareholder proposals from their definitive proxy materials, except for requests based on Rule 14a-8(i)(1) state law violation arguments. Companies seeking to exclude a shareholder proposal must still submit a notice of intent to exclude the proposal under Rule 14a-8(j). While the policy may have been intended to encourage companies to pursue the types of Delaware state law violation arguments under Rule 14a-8(i)(1) contemplated by Atkins, no companies have done so to date.

Initial expectations that the policy would lead to widespread unilateral exclusions and greater proponent flexibility in negotiating withdrawals have not fully materialized. As discussed below, a significant number of companies chose to exclude proposals, and the uncertainty generated by the SEC staff’s current no-action policy appears to have influenced some negotiations. However, the percentage of proposals included in proxies remained generally consistent with prior years, and in some proposal categories (social and anti-ESG proponent proposals) increased. In addition, the emergence of proponent-initiated litigation in March may further complicate the landscape if the SEC staff, as expected, maintains its current no-action policy for the 2027 season.

Notably, anticipated proxy advisor opposition to companies that unilaterally excluded shareholder proposals this season did not materialize, notwithstanding policy statements issued by Institutional Shareholder Services (ISS) and Glass Lewis indicating they would scrutinize companies’ Rule 14a-8(j) exclusion notices. Adverse vote recommendations on that basis were virtually nonexistent, with proxy advisors generally deferring to companies’ judgments where companies provided substantive explanations in support of the exclusion. Should proxy advisors adopt a more aggressive approach for the 2027 proxy season, companies would need to incorporate the prospect of proxy advisor opposition into their shareholder proposal exclusion analysis.

Proposal submissions and early vote results

The analysis below reflects shareholder proposals submitted for annual shareholder meetings at Russell 3000 companies scheduled between January 1 and June 30, 2026 (the 2026 proxy season). This alert adopts a January 1 through June 30 measurement period for all years referenced in the analysis – a departure from prior-year alerts, which used a July 1 through June 30 period – to align with the SEC staff’s announcement of its no-action policy for the 2026 season.[1] Vote results capture outcomes through May 25, leaving 131 proposals, approximately 32% of all proposals appearing in proxy statements to date, to be voted on this season. As a result, the voting trends discussed herein are preliminary and will continue to evolve as additional meetings are held.

Overview

The 2026 proxy season reflects a continuation of several multiyear trends, including a steep and sustained decline in E&S proposal submissions, steady governance proposal volume and a growing share of submissions from anti-ESG proponents. Of the 626 proposals submitted this season, approximately 66% have appeared in proxy statements, generally consistent with recent years (59% in 2025 and 63% in 2024). Average support across all proposal categories has risen slightly to 24.6% in 2026, up from 22.7% in 2025 and 22.5% in 2024.

A notable development this season is the sharp increase in ISS support rates. After recommending in favor of only 34.1% of proposals in 2025, ISS has supported 47.9% of proposals to date this season, broadly in line with its 47.3% support rate in 2024. That shift is reflected across all proposal categories, most strikingly for environmental proposals, where ISS support jumped from 0% in 2025 to 16.7% in 2026. The return of ISS support is likely a contributing factor to the modest improvement in average vote outcomes this season.

Anti-ESG proponents submitted 105 proposals in 2026, consistent with recent years, and average support for those proposals edged up to 5.3% from approximately 2.5% in each of the prior two years, principally driven by higher investor support for independent board chair proposals from those proponents.

Governance proposals

Governance proposals remained steady in volume and continue to receive relatively robust support. Proponents submitted 319 governance proposals in 2026, compared to 305 in 2025 and 316 in 2024, and average support of 33.8% is only slightly below the 35.2% and 35.1% averages observed in 2025 and 2024, respectively. As in prior seasons, governance proposal submissions were heavily concentrated among a small group of serial proponents, who collectively accounted for more than 75% of this season’s submissions.

Several governance proposal topics stand out this season:

Independent board chair – Submissions surged to 99 submissions in 2026 from just 31 in 2025, with average support of 24.6% (down from 31.3% in 2025).

Shareholder written consent rights – Submissions increased sharply to 51 submissions in 2026 from 11 in 2025, all from the same group of proponents referenced above, and average support increased to 38.3% (from 26.3% in 2025).

Shareholder special meeting rights – This remained a prominent proposal topic in 2026, with 59 submissions (down from 70 in 2025), and average support of 39.2% (up from 32.8% in 2025).

Simple majority voting – Proposals to eliminate supermajority voting provisions from governing documents declined to 32 submissions in 2026 from 40 in 2025, but remain among the highest-supported proposal topics at 59.1% average support, albeit down from 71.9% in 2025.

The following governance proposal topics have achieved majority support in 2026 to date:

Elimination of supermajority voting provisions from governing documents (5 proposals)

Establishment of shareholder special meeting rights (4)

Establishment of shareholder written consent rights (3)

Board declassification (3)

Shareholder approval prior to issuance of blank check preferred shares (2)

Adoption of a majority vote standard for director removal (1)

Shareholder approval of certain change-in-control severance agreements (1)

Notably, Exxon Mobil Corporation received a proposal this season relating to its new retail voting program, launched in September 2025, which allows retail holders to opt in to provide standing instructions to vote their shares at all future meetings in line with the board’s recommendations. The proposal requested that the company modify the program to offer additional voting options not aligned with the board’s recommendations. It failed with 23.5% support, but litigation challenging Exxon’s program remains ongoing.

Social proposals

Social proposal submissions continued their sharp multiyear decline. Proponents submitted 133 social proposals in 2026, down from 208 in 2025 and 298 in 2024, while average support has modestly increased to 16.4% (from 16% in 2025, though it has fallen from 19.6% in 2024).

The decline in lobbying proposals was particularly pronounced, falling from 38 submissions in 2025 to just seven in 2026. This drop likely reflects both successful exclusions in 2024 and 2025 on Rule 14a-8(i)(7) grounds and the low support these proposals received in 2025 (13.3%), though average support has rebounded to 26.5% this season. By contrast, political contributions proposals increased to 29 submissions (from 18 in 2025), likely buoyed by strong support last year (40.9%), though support has moderated to 28.2% this season.

Diversity proposals also continued their multiyear decline, falling to 19 submissions from 44 in 2025 and 68 in 2024. Average support declined to 13.6%, down from 14.3% in 2025 and 21.7% in 2024.

AI proposals attracted renewed attention in 2026. After first emerging in 2024, proponents submitted 14 AI-related proposals this season, compared to eight in 2025 and 11 in 2024. To date, only two AI-related proposals have been voted on, both submitted by anti-ESG proponents, and they received average support of 5.3%.

No social proposals have received majority support to date this season, but several topics have garnered more than 25% support:

Political contributions (6 proposals)

Lobbying payments (1)

Collective bargaining rights (1)

Environmental proposals

Environmental proposal submissions also continued their pronounced decline, falling to 69 proposals in 2026 from 107 in 2025 and 163 in 2024. Despite this reduced volume, average support for environmental proposals has increased moderately to 17% in 2026 from 12.4% in 2025 – a shift that correlates with the reversal in ISS recommendations this season.

Proposals focused on emissions-related reporting reflect the broader trend, declining from 42 submissions in 2025 to 22 in 2026, while average support is up to 22.9% from 12.9% in 2025 (though still below the 26.6% average in 2024). Among environmental proposals, emissions-related reporting is the only topic to receive greater than 25% support to date this season (3 proposals).

Impact of withdrawn proposals

Shareholder proposal data is subject to inherent uncertainty each year due to the impact of nonpublic proposal withdrawals. While withdrawals following a Rule 14a-8(j) exclusion notice or proxy filing, as well as those publicized by proponents, are reflected in the data, many companies and proponents negotiate withdrawals privately and before any filings or other proponent disclosures occur. The uncertainty created by the SEC staff’s current no-action policy appears to have increased the incentive for such negotiations in 2026, and our experience suggests that withdrawal volumes were likely higher this season than in prior years.

As discussed in our 2025 proxy season alert, the mid-season publication of Staff Legal Bulletin No. 14M in February 2025, which rescinded perceived proponent-friendly guidance published in 2021 that had limited companies’ ability to exclude proposals raising issues with “broad societal impact,” may also have contributed to elevated withdrawal activity last year. As a result, the year-over-year declines in submitted proposals between 2026 and 2025, and between 2025 and earlier years, may be meaningfully overstated due to the likelihood that a significant number of negotiated withdrawals were not publicized.

Proposal exclusions and litigation

As of June 1, companies had submitted 170 Rule 14a-8(j) exclusion notices under the SEC staff’s current no-action policy since its announcement in November 2025, compared to 360 no-action requests submitted during the comparable period of the prior season (November 2024 through May 2025). Even accounting for the year-over-year decline in proposal submissions, the magnitude of this decrease – a 53% reduction in exclusion-related filings against a 15% reduction in proposal submissions – suggests that a meaningful number of companies that would have sought no-action relief in prior years elected not to pursue exclusion under the SEC staff’s revised approach.

Companies’ decisions appear to have reflected a probability/magnitude assessment of the risks associated with unilateral exclusion. For many companies, even a relatively low probability of costly shareholder litigation (along with the negative publicity such litigation can generate), together with the prospect of adverse proxy advisor recommendations against individual directors, was sufficient to outweigh the benefits of exclusion, given the severity of those potential consequences. While anticipated proxy advisor opposition largely failed to materialize, litigation challenging proposal exclusions emerged later in the season, as discussed below.

The 170 Rule 14a-8(j) exclusion notices submitted this season included a mix of substantive and procedural exclusion bases, as reflected below. Notably, however, companies relied considerably less on certain substantive arguments requiring more subjective judgments. This trend was particularly evident for ordinary business and micromanagement exclusions under Rule 14a-8(i)(7), which appeared in only 33% of Rule 14a-8(j) exclusion notices this season, down markedly from the 56% rate observed in 2025 no-action requests. This may reflect a broader inclination among companies to adopt a more conservative posture under the SEC staff’s current no-action policy, favoring more objective bases for exclusion. This season’s Rule 14a-8(j) exclusion notices included:

51 exclusions based purely on procedural grounds

51 exclusions citing Rule 14a-8(i)(7) (ordinary business/micromanagement)

34 exclusions citing Rule 14a-8(i)(10) (substantial implementation)

17 exclusions citing Rule 14a-8(i)(3) (false/misleading)

Following the SEC staff’s announcement of its no-action policy for the 2026 season, early commentary focused on the potential for proponent litigation in the absence of the SEC staff’s role as arbiter, and the possibility that this risk would drive conservative company approaches to unilateral exclusions under the new policy. Early Rule 14a-8(j) exclusion notices appeared to confirm this expectation, emphasizing procedural and relatively straightforward substantive bases. Beginning in February, however, companies increasingly asserted 14a-8(i)(7) and other more expansive exclusions, suggesting an increase in company confidence. That trend shifted again in late February, when the first of what are now six proponent lawsuits was filed challenging the validity of company exclusions under Rule 14a-8.

Of the six lawsuits filed to date, one covered a human rights and diversity proposal, four covered E&S proposals, and one covered a political spending and lobbying proposal. In five of the six cases, the company relied on the “ordinary business” exclusion under Rule 14a-8(i)(7); the sixth was based on procedural defects.

As of June 2, 2026, three lawsuits have been settled, with companies agreeing either to implement the proposal or include it in their proxy materials. One case was voluntarily dismissed, and two remain pending. In the pending matters, one company filed its 2026 proxy statement with the proposal included after the court denied the company’s motion to dismiss and granted the proponent’s motion for injunctive relief, while the other filed the proxy without the proposal after the court denied the proponent’s motion for a preliminary injunction.

An even earlier look at 2027

Prospects for Rule 14a-8 repeal

The SEC’s 2026 rulemaking agenda includes a potential proposal addressing Rule 14a-8, and many observers have speculated that the SEC may seek to rescind the rule entirely. Any such proposal would be subject to the SEC’s standard rulemaking process, including notice-and-comment procedures. Given Rule 14a-8’s central role in the shareholder proposal landscape, a rescission proposal would likely generate a substantial volume of public comments (e.g., investor groups are already petitioning to keep Rule 14a-8 in place), requiring meaningful consideration by the SEC before adoption of a final rule. Recent SEC rulemakings have frequently taken more than a year to progress from proposal to adoption, suggesting that one or more proxy seasons could continue under the SEC staff’s current no-action policy before any rescission could become effective. In addition, a rescission of Rule 14a-8 would almost certainly face legal challenges, which could result in injunctive relief or a voluntary SEC stay (as occurred with the SEC’s 2024 climate rules). Consequently, uncertainty surrounding the future of Rule 14a-8 could persist past the 2028 presidential election.

2027 shareholder proposal landscape

Regardless of the timing of any SEC rulemaking, the prospect of a Rule 14a-8 rescission is likely to influence the 2027 proxy season. An imminent or pending rescission proposal may create a highly contentious “last chance” environment in which proponents seek to maximize leverage while the SEC staff’s current no-action policy remains in effect. One potential consequence may be proponents submitting precatory or binding bylaw proposals designed to provide shareholders with proposal access rights independent of Rule 14a-8.

The 2027 season could be further complicated if the SEC staff maintains its current no-action policy. Under that scenario, companies may have reduced leverage in negotiations with proponents, particularly given proponents’ demonstrated willingness during the 2026 season to use litigation as a means of challenging proposal exclusions.

Faced with elevated proposal volumes and heightened litigation risk, some companies may conclude in 2027 that allowing a greater number of proposals to proceed to a vote presents the lower-risk path, particularly on E&S topics, where shareholder and proxy advisor support continues to erode. That calculus may differ, however, for proposals addressing more consequential matters, such as binding bylaw amendments, or proposals with a greater likelihood of attracting substantial shareholder support.

To date, no company has taken up Atkins’ invitation to seek exclusion of a shareholder proposal on state law grounds under Rule 14a-8(i)(1). As the shareholder proposal landscape continues to evolve, however, some companies may become more willing to explore that avenue during the 2027 proxy season.

Evolution of proponent tactics

Even in the absence of further SEC staff policy changes, shareholder proponents continue to experiment with new ways to pressure companies to advance their objectives. Facing headwinds from the SEC staff’s current no-action policy, declining levels of shareholder support for certain proposal categories and the prospect of a future rescission of Rule 14a-8, proponents have continued to test innovative strategies in 2026, many of which may provide insight into how proponents could seek to maintain influence in a world where Rule 14a-8 plays a diminished role or has been repealed. These strategies include:

Litigation challenging proposal exclusions.

Running or threatening Rule 14a-4 “zero slate” campaigns where multiple shareholder proposals are submitted on the proponent’s universal proxy card while sidestepping the parameters of Rule 14a-8 (see, e.g., BJ’s Wholesale Club and Nexstar Media Group in 2026, following a strategy similar to that employed at Warrior Met Coal, as discussed in our 2024 shareholder proposal alert).

Withhold campaigns targeting directors, threatening to make director elections an alternative forum for E&S and governance activism.

Public campaigns criticizing companies that exclude proposals or are perceived as insufficiently responsive to shareholder concerns.

Binding bylaw amendment proposals submitted pursuant to Rule 14a-8 or through independent solicitation efforts.

The 2026 proxy season has been characterized by significant policy changes, strategic experimentation and legal uncertainty, and those dynamics are likely to persist into 2027. The practical effects of SEC skepticism toward shareholder proposals and E&S activism, political and regulatory scrutiny of proxy advisors, and declining support for certain categories of E&S proposals may be offset, at least in part, by evolving proponent strategies and continued uncertainty regarding the future of Rule 14a-8. In this environment, companies should prepare for a range of potential outcomes. Boards and management teams may benefit from ongoing education regarding developments in the shareholder proposal landscape, proactive engagement with shareholders and other key stakeholders, and periodic reassessments of governance and disclosure practices in light of evolving investor expectations and regulatory developments.

[1] Proposal submission and voting figures in this alert accordingly differ from those reported in prior-year alerts.

SEC Proposes Broad Expansion of Shelf Registration Access and Capital Markets Efficiencies

Fri, 05 Jun 2026 15:24:02 Z

The Securities and Exchange Commission (SEC) has proposed amendments to the rules and forms governing registered securities offerings, with the stated goal of enabling a significantly broader universe of public companies to access shelf registration and the capital markets efficiencies that accompany it.

The rulemaking, titled “Registered Offering Reform,” would expand eligibility to use Form S-3, replace the well-known seasoned issuer (WKSI) framework with a new tiered structure extending similar benefits to a wider set of exchange-listed issuers, preempt state securities law registration requirements for all registered offerings, and introduce related reforms for business development companies (BDCs), registered closed-end funds, certain registered annuity products and issuers using Form S-1.

If the rules are adopted, approximately 74% of existing US Exchange Act reporting issuers would be eligible to raise capital by filing an automatically effective shelf registration statement, without waiting for the SEC to review and declare it effective – compared to 36% currently. Additionally, nearly all US Exchange Act reporting issuers would be able to use Form S-3 for shelf offerings in unlimited amounts – compared to 61% currently. See Appendix A for a plain-language tabular comparison of the current and proposed frameworks – and our predictions for the real-world impact.

Expanded Form S-3 eligibility (and why it matters)

Under the current framework, approximately 3,400 issuers are able to use Form S-3 for unlimited primary offerings – i.e., for registered offers and sales by the issuer.¹The proposal would extend access to this more flexible capital raising process to nearly all US Exchange Act reporting issuers – more than 2,000 additional issuers – an improvement that would be particularly useful to smaller issuers. The proposal would also relax certain existing limitations that may currently apply when using Form S-3 to register securityholders’ resales, otherwise known as “secondary” offerings.

Background: What is Form S-3?

Form S-3 is a short-form registration statement that eligible issuers can use to register offerings of securities on a delayed or continuous basis – often referred to as offerings off the “shelf.” Once the Form S-3 registration statement is effective and generally for three years after its initial effective date, the issuer can use it to offer and sell securities in one or more primary offerings without waiting for further SEC staff review or action. This provides eligible issuers with important flexibility in capitalizing on opportunistic market windows.

Form S-3 also allows issuers to omit certain information initially and to automatically incorporate by reference to future filings the issuer makes under the Securities Exchange Act of 1934, as amended (Exchange Act). Issuers use this accommodation to keep the registration statement up to date and to satisfy the post-effective amendment undertakings provided for in Item 512 of Regulation S-K.

Current eligibility requirements and ‘baby shelf’ limitations

Under current rules, an issuer must meet certain issuer eligibility requirements to use Form S-3, which include being subject to Exchange Act reporting for at least 12 calendar months. Form S-3 is also currently available only for certain types of transactions. The most common transaction-based limitation is colloquially known as the “baby shelf” limitation, which applies to primary offerings by issuers having a public float of less than $75 million and limits these issuers to selling no more than one-third of their public float during a rolling 12-month calendar period. For all practical purposes, the baby shelf limitation substantially impairs the utility and flexibility of Form S-3 by issuers subject to that limitation, including small-cap issuers for which at-the-market (ATM) offerings may be an important means of raising additional capital. Issuers with a public float of $75 million or more are not subject to this cap.

The proposal would simplify eligibility

The proposed amendments would streamline Form S-3 eligibility by simply requiring the issuer to:

Be subject to the reporting requirements of the Exchange Act.
Have filed all reports and other materials required under Sections 13(a), 14(a), 14(c) and 15(d) of the Exchange Act during the preceding 12 calendar months (or for such shorter period that the registrant was required to file such reports and materials), and any portion of a month immediately preceding the filing of the registration statement.
Be timely in their Exchange Act reporting, other than specified reports on Form 8-K, but the proposal would create a limited exception that preserves Form S-3 eligibility if an issuer has a single untimely filing within the relevant lookback period, i.e., 12 months, so long as that filing is submitted within seven calendar days of its original due date.
- Where Exchange Act Rule 12b-25 applies, the seven calendar days would still be calculated from the original due date of the report and not the extended due date.
- For Exchange Act filings, such as Form 8-Ks where Rule 12b-25 does not apply, the proposed seven-day grace period would effectively eliminate the need for an issuer to seek confirmation from the SEC staff about continued Form S-3 eligibility when the issuer has filed a single Form 8-K merely hours or one day late.

The proposal would eliminate:

The one-year seasoning requirement.
The $75 million public float threshold for primary offerings of unlimited amounts (i.e., the baby shelf limitation described above).
All other transaction requirements, including complex restrictions on the types and amounts of securities that can be offered, such as the requirement that issuers register nonconvertible securities (other than common equity) only if they meet certain issuance-volume or WKSI-related thresholds, and the conditions on registering securities issuable upon exercise of outstanding rights, warrants or options.
The limitation on using Form S-3 for secondary (resale) offerings of securities that are not listed on a national securities exchange or quoted on the automated quotation system of a national securities association, which currently applies if an issuer has less than $75 million public float.
The eligibility requirement to file all electronic filings and interactive data files.
The eligibility requirement that issuers must not have failed to pay dividends or sinking fund installments on preferred stock or defaulted on indebtedness.

Any issuer satisfying the proposed registrant eligibility requirements would be able to use Form S-3 for primary or secondary registered offerings in any amount – whether the offering relates to convertible or nonconvertible debt or equity, common or preferred equity, or other types of securities. The proposal would have the effect of simplifying what is currently a complex process of determining whether certain offerings can be registered on Form S-3, especially for companies that are not WKSIs under the current framework.

Background: Understanding the impact on debt and ATM offerings

Because the proposal would significantly expand access to ATM offerings, it would also amend Rule 415 to limit eligibility to conduct ATM offerings to securities listed or traded only in specified markets, in order to facilitate capital formation in a manner that is consistent with investor protection.

The SEC indicates in the proposal that the OTCQX Best Market and OTCQB Venture Market tiers of the OTC Link ATS would likely qualify based on current criteria, though neither has been formally designated. Currently, Rule 415(a)(4) defines “at the market offering” as “an offering of equity securities into an existing trading market for outstanding shares of the same class at other than a fixed price.” The proposed amendment would include a nonexclusive list of attributes that the SEC would consider in determining whether to designate a market as a “trading market” or to withdraw a market’s status as a “trading market.” For exchange-listed issuers that already conduct ATM offerings, the proposal would not introduce any new requirements – national securities exchanges would be certain to qualify as trading markets.

For debt offerings, although the elimination of the nonconvertible debt issuance requirements broadens Form S-3 eligibility on its face, practitioners should note that registered debt offerings are less common in practice. Investment-grade and high-yield debt deals are overwhelmingly structured as Rule 144A transactions even for companies that already maintain an effective Form S-3. The practical significance of this particular change is therefore limited for most of the issuers described in this alert.

See our observations and commentary below for additional practical takeaways.

Ineligible issuers and offerings

Under the proposal, a new “ineligible issuer” category would expressly bar certain categories of issuers from using Form S-3, including issuers that are, or that have been during the past three years, or that have any predecessor that was a(n):

Blank check company, shell company (other than a business combination-related shell company), though a domestic issuer would not be considered a shell company solely because it has a special purpose acquisition company (SPAC) predecessor, preserving Form S-3 eligibility for deSPAC companies, or issuer of penny stock.
Specified bad actor.
Foreign private issuer (FPI), including an FPI that chooses to report on domestic Exchange Act forms.
Asset-backed issuer.
Registered investment company.
BDC.

As is currently the case, Form S-3 would not be available for exchange offers or business combination transactions.

A note on subsidiary eligibility

The proposal would also permit certain majority-owned subsidiaries that are not Exchange Act reporting companies to continue to register guarantee-related offerings on a parent’s Form S-3, provided their parent is eligible to use Form S-3 and the parent and subsidiary are identified on the registration statement as co-registrants.

Additionally, the proposal would permit a majority-owned subsidiary that is independently eligible to use Form S-3 to be treated as an eligible listed issuer (ELI) or seasoned eligible listed issuer (SELI) under the new tiered framework described below. The determination would be based on its parent’s status for purposes of registering nonconvertible securities other than common equity. If the parent were a SELI, the majority-owned subsidiary could be treated as a SELI with respect to the offering, meaning that the majority-owned subsidiary could register the offering on an automatic shelf registration statement with the parent as a co-registrant. This provision is most relevant for structured finance and holding company structures.

New tiered framework: ELIs and SELIs

Since 2005, enhanced registration flexibility has been available to the WKSI category of issuers, compounding the traditional benefits of Form S-3. For example, WKSIs’ shelf registration statements are automatically effective upon filing, they can use a “pay-as-you-go” filing fee process (so that the shelf registration statement does not need to specify the total dollar amount of securities to be offered), and they have more flexibility to communicate about an offering. Current rules require an issuer to have at least $700 million in public float or $1 billion in registered debt offerings to qualify as a WKSI.

The proposal would replace the existing domestic WKSI concept with two new issuer categories, which issuers would assess on an annual basis:

Eligible listed issuer (ELI): A Form S-3 eligible issuer that has at least one class of common equity securities listed on a national securities exchange.
Seasoned eligible listed issuer (SELI): An ELI that has additionally been subject to Exchange Act reporting requirements for at least 12 months.

Most of the enhanced benefits currently available only to WKSIs would, under the proposal, become available to all ELIs. The most significant additional benefit of SELI status over ELI status is automatic effectiveness for Form S-3 shelf registration statements – meaning the SEC staff does not review the registration statement, and there is no need to request acceleration of effectiveness from the SEC staff. The registration statement is effective when filed and can be easily used for subsequent offers and sales.

For the 36% of issuers that currently qualify as WKSIs, automatic shelf registration has streamlined processes and enhanced both planning and flexibility. Under the proposal, approximately 74% of Exchange Act reporting issuers would qualify as SELIs and be eligible to use this streamlined process. For companies already qualifying as WKSIs, the transition to SELI status will largely be seamless in practice. The proposal would retain the WKSI category for FPIs.

Blue-sky preemption extended to all registered offerings

The proposal would substantially expand federal preemption of state securities registration requirements. Securities Act Section 18 currently preempts state “blue sky” registration and qualification requirements for “covered securities,” a category that has generally been limited to securities listed on national securities exchanges and certain other specified transactions.

The proposal would amend Rule 146 to add a new definition of “qualified purchaser,” and for purposes under Section 18(b)(3) of the Securities Act, to include any person offered or sold securities in any registered offering under the Securities Act. If adopted as proposed, all registered offerings – including offerings of securities not listed on any national exchange –would constitute “covered securities” and would be exempt from state registration and qualification requirements.

This would resolve pain points for federally registered offerings of securities that are not listed on a national securities exchange – such as side-by-side offerings of common stock and unlisted warrants, employee equity plans of over-the-counter-traded issuers, or unlisted registered direct offerings. Currently, these types of transactions may need to comply with a patchwork of state law registration and qualification requirements – and while manageable, navigating the patchwork requires time and attention. States would retain antifraud enforcement authority.

BDCs, closed-end funds and registered annuity products

The proposal would extend parallel reforms to investment funds and insurance products. Exchange Act-listed BDCs and registered closed-end funds would become eligible to use an expanded “Short-Form N-2” and access certain enhanced registration and communication benefits under the same ELI/SELI framework described above. Unlisted affected funds² would continue to operate under the existing Rule 486 framework.

For annuity products, the proposal would amend Rule 482 to permit broad-based advertising of registered index-linked annuities (RILAs) and registered market value adjustment (MVA) annuities, without requiring Form S-3 eligibility or reliance on Rule 433 prospectus-delivery mechanics. This expanded advertising flexibility would be subject to tailored conditions, including constraints on the presentation of RILA performance information, fee and expense disclosure requirements, and filing obligations with the SEC or Financial Industry Regulatory Authority (FINRA).

Form S-1 modernization and other proposed amendments

In addition to expanding access to Form S-3, the proposal would make using the traditional “long form” registration statement on Form S-1 less burdensome. Specifically, it would expand the ability of issuers to incorporate filings by reference to Form S-1 in two ways:

Eliminate the requirement that an issuer must have filed a Form 10-K for the most recently completed fiscal year before having the ability to incorporate certain disclosure by reference in a Form S-1 (an issuer that has not been required to file a Form 10-K since becoming subject to Exchange Act Section 13(a) or 15(d) would incorporate by reference to a Securities Act or Exchange Act filing containing “Form 10 information”).
Expand forward incorporation by reference – the ability to automatically incorporate future Exchange Act filings into a registration statement – to all qualifying Form S-1 issuers, not just smaller reporting companies (SRCs).

The proposal would also modernize the “delaying amendment” procedure for Form S-1. Delayed effectiveness would become the default for most registration statements (other than those that become automatically effective in accordance with SEC rules), rather than the current framework of every registration statement including an archaic legend.

Are Form S-1 and Form S-3 converging?

As noted in the proposal, if Form S-1 were amended as proposed, it effectively would serve as a short-form registration statement for issuers that are eligible for and choose to use backward and forward incorporation by reference. Nonetheless, there would still be key distinctions between Form S-1 and Form S-3. Delayed primary shelf offerings and ATM offerings by or on behalf of an issuer under Rule 415 would remain limited to offerings registered or qualified to be registered on Form S-3.

FPIs, investment companies and BDCs also would be expressly prohibited from using Form S-1. The SEC expects minimal impact from this limitation. FPIs tend to file on Form F-1, rather than using domestic forms, and investment companies and BDCs are required to use other specific forms.

Elimination of income-related conditions for financial statements grace period

The proposals would eliminate the income-related conditions in Regulation S-X Rules 3-01 and 8-08 that currently affect the staleness dates for audited financial statements in registration statements and proxy statements filed close in time to the end of the most recently completed fiscal year. Under existing rules, issuers are not required to provide, in a registration statement or proxy statement, audited financial statements for the most recently completed fiscal year when the date of effectiveness of such registration statement or mailing date of such proxy statement falls within the first 45 days after such fiscal year-end – and this “grace period” may be extended for up to 45 more days depending on filer status and certain other conditions.

The current conditions imposed under Rule 3-01(c) and Rule 8-08(b) may result in a situation in which loss-generating issuers – which may have a greater need for capital but are ineligible for the extended grace periods – incur greater compliance costs in connection with filing a registration statement or conducting certain proxy solicitations than higher-income registrants, as they may be required to expedite the preparation of audited annual financial statements for the most recently completed fiscal year before they would otherwise be required in an annual report on Form 10-K.

Essentially, the proposal would align the financial statement requirements with the applicable issuer’s Form 10-K due date. If this proposal and the SEC’s recent proposal to simplify its filer status framework are both adopted as proposed, most public companies would be non-accelerated filers and would have 90 days after fiscal year-end to provide audited financial statements for the most recently completed fiscal year, regardless of timing of a registration statement or proxy statement, unless the financial statements become available earlier. ³

Open questions and areas for comment

The proposal raises many interpretive and policy questions on which the SEC has invited comment, and that may attract significant attention from practitioners and issuers, including:

Whether the elimination of a one-year seasoning requirement for Form S-3 eligibility is appropriate.
The appropriateness of eliminating Form S-3 transaction requirements (including the $75 million public float requirement to conduct unlimited primary offerings) and the minimum public float requirement.
The appropriateness of the categories of issuers identified as ineligible to use Form S-3 and of the three-year lookback period applicable to certain types of issuers.
Whether prohibiting FPIs from using Form S-3 at any time is appropriate, and if not, what the transition period should be.
Whether the replacement of the current categories of domestic issuers with the ELI/SELI framework is appropriate.
The appropriateness of proposed Form S-1 changes to expand backward and forward incorporation by reference, including whether to align forward incorporation eligibility more closely with Form S-3 eligibility.
Whether prohibiting FPIs, investment companies and BDCs from using Form S-1 is appropriate.

Observations and commentary

The proposal, if adopted, would restructure the registered offering framework. The significance of the changes will depend on where an issuer sits in the capital markets landscape. For large-cap, exchange-listed issuers that are WKSIs under the current rules, current practices will be largely unaffected by the transition to the ELI/SELI framework. For mid-cap and small-cap exchange-listed issuers that do not currently qualify as WKSIs, the changes could be more significant. See Appendix A for a tabular comparison of the current and proposed frameworks – and our predictions for the real-world impact. Below, we highlight several key takeaways for our client base:

Expanded access to shelf registration benefits for exchange-listed issuers. All domestic issuers would be Form S-3 eligible immediately after completing their IPO. Moreover, the proposed replacement of the WKSI framework with the ELI/SELI structure means that any exchange-listed Form S-3 eligible issuer would, as an ELI, gain access to pay-as-you-go registration fees, pre-filing communication flexibility, the ability register additional securities or additional classes of securities by filing a post-effective amendment to a nonautomatic shelf registration statement before the issuer satisfies the 12-month Exchange Act reporting requirement to be a SELI, and the ability to omit information as to whether an offering is a primary offering or secondary offering and pricing and deal-specific terms from the shelf registration statement at the time of effectiveness. These are capabilities currently reserved for WKSIs.
- Newly eligible issuers should begin assessing their readiness to take advantage of the proposed framework, including evaluating Exchange Act reporting history, potential ineligible issuer disqualifications, and the cost and timing differences between registered and exempt offering pathways. For many smaller issuers, the combination of Form S-3 eligibility, pay-as-you-go registration fees and full blue-sky preemption could shift the economics of capital raising away from exempt structures such as structured private investments in public equity (PIPEs), toward registered offerings.
- That said, practitioners should note that many of the communication flexibility benefits – in particular, the ability to conduct pre-filing investor outreach – are already available to non-WKSIs through the testing-the-waters provisions of Section 5(d) of the Securities Act and Rule 163B, which permit communications with qualified institutional buyers (QIBs) and institutional accredited investors regardless of WKSI or ELI status. The incremental benefit on the communications side is therefore most significant for mid-market issuers not currently taking advantage of those exemptions.
Significant expansion of automatic shelf registration eligibility. For issuers that meet the SELI threshold – ELI status plus 12 months of Exchange Act reporting – the principal additional benefit is automatic shelf registration. For most exchange-listed companies that have been public for more than a year, SELI status will be the default, and this benefit should be built into capital formation playbooks accordingly.
DeSPAC companies would not be automatically barred from Form S-3. This change would make the deSPAC pathway more attractive from a capital markets perspective and is consistent with the SEC’s previously stated objective of aligning disclosure and regulatory requirements for deSPAC companies with those applicable to companies completing traditional IPOs.
- However, a deSPAC company would not be permitted to count the Exchange Act reporting history of the former SPAC toward the 12-month seasoning requirement for SELI status and automatic shelf registration eligibility. Additionally, because FPIs are separately prohibited from using Form S-3 under the proposal, the SPAC predecessor carve-out would effectively benefit only domestic issuers.
- In addition, while the proposal does not address Rule 144(i) or Rule 145 under the Securities Act, meaning that shareholders of deSPAC companies would still be subject to the rolling 12-month current public information requirement if seeking to rely on the Rule 144 safe harbor for resales of securities issued by a deSPAC company, in addition to the statutory underwriter provision under Rule 145, the proposed amendments would mitigate these downsides because of the expanded availability of Form S-3. For private resales, unless and until Rule 144(i) and Rule 145 are addressed through separate rulemakings, deSPAC companies and their shareholders would still have to consider the risks imposed by these rules in connection with resales of securities.
A potentially less favorable regime for former FPIs. The proposal does not extend to FPIs, which would continue to use Form F-3. Form F-3 retains its existing 12-month seasoning and $75 million public float requirements. The SEC has deferred FPI-related changes pending its separate review of the FPI definition and various issues that it identified in its June 2025 Concept Release.
- Former FPIs that have converted to domestic issuer status, a transition that can occur automatically based on changes in shareholder composition or other factors, may find themselves in a worse position under the proposed framework, at least temporarily. Under the proposal, Form S-3 would be unavailable to any issuer that has been an FPI at any point during the preceding three years, while Form F-3 would remain unavailable to issuers that no longer qualify as FPIs. During that period, the issuer’s only registered offering option would be Form S-1. This creates a gap that does not exist under the current framework, where a former FPI that was eligible to use Form F-3 could seamlessly transition to using Form S-3 (assuming it meets the other eligibility criteria).
- For this reason, the proposal may accelerate a trend toward domestic issuer status at the time of IPO for foreign companies that are on the margin of FPI eligibility. Electing domestic issuer status at IPO could avoid the three-year Form S-3 eligibility lag if it is likely that the issuer will eventually lose FPI status down the road. Moreover, the proposed rule may make the domestic election more favorable, since domestic issuers will gain substantially expanded shelf access. Historically, FPI status has been attractive because it carries meaningful accommodations, including reduced executive compensation disclosure, exemption from complying with the proxy rules, and the ability to report on a semi-annual rather than quarterly basis, with relatively limited downside from a capital markets perspective, given that FPIs have generally had access to Form F-3 on terms largely comparable to those available to domestic issuers under Form S-3. Under the proposed framework, however, domestic issuers would gain substantially expanded access to shelf registration, automatic effectiveness, pay-as-you-go filing fees, and enhanced communication flexibility – benefits that would not be extended to FPIs. Additionally, the SEC previously proposed rules which, if adopted, would permit domestic issuers to elect semi-annual reporting – a benefit that is currently available only to FPIs.⁴
Form S-1 modernization. The proposed changes to Form S-1 would simplify ongoing offering programs and reduce the burden of post-effective amendments and prospectus supplement updates for issuers that rely on the long-form registration statement, by expanding the ability to incorporate by reference. The structural advantages of Form S-3 – including the takedown mechanics, automatic effectiveness and pay-as-you-go fee structure – remain exclusive to Form S-3 eligible issuers.
Elimination of income-related conditions for financial statements grace period. This change to Regulation S-X, to extend to loss-generating issuers the grace period for updated audited financial statements in connection with filing a registration statement or conducting certain proxy solicitations, would facilitate these issuers – who may have a greater need for capital than higher-income registrants – in raising capital or completing strategic transactions without the need to expedite the preparation of audited annual financial statements for the most recently completed fiscal year before they would otherwise be required in an annual report on Form 10-K.
ATM offering implications. Although the proposed “existing trading market” requirement would introduce a new constraint on ATM offerings, its practical significance may be modest given the SEC’s indication that the OTCQX Best Market and OTCQB Venture Market tiers would likely qualify for designation. Overall, the proposal intends to expand access to ATM offerings for issuers while balancing investor protections.
Blue-sky preemption extended to warrant coverage in registered offerings. Under current law, when an issuer conducts a registered offering of listed common stock concurrently with non-prefunded warrants (a structure that is common in certain industries, including life sciences), the common stock is already exempt from state blue-sky requirements by virtue of its exchange listing. The warrants, however, are not exchange-listed and therefore do not benefit from that exemption. As a result, practitioners must currently conduct a jurisdiction-by-jurisdiction blue-sky analysis for the warrants – an additional procedural step that must be tracked and completed for each such transaction. If the proposal is adopted, this friction would be eliminated because all securities offered and sold in a registered offering would constitute “covered securities” under the proposed definition of “qualified purchaser.” The warrants would be preempted from state registration and qualification requirements on the same basis as the listed common stock.

Call for additional IPO process modernization

On May 26, 2026, SEC Chairman Paul Atkins recommitted to the SEC’s agenda to “Make IPOs Great Again,” and discussed the steps currently taken by the SEC to fulfill that agenda. As noted above, in addition to the proposed amendments to reform registered offerings that are the subject of this alert, the SEC has proposed amendments to reform its filer status rules, which would extend meaningful disclosure and filing deadline accommodations to approximately 80% of US public issuers and allow a 60-month ramp-up to full disclosure requirements for all newly public companies, and has proposed amendments to permit domestic issuers to file semiannual reports in lieu of the current quarterly reporting regime.⁵

At the conclusion of his speech, Atkins solicited written comment on broader ideas for modernizing IPOs, including ways to improve the SEC’s communication or other IPO-related rules and identifying ways the SEC can remove roadblocks to nontraditional paths to going public.

Next steps

The comment period closes on July 27, 2026, including the larger call for comment on additional ways the SEC can modernize the IPO process. Issuers, underwriters, placement agents, fund sponsors, insurance companies and their counsel who participate in registered offerings should review the proposal carefully and evaluate whether to submit comments. Exchange-listed companies that expect to qualify as ELIs or SELIs under the proposed framework should also begin evaluating their readiness to take advantage of the proposed changes. Cooley’s capital markets attorneys are available to discuss these issues. Reach out to your existing Cooley contact or email the Cooley capital markets team.

Appendix A

Plain-language guide to enhanced benefits

The table below explains the key registration and communication benefits available under the current and proposed frameworks:

Benefit	Current framework	Proposed framework	Real-world impact
Registration benefits
Form S-3 eligibility Eligible issuers can use Form S-3 to register offerings of securities on a delayed or continuous basis – often referred to as offerings off the “shelf.” Once the Form S-3 registration statement is effective and generally for three years after its initial effective date, the issuer can use it to offer and sell securities in one or more primary offerings without waiting for further SEC staff review or action. This provides eligible issuers with important flexibility in capitalizing on opportunistic market windows.	One-year seasoning requirement for all issuers. For deSPAC issuers, the 12-month seasoning requirement does not begin to run until the business combination closes. “Baby shelf” limitations for issuers with less than $75 million public float. Various other complex transaction requirements.	Domestic issuers would be Form S-3 eligible immediately after completing the IPO. ⁶ DeSPAC issuers would no longer be “ineligible issuers” and would be immediately eligible to use Form S-3, though they would not be permitted to count the Exchange Act reporting history of the former SPAC toward the seasoning requirement for SELI status. No public float limitations. Limited exception for late filings. No other transaction requirements. No iXBRL eligibility requirement.	Enhances capital formation flexibility, especially for equity offerings by issuers that are smaller, newly public or previously SPACs (for example, issuers can now establish ATMs within the first year of going public). Newly public companies could also incorporate disclosures by reference from their Form S-1 for the IPO, reducing time and expense.
Registration of additional securities or additional classes of securities (Rule 413) Permits an issuer to register additional securities or additional classes of securities, including securities of a majority-owned subsidiary, via automatically effective post-effective amendments.	☒ WKSIs ☒ WKSI affected funds	☒ ELIs ☒ ELI affected funds	Allows for a greater number of issuers to benefit from expedited execution and certainty in timing public securities offerings.
Omission of certain information from base prospectus (Rule 430B(a)) The shelf registration statement does not need to include the type of offering (primary and/or secondary), offering price, size or other transaction-specific details; these are filled in at the time of each shelf takedown via a prospectus supplement.	☒ WKSIs ☒ WKSI affected funds	☒ ELIs ☒ ELI affected funds	Broadens access to the basic shelf takedown structure for non-WKSI ELIs.
Omission of identities of selling securityholders and amount of securities to be registered on their behalf from a base prospectus (Rule 430B(b)).	☒ WKSIs ☒ Non-WKSIs eligible for primary offerings under General Instruction I.B.1 of Form S-3, subject to certain conditions ☒ Seasoned affected funds	☒ All Form S-3 eligible issuers ☒ ELI affected funds	Broadens access to operational flexibility for secondary offerings, requiring only a prospectus supplement rather than a post-effective amendment to name selling securityholders.
Free-writing prospectus flexibility (Rule 433) Issuers can use supplemental marketing materials (term sheets, pitch decks, etc.) during an offering without first delivering a complete Section 10-compliant prospectus.	☒ WKSIs ☒ Non-WKSIs eligible for primary offerings under General Instructions I.B.1, I.B.2 or 1.C of Form S-3 ☒ Seasoned affected funds	☒ All Form S-3 eligible issuers ☒ Affected funds will rely on Rule 482 advertisement requirements	This change would simplify compliance and provide flexibility. Similar to the caveat above, much of this flexibility is already accessible to non-WKSIs through Rule 163B for testing-the-waters communications. The incremental benefit is most notable for ELIs that do not currently qualify as WKSIs.
Pay-as-you-go registration fees (Rules 456(b) and 457(r)) Issuers do not need to calculate or pay the full registration fee upfront when filing shelf registration statements; instead, fees are paid at each actual takedown, based on the securities sold.	☒ WKSIs ☒ WKSI affected funds	☒ ELIs ☒ ELI affected funds	Eliminates upfront cash outlay and the need to update fee calculations as shelf amounts change, and enhances usefulness and flexibility of the shelf registration process. Meaningful for issuers maintaining large, frequently used shelf registration statements.
Automatic shelf registration (Rule 462) The shelf registration statement takes effect the instant it is filed – no waiting for SEC staff review, and no acceleration request needed. Issuers can move directly from filing to launching an offering.	☒ WKSIs ☒ WKSI affected funds	☒ SELIs ☒ SELI affected funds	This is the most operationally significant benefit for frequent issuers. Under the proposal, ~74% of Exchange Act reporting issuers would qualify, up from ~36% today.
Blue-sky preemption	Preemption applies to “covered securities” – generally limited to securities listed on national securities exchanges	All registered offerings – including offerings of securities not listed on any national exchange – would constitute “covered securities” and would be exempt from state registration and qualification requirements. States would retain antifraud enforcement authority.	Resolves administrative complexity for registered offerings not involving an exchange-listed security. Most relevant to side-by-side offerings of common stock and unlisted warrants, employee equity plans of OTC-traded issuers, or unlisted registered direct offerings.
Form S-1 incorporation by reference The ability to incorporate by reference to prior filings frees issuers from the need to repeat lengthy information. The ability to incorporate by reference to future filings allows issuers to keep the Form S-1 updated on an ongoing basis without manually filing post-effective amendments and prospectus supplements when making other SEC filings.	Issuers must file a Form 10-K before being eligible to incorporate previously filed information into Form S-1. Only smaller reporting companies are permitted to incorporate future Exchange Act filings by reference into Form S-1.	Any issuer that has made a Securities Act or Exchange Act filing that contains Form 10 information would be eligible to incorporate by reference to previously filed information as well as to future filings.	While S-1 remains unavailable for delayed primary shelf offerings, the modernized approach to incorporation by reference would allow more issuers to mitigate duplicative disclosure and compliance costs – e.g., for follow-on offerings on Form S-1 or for ongoing secondary offerings.
Communication benefits
Research report safe harbor (Rule 139) Broker-dealers can publish issuer-specific research reports and make buy/sell recommendations about a company while participating in its registered offering, without those reports being treated as part of the offering.	☒ WKSIs ☒ Non-WKSIs eligible for primary offerings under General Instructions I.B.1 or I.B.2 of Form S-3 ☒ Covered investment funds that have a public float greater than $75 million	☒ All Form S-3 eligible issuers ☒ All covered investment funds	Brings the benefits of Rule 139 to a broader universe of issuers, although Rule 139 remains unavailable for issuer-specific research if the research analyst has not initiated coverage prior to the commencement of the registered offering at issue.
Pre-filing offers (Rule 163) Issuers and underwriters can engage in oral and written communications about an upcoming offering – including road show materials and investor contacts – before the registration statement is filed, without those communications constituting a prohibited “gun-jumping” offer.	☒ WKSIs ☒ WKSI affected funds	☒ ELIs ☒ ELI affected funds	Provides more flexibility in early-stage deal preparation. Note, however, that many pre-filing communications for non-WKSI issuers are already permissible through testing-the-waters communications, Section 5(d) and Rule 163B, which allow QIB and institutional accredited investor outreach before and after filing, regardless of WKSI status.

Notes

Out of 5,555 Exchange Act reporting companies (excluding asset-backed issuers, shell companies and BDCs) that filed a Form 10-K in 2024.
Throughout this alert and in the SEC’s proposal, the term “affected fund” refers to a registered closed-end fund or BDC whose securities are listed on a national securities exchange, and that has a specified advisory or management relationship with a WKSI (under the current framework) or, under the proposed rule, with an ELI or SELI. These funds are treated analogously to their affiliated operating company parent for purposes of the enhanced registration and communication benefits described in this alert and Appendix A.
On May 19, 2026, the SEC proposed amendments to substantially simplify its domestic public company filer status framework and extend existing scaled disclosure and other accommodations, including filing due dates. The proposal would eliminate the current rubric of overlapping filer status categories – large accelerated filer (LAF), accelerated filer, nonaccelerated filer (NAF), SRC and emerging growth company – and replace it with two primary reporting categories: LAF and NAF. For NAFs, the Form 10-K would be due 90 days after fiscal year end. See Cooley’s alert, SEC Proposes Simplified Filer Status Rules and Expanded Disclosure Accommodations, published May 22, 2026, for a more fulsome discussion of the proposed amendments.
See Cooley’s alert, The SEC’s Semiannual Reporting Proposal: Fare Thee Well Quarterly Reporting?, published May 11, 2026, for a more fulsome discussion of the proposed amendments.
See Cooley’s alerts, SEC Proposes Simplified Filer Status Rules and Expanded Disclosure Accommodations, published May 22, 2026, and The SEC’s Semiannual Reporting Proposal: Fare Thee Well Quarterly Reporting?, published May 11, 2026.
Other than “ineligible issuers” as defined in the proposal and described above.

UK Reporting for Share Plans With UK Participants Due 6 July

Wed, 03 Jun 2026 18:33:00 Z

The deadline is approaching for the HM Revenue & Customs (HMRC) year-end reporting requirements for companies in the UK, US and elsewhere with share options and other share awards granted to – and share acquisitions by – UK employees between 6 April 2025 and 5 April 2026. Reporting also may be required in respect of non-UK resident employees who carry out work duties in the UK.

Companies must submit these annual returns by midnight (UK time) on Monday, 6 July 2026, via the HMRC employment-related securities (ERS) online service. By such date, the company must have:

Registered to use the service.
Registered each plan or arrangement.
Self-certified any UK tax-advantaged plans.
Reported each share award grant and share acquisition related to a share award that occurred during the relevant reporting period.

If you have not yet registered to use the ERS online service, you should do so as soon as possible and by no later than 29 June 2026, as registration may take several days.

Which arrangements does this apply to?

The requirements catch all share options and share awards granted to – as well as shares acquired by – UK employees by reason of their employment, including participation in non-UK arrangements, such as US employee stock purchase plans (ESPPs). The requirements also cover the cancellation of existing share awards and certain other events, such as variations, lapses and sales of shares for more than market value.

View the ERS annual return templates and associated HMRC guidance.

How are tax-advantaged awards reported?

A separate online return must be filed to report transactions under each registered UK tax-advantaged plan – enterprise management incentives (EMIs), company share option plans (CSOPs), save-as-you-earn (SAYE) plans and share incentive plans (SIPs) – by the 6 July deadline.

Grants of EMI options must also be notified to HMRC by the same 6 July deadline, otherwise they will not qualify as EMI options. This is also done through the ERS online service and is in addition to the annual return.

Non-tax-advantaged plans or arrangements

Non-tax-advantaged plans or arrangements are referred to on the HMRC website as “other” plans. You can choose whether to file separate returns for each arrangement or a single return covering transactions occurring under all non-tax-advantaged plans and arrangements. The returns are required to contain details of any share options that have been granted or exercised, as well as any other reportable events in relation to employment-related securities (including cancellations, variations, lapses, transactions in relation to restricted stock units, and sales of shares for more than market value).

What if no awards have been granted or other actions taken during the year?

A return is still required for each plan covering UK employees even if there have been no reportable events (e.g. no grants or option exercises) under the plan in the relevant tax year for UK reporting periods (which run from 6 April to the following 5 April), until you have notified HMRC that the plan has ceased through the ERS online service.

Penalties for noncompliance

Failure to timely file the required annual returns results in an automatic penalty of £100 per plan/arrangement, and any benefits from tax-advantaged plans may be lost. Additional penalties will apply where annual returns remain outstanding on 6 October 2026 (an additional £300) and on 6 January 2027 (a further £300), with HMRC having discretion to impose further penalties in respect of any annual returns that remain outstanding after 6 April 2027.

In addition to penalties for failing to file annual returns, failure to register a tax-advantaged plan will affect the tax treatment of future participants – and additionally, in the case of CSOPs, current participants.

Navigating Antitrust Scrutiny of Algorithmic Software

Wed, 03 Jun 2026 16:13:00 Z

Federal and state antitrust enforcers are sending a clear signal to companies: An algorithm is not a shield for anticompetitive conduct. As algorithmic pricing becomes a primary focus for regulators, particularly in California, companies must prepare for aggressive enforcement.

Algorithms as the new frontier of conspiracies to restrain trade

Federal and state authorities are prioritizing enforcement actions where software platforms act as a “hub” in a hub-and-spoke conspiracy, allegedly allowing competitors to exchange competitively sensitive information and align prices without direct communication. Two recent settlements highlight the type of conduct likely to garner scrutiny from the antitrust authorities:

United States v. RealPage: In November 2025, the Department of Justice (DOJ) reached a landmark settlement with RealPage to resolve claims that its revenue management software facilitated an algorithmic information-sharing conspiracy among competing landlords. Under the proposed settlement agreement, RealPage must stop, inter alia, utilizing rivals’ nonpublic, competitively sensitive data to generate real-time rental price recommendations and remove or modify product features, such as “auto-accept” defaults, that steer users toward aligned pricing or competitive terms.
United States et al. v. Agri Stats, Inc.: In May 2026, the DOJ and a coalition of States reached a settlement in the Agri Stats antitrust case challenging a data analytics firm’s provision of reports containing price, output, and cost information to competing meat processors. The proposed settlement prohibits the reporting of nonpublic pricing information, granular metrics, participant identities and competitor rankings, while enforcing strict age limits on surviving historical data and requiring that remaining reports be made transparently available to all domestic purchasers on equal terms.

State enforcement: California leading the charge

California’s AB 325 – The Cartwright Act

The States continue to take aggressive action to fill a perceived gap left by the federal government when it comes to antitrust regulation and enforcement. Effective January 1, 2026, California’s AB 325 set a new national benchmark for algorithmic regulation by expressly prohibiting certain pricing algorithms. While other states, like New York, have enacted algorithmic pricing bans in certain industries (real estate) and disclosure requirements, California has gone the farthest in policing algorithmic pricing tools.

Ban on use of algorithms to restrain trade: The law makes explicit that it is unlawful under the Cartwright Act to use or distribute a “common pricing algorithm” as part of an agreement to restrain trade or fix prices.
Coercion focus: The law prohibits one party from “coerc[ing]” another to set a price or commercial term recommended by a common pricing algorithm. “Coercion” is not defined in the statute; at a recent conference, speakers suggested algorithms with auto-populating or auto-accepting features could be viewed as forms of coercion.
Broad scope: A pricing algorithm is considered “common” if it has two or more users and uses competitor data to recommend or influence prices or commercial terms.

While California has yet to bring a suit under AB 325, at a recent conference, California’s Senior Assistant Attorney General for Antitrust Paula Blizzard indicated her view that:

The focus is on the “coercion” prong of the statute.
“Competitor data” as used in AB 325 includes any competitor data, even publicly available information.

Practical compliance checklist

To mitigate risk in this high-scrutiny environment, firms should consider the following practical compliance steps (these may differ depending on whether the firm is a developer or user of the algorithm):

Audit algorithmic inputs: Assess the data that is input and used to train your algorithmic tools. Do the tools utilize competitor data? Is the data proprietary or publicly scraped?
Ensure users have free choice: Avoid penalizing partners that don’t use pricing features or rewarding those that do. Consider avoiding “auto-accept” or “auto-populate” pricing features and instead ensure implementation authority requires independent human decision-making.
Who has access? Are the algorithmic recommendations available broadly to anyone in the industry or only offered to one side of the transaction (e.g., suppliers versus customers)?
Who else is using the algorithm? What do you know about who else is using the algorithm? For example, be careful about marketing materials that indicate the algorithmic software is used industrywide or by all competitors, or that the value of the tool can be obtained only through broad adoption.
Discovery awareness: Enforcers are increasingly targeting AI prompts and log information. Treat all prompts and log information entered into AI agents as discoverable material, similar to executive emails. Document the “procompetitive” benefits of tools where appropriate and accurate – e.g., efficiently matching supply and demand to increase output in competition with others.

SEC Proposes to Rescind 2024 Climate-Related Disclosure Rules

Wed, 03 Jun 2026 14:08:16 Z

On May 29, 2026, the Securities and Exchange Commission (SEC) proposed to rescind in their entirety the climate-related disclosure rules it adopted in March 2024 (the 2024 rules). The proposal – Rescission of Climate-Related Disclosure Rules –would withdraw all amendments to Regulation S-K (including Items 1500 through 1508), Regulation S-X, Regulation S-T, Securities Act Rule 436, and related Securities Act and Exchange Act registration statement and report forms, including Forms S-1, S-3, S-4, S-11, F-3, F-4, 10, 10-Q, 10-K and 20-F.

Key takeaways

The 2024 climate rules never went into force, so the proposed rescission should not have a practical impact on companies’ SEC reporting obligations.
Companies may remain subject to reporting obligations in other jurisdictions, such as California (where SB 261 remains subject to a judicial stay, and SB 253 reports are due in August) or the European Union.
The SEC recently proposed several other impactful rulemakings and has an ambitious agenda of other potential proposals. The need to complete a formal rulemaking process for the climate rule rescission may add to administrative burdens for the SEC.

The 2024 rules (see Cooley’s March 7, 2024, alert, “SEC Adopts Climate Reporting Requirements”) would have required domestic registrants and foreign private issuers to include specified climate-related information in their registration statements and annual reports. Those rules never took effect and have been stayed since April 4, 2024, pending judicial review before the US Court of Appeals for the Eighth Circuit. Following the 2024 presidential election, then-acting SEC Chair Mark Uyeda directed the SEC to cease defending the 2024 rules in litigation, raising novel questions about whether agencies may effectively rescind rules through inaction rather than formal rulemaking. The Eighth Circuit, however, subsequently held the consolidated petitions in abeyance pending the SEC’s reconsideration of the 2024 rules through notice-and-comment rulemaking. The proposed rescission is the SEC’s formal response to that abeyance order.

Rationale for rescission

The SEC argues that the 2024 rules were a dramatic overreach of its statutory authority and, independently, unsound as a matter of policy. On the legal question, the SEC asserts that its rulemaking authority is limited to the types of disclosures Congress contemplated and must be tied to information about a registrant’s business and financial characteristics. The SEC further states that its disclosure authority should elicit information pursuant to the materiality standard established by the US Supreme Court (i.e., information that a reasonable investor would consider important in buying or selling securities), and that existing disclosure requirements and anti-fraud provisions already elicit climate-related information to the extent it is material to a registrant’s circumstances.

On the policy front, the SEC identifies several independent policy reasons supporting rescission. It argues that the 2024 rules are unnecessary under a registrant-specific, materiality-based disclosure framework, extend beyond the policy concerns underlying the federal securities laws, and impose substantial costs not justified by their informational benefits. The SEC also contends that the rules’ compliance burdens would deter companies from accessing the public capital markets, potentially widening the transparency gap between public and private companies and undermining capital markets’ information efficiency.

Comment solicitation

The SEC has solicited comment on a range of issues that may shape the outcome of this rulemaking. Key areas of focus include:

Whether the 2024 rules should be rescinded in full or whether specific provisions could be retained and function independently.
Whether alternatives to full rescission, such as limiting the rules to a narrower subset of registrants or replacing the current prescriptive framework with less burdensome climate-related disclosure requirements, would better serve investors.
Whether the proposed rescission would adversely affect any reasonable reliance interests that market participants may have developed, notwithstanding the stay, and whether registrants incurred meaningful costs in preparing to comply during the stay period.
Whether existing disclosure requirements, including the SEC’s 2010 guidance on climate-related disclosure and existing Regulation S-K and Management Discussion and Analysis (MD&A) obligations, adequately elicit material climate-related information, and whether updated guidance would be appropriate.
How recent developments in voluntary and mandatory climate reporting practices, including international standard-setting by the International Sustainability Standards Board (ISSB) and domestic regulatory activity, affect the underlying policy rationale for the 2024 rules.

Despite the scope of these questions, given the current SEC’s pronounced skepticism toward regulation related to environmental, social and governance (ESG), and prior statements regarding the 2024 rules, it is broadly expected that the final rulemaking will result in a comprehensive rescission of the 2024 rules.

Practical impacts

Given that the 2024 rules never took effect and have already been set aside by most companies, a formal rescission of the 2024 rules is unlikely to materially affect companies’ reporting plans, investor expectations or the broader ESG disclosure landscape. Nonetheless, several practical considerations remain:

Continued applicability of existing disclosure obligations. Rescission of the 2024 rules would not eliminate registrants’ obligations to disclose climate-related information that is material to their specific circumstances. Existing requirements under Regulation S-K, including Items 101 (business description), 103 (legal proceedings) and 105 (risk factors), along with MD&A requirements, continue to require disclosure of material climate-related risks and opportunities. The proposed rescission would mark a return to the SEC’s generally principles-based approach to disclosure of climate-related matters, which uses performance standards based on the concept of materiality. Registrants should continue to assess whether their climate-related risk disclosures reflect a current and accurate picture of the risks they face.

Interaction with state-level and international requirements. Rescission of the 2024 rules would eliminate the federal climate disclosure framework but would not affect state-level requirements – such as California’s climate disclosure laws, SB 253 (greenhouse gas emissions disclosure) and SB 261 (Climate-Related Financial Risk Act), the latter of which is currently subject to an ongoing stay in the Ninth Circuit (see Cooley’s November 24, 2025, alert, “Ninth Circuit Stays SB 261 as CARB Announces Numerous Company-Friendly Expectations for First-Year California Climate Reporting”). Rescission also would not affect international reporting obligations, including the EU’s Corporate Sustainability Reporting Directive (see Cooley’s December 10, 2025, alert, “EU Reaches Agreement on ‘Omnibus I’ Impacting CSRD and CSDDD Compliance for US Companies”). Many companies also continue to voluntarily report on climate and other ESG topics.

Impact on SEC rulemaking agenda. The SEC has an ambitious rulemaking agenda, including recently proposed rules affecting quarterly reporting (see Cooley’s May 11, 2026, alert, “The SEC’s Semiannual Reporting Proposal: Fare Thee Well Quarterly Reporting?”), filer status (see Cooley’s May 22, 2026, alert, “SEC Proposes Simplified Filer Status Rules and Expanded Disclosure Accommodations”), and registered offerings, as well as potential rulemakings related to shareholder proposals under Rule 14a-8 and executive compensation and other Regulation S-K disclosure requirements. Although the rescission of the 2024 rules was once viewed as a procedural afterthought, the need to complete a formal rulemaking may affect the timing and prospects of other rulemaking initiatives. The SEC will likely be required to devote additional administrative resources to reviewing comments and preparing a final rule. However, unlike the 885-page 2024 rules, which drew more than 24,000 comments and took nearly two years from proposal to adoption, the rescission effort is not expected to approach that scale.

Next steps

Comments on the proposed rescission are due August 3, 2026. Registrants, investors, assurance providers and other market participants with views on the scope of the rescission, the adequacy of existing disclosure requirements, reliance interests, or preparation costs incurred during the stay period should consider whether to submit comments during that period.

Cooley’s corporate governance and securities regulation attorneys are available to discuss these issues. Reach out to your existing Cooley contact or email the Cooley capital markets team.

Navigating Life Sciences Deals Amid Heightened Scrutiny

Mon, 01 Jun 2026 07:00:00 Z

Executive summary: The life sciences industry is operating under heightened Washington scrutiny, with pricing reform initiatives, national security-driven legislation, and evolving trade policy reshaping the landscape and risk calculus for all stakeholders. Three key forces driving structural change in how deals in the industry are conceived, negotiated and documented include the following:

MFN drug pricing initiatives: The Trump administration’s renewed emphasis on most-favored-nation (MFN) drug pricing initiatives has introduced significant uncertainty for biotechnology and pharmaceutical companies in global commercialization strategies.
The Biosecure Act: The Biosecure Act, which became law in December 2025, affects life sciences companies that rely on federal funding, global supply chains or cross-border collaborations by prohibiting federal agencies from contracting with, purchasing certain equipment or services from, or providing loans or grants to entities the law defines as “biotechnology companies of concern.”
Broader market uncertainty: These regulatory developments are unfolding against a backdrop of broader geopolitical volatility and evolving market conditions, requiring companies to negotiate transactions that not only reflect current realities but also anticipate future potential regulatory and commercial disruption.

For venture capital investors and business owners active in the life sciences space, understanding and proactively addressing these forces is no longer optional. It is a prerequisite for sound dealmaking.

Key take-home: Life sciences dealmakers must anticipate regulatory and transactional risks earlier in the deal process – ideally before term sheet development – to preserve optionality, avoid downstream complications and structure transactions aligned with long-term strategic objectives.

The landscape: What you need to know

MFN drug pricing initiatives and potential implications for partnering transactions

Among several recent developments related to MFN drug pricing initiatives, in May 2025, the administration issued an executive order directing the US Department of Health and Human Services (HHS), in coordination with other agencies, to establish MFN price targets, propose rulemaking and take related actions aimed at lowering drug prices in the US. Additionally, in late 2025, HHS’s Centers for Medicare & Medicaid Services (CMS) announced three MFN-style models that CMS is implementing, or has proposed to implement, through its Center for Medicare & Medicaid Innovation – the voluntary GENEROUS model (effective January 1, 2026, though CMS is still accepting applications), the proposed GLOBE model (issued as a proposed rule and to date not finalized) and the proposed GUARD model (issued as a proposed rule and to date not finalized) – in efforts to advance MFN drug pricing policies across Medicaid, Medicare Part B and Medicare Part D, respectively.

As these MFN pricing policies take shape, and as more details emerge on whether and to what extent they may or may not be implemented and/or modified going forward, companies engaged in partnering transactions face the risk that lower prices achieved by foreign licensees in certain countries potentially could exert downward pressure on US pricing under an MFN framework. This risk has prompted companies to reassess whether and under what circumstances to enter into split-territory licenses, and, if so, how to structure such arrangements to minimize MFN-related pricing exposure.

Strategic responses available to dealmakers to mitigate MFN-related pricing considerations:

Permitting licensees to buy out licensors’ retained regional rights in split-territory transactions if the MFN risk becomes material.
Retaining control over pricing by not licensing commercialization rights outside the US, although this option may not be feasible in light of other transactional or strategic goals.
If ex-US licensing is pursued, prioritizing markets expected to command higher prices, such as Japan or major European countries, including France, Germany, Italy, Spain and the UK, to potentially mitigate downward pressure on the MFN benchmark price
Prioritizing markets that, at least to date, have not been included as applicable reference countries in MFN initiatives and proposals, although those applicable countries could change going forward.
Considering co-commercialization arrangements, which afford parties shared governance and economics and may make MFN exposure more manageable than in a straight out-license model.
Pursuing bespoke, deal-specific contractual provisions and protections crafted by deal counsel in coordination with regulatory counsel to ensure compliance with the fast-moving legal landscape.

The Biosecure Act: National security meets biotech

By prohibiting federal agencies from contracting with, purchasing certain equipment or services from, or providing loans or grants to companies that the US government has designated as “biotechnology companies of concern” under the terms of the Biosecure Act, the Biosecure Act has the potential to affect a range of activities, including research collaborations, clinical trial management, and manufacturing and supply chain sourcing. The act places particular emphasis on supply chain transparency, ownership disclosure and data security, reflecting broader concerns about foreign access to critical biomedical infrastructure.

Steps for addressing Biosecure Act compliance risks:

Review ownership structures and supply chain relationships thoroughly and early in a transaction process, and consider incorporating representations, warranties and indemnities addressing Biosecure Act compliance in new agreements.
Consider including specific provisions in commercial agreements to facilitate a rapid exit if a partner is designated a biotechnology company of concern.
Keep up to date on the current implications of the Biosecure Act’s provisions, including ongoing developments, forthcoming guidance and opportunities for input related to the government’s implementation and enforcement.

Looking ahead: Structuring deals for resilience

Flexibility has become a critical design feature in deal architecture. Companies are reevaluating whether to retain broader geographic rights, pursue staged or option-based collaborations, or sequence ex-US partnering transactions to preserve optionality until greater regulatory clarity emerges. In some cases, this has meant delaying long-term alliances in favor of incremental or milestone-based structures that allow parties to adapt as policy and market conditions evolve.

These developments underscore the importance of identifying pressure points early, stress-testing assumptions and structuring transactions that are resilient to policy shifts and market uncertainty. By taking action at the outset of a transaction, rather than after key terms have been set, companies will best be able to mitigate the impact that external uncertainties will have on their transaction terms.

SEC Proposes Sea Change in Compensation Disclosure Rules for All but Largest Issuers

Thu, 28 May 2026 07:00:00 Z

On May 19, 2026, the Securities and Exchange Commission (SEC) proposed sweeping changes to its current filing status rules – arguably the most significant overhaul in decades. The proposal is lengthy and intricate, and a full discussion of its provisions is beyond the scope of this alert, but certain of the changes would dramatically affect executive and director compensation disclosure and practice and warrant immediate attention. A separate May 22 Cooley alert addresses those noncompensation matters.

SEC rules currently set forth five filer statuses that correspond to varying levels of disclosure and other requirements. The proposed rule essentially would provide for only two categories: large accelerated filers (LAFs) and nonaccelerated filers (NAFs), which would be defined simply as all filers that are not LAFs.

While the proposed LAF status determination is complex and beyond the scope of this alert, LAF status generally would be limited to those companies with at least $2 billion in public float, which would encompass a limited number of companies but, per the SEC, 93.5% of the current total market public float. According to the SEC, the percentage of LAFs would decrease from 35.4% of issuers to 19.2%.

From an executive and director compensation perspective, the most important feature of the proposal is that all NAFs (exclusive generally of asset-backed issuers and foreign private issuers) would become entitled to both:

The scaled (i.e., reduced) compensation disclosure requirements presently applicable under Regulation S-K Item 402 to smaller reporting companies.
The special exceptions from compensation disclosure and related requirements presently applicable to only emerging growth companies.

According to the SEC, the percentage of issuers entitled to scaled disclosure relief would increase from 44% to 81% of registrants. The ability to rely on the scaled compensation disclosure is a significant advantage. Among other things, there is no requirement for a Compensation Discussion & Analysis or CEO pay ratio disclosure, disclosure is generally required for only three executives (not five) and for only two years (not three) of historical compensation, and certain compensation tables (such as the grants of plan-based awards table, pension benefits, option exercises, and stock-vested and nonqualified deferred compensation tables) may be omitted. Perhaps more importantly, NAFs would be entitled to the compensation-related accommodations presently afforded to emerging growth companies. That relief would exempt NAFs from the requirement to hold shareholder advisory votes on executive compensation (“say on pay”), the frequency of say-on-pay votes, golden parachute compensation in connection with mergers and acquisitions, and the “pay versus performance” disclosure under Regulation S-K 402(v).

It is worth noting that this relief being proposed by the SEC aligns closely with comments offered by Cooley as part of the SEC’s ongoing review of executive compensation disclosure requirements initiated at its roundtable on June 26, 2025 – one of the few comment letters focused primarily on the reporting burdens shouldered by smaller companies.

A long road remains ahead before the SEC’s issuance of final rules (if any), and there is no certainty as to what any final rule will contain, or whether the final rules will be effective for the 2027 proxy season. We urge companies to voice their views on this SEC proposal and loudly support the long overdue simplification of the compensation disclosure requirements and an easing of the compliance burdens those requirements impose.

Any company that is not now (or will not remain) eligible for the relief afforded to emerging growth companies (exclusive of companies that will remain LAFs under the proposed rule) stands to benefit if the proposed rule is adopted. Moreover, there is now an opportunity to persuade the SEC to expand the proposed relief even further.

Comments on the proposed rule should be delivered to the SEC no later than July 20, 2026. Cooley’s compensation and benefits group is available to assist with the preparation of comments and otherwise address any questions you may have about the SEC proposal and how it might affect your company’s executive and director compensation obligations.

SEC Proposes Simplified Filer Status Rules and Expanded Disclosure Accommodations

Fri, 22 May 2026 07:00:00 Z

On May 19, 2026, the Securities and Exchange Commission (SEC) proposed amendments to substantially simplify its domestic public company filer status framework and extend existing scaled disclosure and other accommodations, including an exemption from auditor attestation requirements, to more public companies.

If the amendments are adopted as proposed, the SEC estimates that approximately 80% of current public companies would be eligible for less burdensome disclosure requirements. Many small- and mid-cap companies stand to benefit, but so do investors to the extent that these accommodations contribute to companies choosing to go or stay public. The SEC estimates that affected companies represent only 6.5% of total market public float, which means that companies representing the bulk of investor assets would continue to provide the most fulsome level of disclosure. With this proposal, the SEC is seeking to simplify and recalibrate the public company reporting framework so that more companies go and stay public, creating more investment opportunities and improving transparency for the market as a whole.

The proposal would eliminate the current rubric of overlapping filer categories – large accelerated filer (LAF), accelerated filer (AF), non-accelerated filer (NAF), smaller reporting company (SRC) and emerging growth company (EGC) – and replace it with two primary reporting categories under the Securities Exchange Act of 1934, as amended (Exchange Act): LAF and NAF. The NAF designation would provide significant scaled disclosure accommodations, in line with what is currently available to SRCs and EGCs, to the vast majority of public companies, and would relieve them from the obligation to obtain an independent auditor’s attestation on internal control over financial reporting (ICFR) under Section 404(b) of the Sarbanes-Oxley Act (SOX).

Background

Under the existing framework, public companies can be simultaneously assigned to multiple overlapping status categories – LAF, AF, NAF, SRC and EGC – each carrying distinct thresholds and disclosure consequences that do not cleanly integrate across categories. The current LAF threshold is a public float of $700 million or more. A separate SRC category accommodates companies with a public float below $250 million or annual revenues below $100 million and public float below $700 million. The proposal would substantially simplify this structure while materially raising the eligibility threshold for the more demanding LAF disclosure and attestation requirements.

Proposed amendments

The proposal would make the following principal changes to the filer status framework:

Increase LAF public float threshold to $2 billion. The threshold for becoming an LAF would increase from a public float of $700 million to $2 billion. Public float would be calculated based on the number of shares outstanding on the last day of the second quarter of a company’s fiscal year using the average stock price over the last 10 trading days of the second fiscal quarter, rather than a single measurement date.
Enhance filer status stability and predictability. A company would not transition into or out of LAF status unless the $2 billion threshold is met, or not met, for two consecutive years. A single one-year swing in public float would not affect a company’s filer status.
Provide a five-year on-ramp for all newly public companies. A company, regardless of public float size, would need at least 60 consecutive calendar months of Exchange Act reporting history before transitioning to LAF status. This change would effectively create a minimum five-year on-ramp for every new public company, regardless of public float, which builds on existing EGC accommodations.
Eliminate AF and SRC categories. The “accelerated filer” and “smaller reporting company” designations would be eliminated as distinct regulatory classifications. EGC status, which is a statutory category, would be retained; however, all companies, including EGCs, that are not LAFs would become NAFs.
Extend ICFR auditor attestation exemption to more public companies. All companies that are not LAFs would be NAFs, resulting in a decrease in the number of public companies that would be required to obtain an independent auditor’s attestation on ICFR under Section 404(b) of SOX. Management’s annual ICFR assessment under Section 404(a) and existing financial statement audit requirements would continue to apply to NAFs.
Extend scaled disclosures to all NAFs. The proposal would extend to all NAFs the accommodations currently available to SRCs, along with certain EGC accommodations, including:
- Two years of financial statements (with reduced presentation requirements) and management’s discussion and analysis (MD&A), rather than three for LAFs.
- Scaled executive compensation disclosure, including no compensation discussion and analysis (or related compensation committee report), pay ratio or pay-versus-performance disclosure; only three named executive officers (rather than five for LAFs); and only two years of summary compensation table information (rather than three for LAFs).
- Exemption from say-on-pay and say-when-on-pay shareholder advisory votes, as well as golden parachute compensation in connection with mergers and acquisitions.
- Risk factors and market risk disclosure not required in periodic reports.
- Exemption from the requirement that the compensation committee conduct an independence assessment before engaging any compensation adviser.
Eliminate more rigorous related-person transaction disclosure requirements applicable to SRCs. Currently, Item 404(d) of Regulation S-K provides, among other things, a different, more rigorous threshold for disclosure by SRCs of the lesser of $120,000 or 1% of the average total assets at year-end for the last two fiscal years when determining reportable transactions with related persons under Item 404(a). The proposal would eliminate Item 404(d) so that all reporting companies would be subject to the same related-person transaction disclosure requirements under Item 404(a).
Create new “small non-accelerated filer” (SNF) subcategory. A new SNF subcategory for NAFs with total assets of $35 million or less as of the end of each of their two most recent second fiscal quarters would benefit from extended filing deadlines: 120 days for Form 10-K (rather than 90 for other NAFs) and 50 days for Form 10-Q (rather than 45 for other NAFs).
Establish universal disclosure of material unresolved staff comments. The proposal would extend to all registrants, including NAFs, the obligation to disclose material unresolved SEC staff comments in annual reports where specified conditions are met, a requirement currently applicable only to AFs, LAFs and well-known seasoned issuers. In proposing this change, the SEC noted that as its contemporaneous proposed reforms to the securities offering process would make the ability to conduct shelf offerings – which often incorporate by reference information from the issuer’s reports – available to significantly more issuers, including NAFs, investors should be aware of the substance of any material unresolved comments.

The proposal would not expressly change:

Annual requirement to analyze filer status. Companies would continue to assess filer status annually, as of the last day of their fiscal year.
Requirements for audited financials and annual ICFR assessment. As noted under the proposal, NAFs would remain subject to the SEC’s rules under Section 404(a), which require management to establish, state its responsibility to establish and maintain, and provide its assessment of, the company’s ICFR. NAFs would also continue to be required to obtain a financial statement audit by a registered public accounting firm in which the auditor is required to obtain an understanding of ICFR as part of its risk assessment procedures.
EGC status. The proposal does not alter the statutory designation for EGC status. However, relying on the EGC designation to unlock discrete accommodations would become less relevant, because the proposal would extend most EGC accommodations to NAFs.
EGC confidentiality privileges. The SEC does not have authority to extend the statutory confidentiality privilege under Section 6(e)(2) of the Securities Act, which allows EGCs to exclude nonpublic draft registration statements and related correspondence from being produced in response to Freedom of Information Act requests. Non-EGC NAFs can continue to use Rule 83 procedures for confidential treatment of draft registration statements.

Who would be affected

The proposal would affect all domestic public companies currently filing periodic reports with the SEC and companies planning an initial public offering (IPO). The benefits would be most apparent in three scenarios:

The mid-cap “step down”: Companies presently classified as AFs (public floats between $75 million and $700 million), and companies classified as SRCs, EGCs, and many companies with public floats between $700 million and $2 billion presently classified as LAFs, would transition to NAF status if the proposal is adopted as drafted – in many cases gaining access to scaled disclosures and relief from the Section 404(b) auditor attestation requirement not currently available to them.
The large-cap IPO: Newer public companies with fewer than 60 months of Exchange Act reporting history would be NAFs regardless of public float size – a meaningful change for large-cap issuers that have recently completed IPOs.
The SNF: A company with $35 million or less in total assets (tested over its two most recent second fiscal quarters) would gain breathing room for periodic report deadlines.

The SEC indicated that if the proposed amendments were in place today, 19.2% of current public companies would be LAFs (compared to 35.4% currently), and 80.8% would be NAFs. A total of 17.9% of public companies (or 22.2% of NAFs) would be small NAFs.

The following categories of issuers would generally be excluded from the LAF/NAF framework under the proposal:

Asset-backed issuers, which are subject to the separate Regulation AB regime.
Foreign private issuers using FPI-specific forms, such as Form 20-F, for whom existing thresholds would generally remain in place (the $75 million public float threshold for the ICFR auditor attestation under Form 20-F is proposed to remain, absent EGC status).

Open questions and areas for comment

The proposal raises several interpretive and policy questions on which the SEC has invited comment, and that may attract significant attention from practitioners and issuers, including:

Whether the proposed $2 billion LAF threshold and the two-year and 60-month eligibility criteria are appropriately calibrated.
Whether there should be a mechanism for automatically adjusting the $2 billion LAF threshold, and, if so, what the mechanism should be.
How the transition framework should operate for companies currently occupying intermediate categories, including AFs.
Whether the broad extension of scaled disclosures to NAFs is appropriate given the simultaneous elimination of the SRC category.
Whether further conforming amendments are warranted with respect to foreign private issuers.
Whether to add an accommodation for special purpose acquisition companies (SPACs) that would permit a new seasoning period to begin when a business combination between a SPAC and a private operating company occurs.
The appropriate boundary conditions and measurement dates for the SNF subcategory.
How NAFs should practically implement the expanded material unresolved staff comment disclosure obligation.

Observations and commentary

If the SEC’s proposal is adopted, many existing public companies will become eligible for scaled disclosure accommodations that were not previously available to them, and newer public companies will benefit from an extended reporting on-ramp. If adopted, some potential impacts could include:

Consideration of voluntary auditor attestation. Depending on the investor profile, companies that are no longer subject to the ICFR auditor attestation may consider voluntarily obtaining an ICFR auditor attestation to enhance the reliability of management’s assessment of ICFR and improve the reliability of financial statements. Investors may still view the auditor’s attestation as enhancing the quality of financial statements, which investors rely on in making investment and voting decisions.
Adverse recommendations for compensation committee members. Currently, in general, if a company includes a shareholder advisory say-on-pay vote, Institutional Shareholder Services (ISS) addresses its compensation-related recommendations to that proposal. However, if there is no say-on-pay proposal on the ballot, any adverse recommendations related to executive compensation are typically applied to compensation committee members. Without a say-on-pay proposal on the ballot for NAFs, more public company compensation committee members may find themselves subject to adverse recommendations related to executive compensation.
Modeling compliance costs for newly public companies. Presently, a new public company could become an LAF after being an Exchange Act reporting company for 12 calendar months, thereby providing a new public company very little time to prepare for the additional requirements. A five-year on-ramp for every new public company, regardless of public float, would greatly help companies model the increased costs for company personnel, third-party advisors or service providers required to comply with nonscaled disclosure requirements, accelerated reporting deadlines and ICFR auditor attestation.
Impact on SNFs. Although the extended filing deadlines proposed for SNFs would alleviate some timing pressure, the proposed deadlines could result in SNFs filing their 10-K, proxy statement and first quarter 10-Q within days of each other. SNFs may therefore still choose to file earlier than the extended deadline (or opt into semiannual reporting if semiannual reporting rules go into effect as proposed) to avoid managing concurrent workstreams.

Next steps

Comments on the proposed amendments should be received on or before July 20, 2026. Public companies, underwriters, auditors and other market participants with views on the proposal’s scope, thresholds or transition mechanics should consider whether to submit comments during that period.

If adopted as proposed, the transition framework would require existing registrants to make an initial LAF/NAF status determination keyed to the fiscal year before the effective date of any final rules. The availability of NAF scaled disclosures, and SNF extended filing deadlines where applicable, would generally commence with the first filing following the effective date of the final rules and completion of that initial assessment. The proposing release provided the following examples:

Assuming an August 1, 2027, effective date, if a calendar year-end registrant had public float of $2 billion or more for 2026 and 2025 (determined at the end of each of its second fiscal quarters for 2026 and 2025, respectively), and if it had been a reporting company for at least 60 consecutive calendar months as of December 31, 2026, then it would continue as an LAF, and would continue to be required to comply with the reporting requirements for LAFs in its next Securities Act or Exchange Act filing after the initial filer status assessment was performed.
On the other hand, if the calendar year-end registrant were an LAF before effectiveness of final rules on August 1, 2027, but would not meet either the proposed public float or the seasoning requirement for LAF status as of December 31, 2026 (i.e., because its public float at the end of either of its two most recent second fiscal quarters was less than $2 billion and/or it had not met the 60-calendar month seasoning requirement), the reporting company could conduct its assessment as early as August 1, 2027, at which point it would become an NAF, and could begin scaling its disclosure and availing itself of the other accommodations available to NAFs beginning with its next Securities Act or Exchange Act filing made after the initial filer status assessment was completed. If this registrant had total assets of $35 million or less as of the end of each of its two most recent second fiscal quarters before December 31, 2026 (i.e., June 30, 2026, and June 30, 2025), then it would be an SNF, and could begin availing itself of the longer reporting deadlines for SNFs with its next periodic filing (i.e., the Form 10-Q for the fiscal quarter ended September 30, 2027).

Companies should consider modeling their likely status under the proposed rules, in order to anticipate changes to procedures and budgets if the rules are adopted. Companies should monitor the rulemaking for further developments and are encouraged to provide feedback on the proposal.

Cooley’s corporate governance and securities regulation attorneys are available to discuss these issues. Reach out to your existing Cooley contact or email the Cooley capital markets team.

Europe’s New Tech-Licensing Rules: Evolution, Not Revolution

Thu, 21 May 2026 14:20:00 Z

On May 1, the European Union’s revised Technology Transfer Block Exemption Regulation (TTBER) and accompanying Technology Transfer Guidelines came into force. The new rules replace a framework that had been in place since 2014 – an eternity in technology markets. Four years of review and public consultation by the European Commission have produced something that is less a bonfire of the old rules than a careful spring cleaning. The 2026 reform does not rewrite the underlying competition-law logic. Rather, it updates the legal scaffolding that applies it.

In Brussels jargon, technology transfer agreements are those by which a licensor authorizes a licensee to use certain technology rights to produce goods or services. Most such deals are benign, simply spreading technology and spurring research. The TTBER accordingly grants a “block exemption” from the prohibition on competition-restrictive agreements in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), on the assumption that qualifying agreements meet the efficiency criteria of Article 101(3). Yet, this is no carte blanche. Licensing agreements that fail to satisfy specified conditions, or that contain “hardcore” restrictions, fall outside the exemption – exposing their parties to the risk of severe quasi-criminal fines and civil damages.

The new Technology Transfer Guidelines flesh out how the TTBER should be interpreted and how agreements falling outside it should be assessed. The main changes fall into four areas:

Data licensing: Data encompassed by in-scope rights fall within the TTBER, while Data Act-mandated sharing receives Article 101 comfort.
Market share thresholds: Nascent technologies attributed zero share, and the grace period for threshold breaches increases from two to three years.
Technology pools: Tighter disclosure duties, a new anti-double-dipping rule and an explicit fair, reasonable and nondiscriminatory (FRAND) obligation on pool-granted licenses are imposed.
Licensing negotiation groups: In first-ever EU guidance, a line is drawn between pro-competitive collective bargaining and buyer cartels, though no formal safe harbor is offered.

Data: the elephant in the (server) room

The TTBER covers the licensing or assignment of know-how, patents, utility models, design rights, topographies of semiconductor products, supplementary protection certificates, plant breeder’s certificates and software copyrights. Data licensing agreements, however, were conspicuously absent from the 2014 rules – even as they became ubiquitous in practice.

In the public consultation, stakeholders clamored for guidance while simultaneously warning against a blanket extension of the TTBER to all data licensing – a reflection of the sheer diversity of data types in play. The Commission has threaded the needle. Under the new guidelines (Section 3.3.2), data that qualifies as an existing technology right – production know-how, for instance – falls squarely within the TTBER. Databases protected by copyright or the database sui generis right, being the closest analogues to covered technology rights, will be assessed by analogy with the TTBER’s principles. All other data licensing must be analyzed case by case.

Two further clarifications are worth noting. Information exchanged in the context of database licensing will often not restrict competition “by object” within the meaning of Article 101 of the TFEU. However, exchanges that go beyond what is objectively necessary and proportionate will be scrutinized under the Commission’s Guidelines for Horizontal Co-operation Agreements. And data-sharing agreements mandated by Chapter II of the Data Act will generally be treated as compliant with Article 101 – unless they serve as a fig leaf for hardcore restrictions such as price-fixing or customer allocation.

Market shares: less guesswork, more grace

The TTBER’s safe harbor depends on the parties not exceeding certain market-share thresholds. For competitors, the combined share must stay below 20% on any relevant technology or product market; for noncompetitors, each party’s share must remain below 30%. That’s simple enough in theory – but in practice, calculating shares in technology markets can be devilishly difficult.

Stakeholders told the Commission as much during the consultation, prompting three targeted fixes. First, the TTBER (recital 13) now confirms that technologies which have not yet generated sales of contract products hold a market share of “zero” – a welcome reduction in uncertainty for early-stage and nascent technologies. Second, the TTBER (Article 8(d)) and Technology Transfer Guidelines (Section 3.3.2) provide further methodological guidance on how to calculate technology market shares in the first place. Third, and perhaps most practically significant, the “grace period” during which the block exemption continues to apply after shares breach the thresholds has been extended from two to three years (Article 8(e)). That extra year offers a useful buffer where market shares fluctuate on the back of new technology launches.

Technology pools: tightening the soft safe harbor

Technology pools – arrangements in which two or more parties assemble a package of technology rights for licensing to contributors and third parties alike – sit outside the TTBER itself. But the Technology Transfer Guidelines have long offered a steer for assessment, including a “soft safe harbour” for pools meeting certain conditions. In the consultation, stakeholders broadly endorsed the existing guidance but grumbled that some conditions were too vague.

The revised guidelines (Section 4.4) respond with three sharpened requirements. Pools must now effectively disclose to licensees both the individual rights included and the methodology used to assess their essentiality – though there is no obligation to evaluate every single patent in the bundle. A new “double-dipping” prohibition ensures licensees are not charged twice for the same technology (once under a bilateral license with an individual right holder and again under the pool license). And the existing FRAND condition has been tightened to make explicit that it applies to licenses granted by the pool itself, closing what was seen as an awkward gap in the prior wording.

Licensing negotiation groups: new kids on the block

Licensing negotiation groups (LNGs) – arrangements whereby technology implementers band together to negotiate license terms collectively – are the genuinely novel element of the 2026 package. The 2014 guidelines said nothing about them, for the simple reason that none were known to exist at the time. (The Commission issued its first informal guidance letter on the subject only in July 2025, in relation to the Automotive Licensing Negotiation Group).

The new guidelines (Section 4.5) now provide a framework for assessing these creatures. On the pro-competitive side, LNGs can reduce transaction costs and produce more balanced, better-informed negotiations. On the anticompetitive side, they risk exercising excessive purchasing power to drive royalties below competitive levels, facilitating downstream coordination among participating implementers or foreclosing third-party implementers.

Crucially, the Commission draws a line between genuine LNGs and buyer cartels. Groups that operate transparently, disclose their membership and confine themselves to negotiating license terms will generally not be found to restrict competition “by object.” The guidance identifies specific risk-reduction measures that LNGs can adopt – relating to market power, scope of activity and information barriers – to stay on the right side of Article 101.

Notably, the Commission chose not to offer a formal safe harbor for LNGs. Its reasoning is candid: With so little enforcement experience, prescriptive conditions risked either failing to capture genuine concerns (under-enforcement) or deterring pro-competitive arrangements (over-enforcement). The substance of what might have been safe-harbor conditions has instead been folded into the risk-reduction guidance – a pragmatic hedge.

The bottom line

The 2026 package, then, is a measured refinement rather than a rethink. The core architecture – block-exemption conditions, hardcore restrictions, individual assessment principles – remains intact. What has changed is the scaffolding surrounding it, updated to reflect a world of data licensing, fluctuating technology markets and collective negotiation that the 2014 drafters could not fully have foreseen. Companies with technology licensing agreements touching the EU market would do well to review them against the full updated framework. The consequences for getting it wrong have not become any less severe.

EEOC Proposes to Eliminate EEO-1 Reporting

Thu, 21 May 2026 07:00:00 Z

On May 14, 2026, the Equal Employment Opportunity Commission (EEOC) submitted a proposed rule to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) titled, “Rescission of EEO-1, EEO-2, EEO-3, EEO-4, EEO-5, and reporting requirements under Title VII, the ADA, GINA, and the PWFA.” If finalized, this could eliminate the annual EEO-1 workforce demographic filing familiar to many large employers. The proposed rule would also eliminate EEO reports currently required by certain labor unions, state and local governments, and school systems.

A requirement since 1966, the EEO-1 Component 1 report is a mandatory annual data collection that requires all private-sector employers with 100 or more employees, and federal contractors with 50 or more employees meeting certain criteria, to submit workforce demographic data, including data by job category and sex and race or ethnicity, to the EEOC. The latest proposal follows a reporting change made last year, in which the Trump administration eliminated the optional reporting of nonbinary employee data pursuant to the January 20, 2025, Executive Order 14168 “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.”

Notably, the elimination of EEO-1 data reporting was recommended in Project 2025’s policy playbook, which called for rescinding the collection, noting that, “[c]rudely characterizing employees by race or ethnicity fails to recognize the diversity of the American workforce and forces individuals into categories that do not fully reflect their racial and ethnic heritage.” Current EEOC Chair Andrea Lucas also warned employers that they may not use the information collected and reported in their organization’s EEO-1 report to justify treating employees differently based on their race, sex or other protected characteristics.

What this means

The submission of a proposed rule is an early step in a longer process. Under Executive Order 12866, OIRA has up to 90 days (which may be extended) to review a proposed rule. After OIRA concludes the review, the proposed rule will be published in the Federal Register for a review and comment period.

As these administrative processes will take time, employers covered by the EEO-1 reporting obligations should continue preparing for the next filing cycle and monitor for further updates to the pending proposal. If federal EEO-1 reporting is ultimately rescinded, states may seek to fill the gap by imposing their own workforce demographic data collection and reporting requirements, potentially creating a patchwork of compliance obligations for multistate employers.

Trade Court Rejects Section 122 Tariffs, Appeal Pending

Thu, 21 May 2026 07:00:00 Z

The US Court of International Trade (CIT) recently held in a split decision that the Trump administration’s imposition of a 10% global tariff, effective February 24, 2026, under Section 122 of the Trade Act of 1974 was “invalid” and “unauthorized by law.” While the CIT issued a permanent injunction prohibiting the collection of further Section 122 duties (and the government did not contest that the CIT could order reliquidation of entries and refunds after a final, unappealable decision), that relief was limited to plaintiff importers who paid the challenged tariffs. The CIT declined to issue universal injunctive relief. The US Court of Appeals for the Federal Circuit has since temporarily stayed the judgment, meaning the tariffs remain in effect for the importer plaintiffs for now, pending further ruling by the appellate court.

The CIT’s ruling, the Federal Circuit’s stay and practical implications

After the US Supreme Court held that the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unauthorized in February 2026, the administration immediately imposed a new global 10% tariff on most imported goods, invoking Section 122 of the Trade Act of 1974, which authorizes the imposition of tariffs to address “large and serious United States balance-of-payments deficits,” among other specified circumstances. A coalition of states and private importers challenged this executive action.

The CIT held that the tariffs exceeded the scope of the statute but limited injunctive relief to plaintiffs who imported goods subject to Section 122 tariffs. The CIT enjoined the government from collecting Section 122 tariffs solely with respect to these plaintiffs. The CIT declined to enter a universal injunction. The ruling was divided, with a dissenting judge arguing that the tariffs were lawfully imposed pursuant to authority delegated by Congress.

Shortly thereafter, the government appealed the CIT’s decision, and the Federal Circuit issued a temporary stay while it decides whether to issue a broader stay pending resolution of the government’s appeal. The CIT’s ruling and Federal Circuit’s stay underscore the rapidly evolving landscape and leave open questions regarding the relief available and steps affected entities must take to preserve their rights to a potential refund of Section 122 tariffs.

If you have any questions concerning this ruling or its potential implications, please reach out to your Cooley contact or one of the lawyers listed below.

Sedona Conference Publishes Model Jury Instructions on DTSA’s 10th Anniversary

Mon, 18 May 2026 16:00:00 Z

Key takeaways

The Sedona Conference’s Trade Secrets Working Group published the first-ever model jury instructions for federal DTSA cases – the product of a multiyear, consensus-driven drafting effort – filling a long-standing gap in trade secret trial practice.
The publication is expected to promote greater uniformity in DTSA jury instructions across federal courts, though some issues will continue to be treated differently in different courts.
Both plaintiffs and defendants stand to benefit from increased certainty, including improved prospects for early resolution of disputes when both sides have a clearer picture of how key issues are likely to play out at trial.

The need for DTSA model jury instructions

The federal Defend Trade Secrets Act of 2016 (DTSA) authorizes civil claims for trade secret misappropriation. DTSA trials are complex, often combining federal claims with state trade secret claims, breach of contract and other causes of action. Given the relatively modest period of the statute’s existence, uniform federal common law under the DTSA has been slow to develop.

In the absence of jury instructions specifically tailored to the DTSA, courts and litigants have relied on instructions from state law analogs (primarily statutes modeled on the Uniform Trade Secrets Act (UTSA), Economic Espionage Act precedents and prior DTSA trial court orders) – sources less readily available and formulated for a different purpose. The result has been certain inconsistency across districts, unpredictability for clients and counsel alike, and hard-fought disputes over jury instructions conducted without the benefit of an impartial and authoritative reference.

The effects of this publication go beyond trials themselves. Jury instructions provide the framework for understanding what each party must eventually prove and how they can prove it, which in turn shapes the tenor of prelitigation disputes, pretrial discovery and – critically – settlement analysis. The Sedona Conference’s model instructions are likely to have an important impact in these areas.

The Sedona Conference Trade Secrets Working Group

The Sedona Conference is a nonprofit research and educational institute dedicated to the advanced study of law and policy in complex litigation, intellectual property, artificial intelligence, and data security and privacy. Its Working Group Series publications – developed through a consensus-driven process among practitioners, academics and jurists representing all stakeholders – are widely recognized as influential thought leadership and frequently cited by courts and others.

The model instructions were developed over three years in a collaborative process that included a public comment period.

Highlights from the model jury instructions

The instructions address the full life cycle of a DTSA misappropriation claim at trial, organized as follows:

Trade secret existence: Definition of “trade secret,” the reasonable measures and independent economic value requirements, so-called “negative” trade secrets, combination and compilation trade secrets, the “generally known” and “readily ascertainable” standards, ownership, and the interstate commerce requirement.
Misappropriation: Misappropriation by improper acquisition, unauthorized disclosure and unauthorized use – including a specific instruction that “inevitable disclosure” is insufficient to establish misappropriation.
Damages: A comprehensive framework covering actual loss (including lost profits, price erosion, increased costs, development costs, lost business value and diminution of trade secret value), unjust enrichment (including defendant profits, avoided development costs and “head start” damages), reasonable royalty, apportionment, avoidance of double recovery, and exemplary damages for willful and malicious misappropriation.

The instructions reflect several notable outcomes on key issues, while also leaving certain unresolved questions and areas of disagreement for courts to address.

Defining trade secrets with particularity

The instructions require the factfinder to determine that the plaintiff has identified alleged trade secrets “with a reasonable degree of precision and specificity.” The requirement of defining trade secrets with particularity – and the appropriate timing for such definition by the plaintiff – continues to be a hot topic in trade secret litigation, including in the high-profile Ninth Circuit decision in Quintara Biosciences Inc. v. Ruifeng Biztech, Inc. The working group’s inclusion of an instruction concerning trade secret particularity reflects that this issue may remain a focus of the litigants up to and including trial.

Rejection of inevitable disclosure doctrine

The publication includes a model instruction requiring “actual” disclosure or use for a finding of misappropriation, rather than merely a finding that such use or disclosure would be “inevitable.” As the working group acknowledges, there has long been a debate concerning the degree of overlap between the requisite showing for “threatened misappropriation” sufficient to support preliminary injunctive relief, and “inevitable disclosure” that, in some courts, has been held to qualify as sufficient for a showing of misappropriation. The instructions do not fully resolve the distinction, but clarify that misappropriation by disclosure or use requires genuine, not speculative, disclosure or use.

Reasonable measures

While courts frequently provide nonlimiting examples of factors for juries to consider whether the plaintiff took “reasonable measures” to protect the confidentiality of the trade secret, the working group recognized that any specific example offered out of context could inadvertently favor one party. The Sedona Conference publication cautions that all instructions – and particularly those on reasonable measures – must be carefully tailored to the specific claims and facts in each case. The model instructions summarize two alternative approaches to reasonable measures: listing relevant examples for the factfinder to consider or separately listing each of the plaintiff’s and the defendant’s contentions.

‘Use’ of combination trade secrets – A circuit split left unresolved

Courts are divided on whether a defendant must use “all elements” of a so-called combination or compilation trade secret to be liable, or whether use of a “substantial portion” of the alleged trade secret is sufficient. Unable to resolve this split, the working group proposed two alternative instructions – one for each standard – and left the choice to the court. Litigants should be prepared to argue for the instruction beneficial to their position in courts that have not yet addressed the question.

Unjust enrichment damages – Jury or judge?

The instructions flag an unresolved question about whether unjust enrichment damages under the DTSA are legal (entitling the parties to a jury) or equitable (reserved for the court). Consistent with the approach of most courts to date, the instructions include unjust enrichment damages provisions and note that courts often submit the issue to the jury while preserving the option to treat the verdict as advisory to the court’s own determination.

Practical implications for DTSA litigants

For parties involved in or contemplating DTSA litigation, the model jury instructions provide a well-regarded resource to frame how key issues will be presented to a jury. Because an influential organization has now reduced these principles to writing, there may be increased certainty on issues, such as defining trade secrets with particularity, ways to establish “use,” reasonable measures and damages methodologies, that previously lacked a widely accepted baseline. That increased certainty benefits both sides: Plaintiffs and defendants can more reliably assess the strength of their positions at the outset of litigation, which may facilitate more informed early settlement discussions and reduce the cost of disputes that would otherwise turn on unpredictable jury instruction battles. For potential plaintiffs, in particular, greater uniformity across federal courts may reduce the need to be selective about the jurisdictions in which to bring cases, while defendants may benefit from reduced uncertainty about how key issues will be framed, regardless of where a plaintiff chooses to file.

DoD Targets Foreign Ownership Disclosure in Proposed DFARS Rule

Thu, 14 May 2026 13:35:57 Z

The Department of Defense (DoD) issued a proposed rule on May 7, 2026, to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to implement provisions of the National Defense Authorization Act (NDAA) for fiscal years 2020 and 2021, aimed at mitigating risks related to beneficial ownership and foreign ownership, control or influence (FOCI) of DoD contractors and subcontractors. Contractors and subcontractors with an award of more than $5 million (other than for commercial products and services, absent a specific determination of coverage) must disclose FOCI and beneficial ownership information prior to a covered award, modification or option exercise, implement any required mitigation to address FOCI risks, and update their disclosures throughout contract performance. Comments on the proposed rule are due by July 6, 2026.

Background

The proposed rule implements aspects of Section 847 of the NDAA for FY 2020 (Pub. L. 116-92) and Section 819 of the NDAA for FY 2021 (Pub. L. 116-283). These statutes require covered contractors and subcontractors to disclose information related to their beneficial ownership and whether they are under FOCI, including contact information for foreign beneficial owners. Further, they mandate updates to this information when changes occur during contract performance and, if necessary, that contractors mitigate any FOCI pursuant to an approved FOCI mitigation plan for the duration of the award. The proposed rule also implements elements of DoD Instruction 5205.87, which establishes procedures related to disclosing beneficial ownership and FOCI information and mitigating FOCI risk.

Who is covered

The rule proposes to apply its requirements to “covered contractors” and “covered subcontractors,” which are existing or prospective DoD contractors or subcontractors at any tier with a contract or subcontract valued at more than $5 million. The rule will not apply to the acquisition of commercial products – including commercially available off-the-shelf (COTS) items – or commercial services, unless a designated senior DoD official determines that the contract implicates a national security concern or a risk to sensitive data, systems or processes.

Key requirements

The proposed rule imposes the following obligations on covered contractors and subcontractors:

Pre-award disclosure. Offerers must submit Standard Form (SF) 328, Certificate Pertaining to Foreign Interests, and supporting documents – including contact information for each foreign beneficial owner – to the Defense Counterintelligence and Security Agency (DCSA) for review through the National Industrial Security System (NISS).
Representation at the time of offer submission. By submitting an offer, the offerer represents that it has submitted the required information in NISS, and that the information is current, accurate and complete.
Continuous disclosure and updates. Contractors must complete, update and verify the currency of the SF 328 and supporting documents, including beneficial owner contact information in NISS, before contract modifications or renewals and whenever changes occur.
FOCI risk mitigation. Contractors determined to be under FOCI must implement any required mitigation within 90 calendar days after contract award, modification or option exercise. Practically speaking, this suggests that a contractor under FOCI can nevertheless be eligible for and receive an award, modification or option exercise while under FOCI as long as it has agreed to the proposed mitigation. The contractor will then have 90 days following the award, modification or option exercise to implement the FOCI mitigation plan.
Rapid reporting of changes. If changes may result in a contractor or subcontractor under FOCI, the contractor must report the foreign or beneficial owner’s name and relevant information, as well as any “readily available information” regarding actions taken or recommended to mitigate the associated risk, within three business days of identification. If DCSA notifies the contractor that FOCI or beneficial ownership poses a risk, the contractor must undertake a plan of action to implement DCSA’s mitigation recommendations and confirm in NISS that it will comply with those recommendations within 10 business days.
Subcontract flow down. Contractors must ensure that all subcontractors with subcontracts exceeding $5 million similarly have an eligible status in NISS before subcontract award and maintain that status throughout performance. Contractors must also insert the substance of the relevant contract clause into subcontracts and other contractual instruments exceeding $5 million.

Action items for contractors

Contractors and prospective contractors doing business with DoD – particularly those with foreign investors, parent companies or other foreign interests – should take note of the following:

Review FOCI exposure now. Contractors should assess whether any foreign interest could be deemed to have ownership, control or influence over their operations. The first step in doing so is completing an SF 328 and assembling the information that accompanies the SF 328. Cooley can help answer questions about the disclosures the SF 328 requires and what such disclosures may mean for DCSA’s FOCI analysis and requirements for FOCI mitigation measures.
Verify NISS status. Contractors should confirm or initiate their NISS registration and ensure SF 328 submissions are current, accurate and complete when made.
Review subcontract terms. Contractors should anticipate the need to flow down the new clause to subcontractors on awards exceeding $5 million.
Submit comments on the proposed rule by July 6, 2026. Comments should be submitted via the Federal eRulemaking Portal at regulations.gov (searching for DFARS Case 2021-D011) or by email to osd.dfars@mail.mil with “DFARS Case 2021-D011” in the subject line.

FCC Proposes Making Spectrum Available for ‘Weird Space Stuff’

Tue, 12 May 2026 16:48:00 Z

On March 26, the Federal Communications Commission (FCC) adopted a Notice of Proposed Rulemaking titled, “Spectrum Abundance for Weird Space Stuff,” seeking comment on ways it can make spectrum available for new space activities. The FCC proposes two pathways to opening more spectrum for new space activities: clarifying and expanding its traditional regulatory classifications and exploring new spectrum bands that can support new use cases on a dedicated basis.

Comment due date: May 11, 2026

Reply comment due date: June 8, 2026

Clarifying existing spectrum allocations

Authorizing spectrum ‘piggybacking’

The first avenue the FCC proposes for accessing additional spectrum resources for new space operations is to expand some of its existing frequency authorizations. “Piggybacking” entails a space station using the same frequencies as a separate, consenting spacecraft that is also authorized by the FCC, as long as the space station certifies that it will only use its authorization for servicing, monitoring or collaborating with the consenting spacecraft, and its operations will conform with the consenting spacecraft’s license.

Authorizing stand-alone TT&C within existing FSS allocations

The FCC also proposes authorizing applicants for emergent space operations to conduct telemetry, tracking and command (TT&C) in fixed-satellite service (FSS) bands. FSS space station licensees are routinely authorized to conduct TT&C in the same frequency bands that are allocated for FSS. This allocation would be on an unprotected, noninterference basis subject to coordination with other authorized spectrum users.

Refining definition of TT&C

In line with its proposal to authorize emergent space operations to conduct TT&C operations, the FCC also proposes an updated interpretation of the definitions of space telecommand and space telemetry to include downlink of video and other data during maneuvers, such as rendezvous and proximity operations (RPO) or docking with other spacecraft, eliminating concerns that the current definitions could be narrowly construed to exclude those activities.

Existing service allocations

The FCC reviews requests to operate space stations within specific service allocations on a case-by-case basis and does not plan on abandoning this approach. In response to concerns regarding potential interference of new applicants requesting service in existing bands, the FCC clarifies that it will not preemptively exclude operators from applying to use frequencies in any service allocation where their operations could justifiably fit. The FCC’s rules already require applicants to demonstrate compliance with International Telecommunication Union (ITU) rules and recommendations and subject applicants to FCC review.

New spectrum bands for emergent space operations

The second avenue that the FCC is considering for new space operations is making available frequency bands that are already allocated for nonfederal use. The FCC is particularly interested in bands that are either not shared with federal users or are shared with federal users but are not intensively used and are allocated for federal use on a secondary basis. The main bands the FCC is considering are the 2320-2345 MHz band, 2315-2320 MHz and 2345-2350 MHz bands, 2305-2315 MHz and 2350-2360 MHz bands, and intersatellite links. While these frequency bands are the focus of the FCC at present, it seeks comment on any additional bands that may be suitable.

2320-2345 MHz band

The 2320-2345 MHz band is exclusively used by SiriusXM to provide satellite radio service (SDARS), and no other federal operations are authorized to operate in it. As such, the FCC proposes creating a secondary allocation for SOS operations in the Earth-to-space direction, as well as allowing SiriusXM to lease use of the spectrum to earth station licensees.

2315-2320 MHz and 2345-2350 MHz bands

These bands serve as the “guard band” spectrum between SDARS and terrestrial operations. The FCC proposes utilizing these bands in the same way as the 2320-2345 MHz band for command uplinks.

2305-2315 MHz and 2350-2360 MHz bands

The FCC seeks input on the potential to create a secondary allocation for SOS operations in the Earth-to-space direction and allowing AT&T, which has near-exclusive use, to lease the spectrum.

Intersatellite links

The FCC also proposes authorizing licensed satellite operators to use their FCC-licensed satellites and intersatellite links to provide TT&C and data downlinks in support of new space operations without the need to file a modification or obtain additional FCC authorization. This would allow the use of off-the-shelf equipment and already established ground and space infrastructure. It could also potentially open up a new avenue of business for established non-geostationary orbit (NGSO) or geostationary orbit (GSO) space station licensees.

The SEC’s Semiannual Reporting Proposal: Fare Thee Well Quarterly Reporting?

Mon, 11 May 2026 19:58:13 Z

On May 5, 2026, the Securities and Exchange Commission (SEC) proposed rule and form amendments that would allow companies reporting under the Securities Exchange Act of 1934, as amended (Exchange Act), the option to file semiannual reports in lieu of the current quarterly reporting regime. If adopted as proposed, a company electing this new approach would file one single semiannual report on a new Form 10‑S – covering the first six months of the fiscal year – and one annual report on Form 10-K. Companies that do not elect this option would continue filing quarterly. The proposing release also includes related amendments to Regulation S‑X that would update “staleness requirements” and consolidate the “age of financial statements” requirements. Comments on the proposal are due by July 6, 2026.

Background

Under current Exchange Act Rules 13a‑13 and 15d‑13, domestic reporting companies subject to Sections 13(a) or 15(d) are required to file quarterly reports on Form 10‑Q for each of the first three quarters of the fiscal year. The SEC’s proposal would amend those rules to permit companies to elect, on an annual basis, to instead file semiannual interim reports on a new Form 10‑S. Existing exceptions from the quarterly reporting requirement – for foreign private issuers, asset-backed issuers and investment companies (other than business development companies and face-amount certificate companies) – would remain unchanged.

Proposed amendments

Annual check-box election

Companies would elect semiannual reporting annually by checking a new box on the cover page of Form 10‑K. Newly public companies could, alternatively, make the election on certain registration statements filed pursuant to the Securities Act of 1933, as amended (Securities Act) – i.e., Forms S‑1, S‑3, S‑4 or S‑11 – or on Exchange Act registration statement Form 10. The election would apply for the first interim report (semiannual or quarterly) of the fiscal year in which the Form 10-K election was filed; a company that made the election could not switch between quarterly and semiannual reporting midyear. For private companies conducting an initial public offering, the company could amend its election with respect to semiannual reporting until the registration statement becomes effective; once effective, the newly public company could not change its election midyear.

A company that leaves the new box unchecked would be deemed to have opted for quarterly reporting. A company would be able to correct an inadvertent check-box error by amending its Form 10‑K as soon as practicable after discovery but no later than the due date for the first Form 10‑Q that would otherwise have been required for that fiscal year.

Form 10‑S content and timing

A semiannual filer would file Form 10‑S covering the first six months of its fiscal year. The form would require the same information as currently required by Form 10‑Q, including management discussion and analysis (MD&A), legal proceedings, material changes to risk factors, certain equity-related disclosures, defaults, and governance-related items – with US generally accepted accounting principles (GAAP) interim financial statements reviewed (but not audited) by an independent accountant and tagged using inline XBRL. Disclosure controls and procedures certifications would also apply.

The filing deadline would be 40 days (for large accelerated filers and accelerated filers) or 45 days (for all other filers) after the end of the first semiannual period – the same framework that currently governs Form 10‑Q. The second half of the fiscal year would be subsumed in the company’s annual report on Form 10‑K just as the fourth fiscal quarter is currently subsumed within the company’s annual report on Form 10-K. The current framework for newly public companies would also apply; the filing deadline for the first semiannual report would be the later of 45 days after the effective date of the registration statement or the date that the Form 10-S would have otherwise been due had the company been a reporting company.

Companies that do not elect to become semiannual reporters would continue to be required to file three quarterly reports on Form 10-Q and one annual report on Form 10-K for each fiscal year as under the current system for reporting companies. Companies could not opt out of portions of Form 10-Q – it is an “all-or-nothing” election.

Voluntary quarterly disclosures permitted

The proposal contemplates that some companies may elect semiannual reporting for purposes of mandatory periodic disclosure while continuing to provide voluntary disclosure of information on a quarterly basis through other channels, such as earnings releases. In addition, under the proposal, a semiannual filer would not be precluded from voluntarily reporting quarterly financial information in a Form 10-S in addition to the required semiannual financial information. If the quarterly financial information is presented in the Form 10-S financial statements, the quarterly financial information would require auditor review.

Updated financial statement staleness framework

The proposal would also amend Regulation S‑X to update and consolidate the financial statement staleness framework and revise how the date of an interim balance sheet is determined in registration or proxy statements. These changes are designed to ensure that registration and proxy statements incorporating financial statements of semiannual filers are not treated as containing stale financial information under a framework calibrated to a quarterly reporting cycle. The changes would also eliminate the one- or two-day period under the existing framework during which financial statements are required to be updated in a registration statement or proxy statement before those updated financial statements would be required to be filed on Form 10-Q.

Currently, Rules 3-01 and 8-08 of Regulation S-X (for smaller reporting companies) address how the date of an interim balance sheet is determined in registration or proxy statements. These rules require a company to assess the number of days from the filing date or from the effective date of a registration statement (or mailing date of a proxy statement) to the date of the most recent balance sheet to determine if the balance sheet falls within 130 days or 135 days, as applicable. The proposal would replace the current day-count tests with a requirement that, generally, a registrant include interim financial statements – as of the end of the most recently completed fiscal quarter (for quarterly filers) or semiannual period (for semiannual filers) – that have been filed, or were required to be filed, on or before the relevant filing date.

The proposal would avoid disparate treatment between semiannual filers and quarterly filers with respect to the age of the interim financial statement requirements. Both quarterly and semiannual filers would have the same date on which the financial statements would be required to be updated because both filers would determine the date from their most recently completed interim periods. However, this could result in an investor in a company that is a semiannual filer not receiving interim financial statements that are as current, as would be required under the existing framework. For example, if a nonreporting company with a calendar fiscal year that elects semiannual reporting files a registration statement as late as August 13, proposed Rule 3-01(c)(2) would not require any interim financial statements to be included in the registration statement.

Technical amendments

The proposal includes a number of technical amendments to conform existing rules and forms to the proposed flexible approach to interim reporting – for example, by inserting references to semiannual reporting or new Form 10-S and adding definitions of “quarterly filer” and “semiannual filer” to Exchange Act Rule 12b‑2 and Securities Act Rule 405.

Who would be affected

The proposed accommodation would be available to all domestic Exchange Act reporting companies currently subject to Form 10‑Q filing requirements under Sections 13(a) or 15(d), as well as companies filing Securities Act or Exchange Act registration statements of the types discussed above. Companies already excluded from the quarterly reporting requirement – including foreign private issuers, asset-backed issuers and investment companies (other than business development companies and face-amount certificate companies) – are not within the scope of the proposed amendments.

Potential benefits of semiannual reporting discussed in the proposal include reallocation of time and resources to business strategy, new product or service development, and other value-enhancing activities. The SEC stated these benefits may be especially appealing to newly public or smaller companies that may have financing constraints or limited managerial capacity and are intended to help newly public or smaller companies ensure long-term viability and remain in the public market. Additionally, the proposal suggests that the semiannual reporting structure and the reduction of compliance costs associated with quarterly reporting may contribute to more private companies choosing to enter the public market.

In light of these potential benefits, companies will still need to consider their industries, peer practice, size, business operations (including seasonality), financing needs, contractual obligations and investor base, among other factors, before determining whether to move to semiannual reporting. For example, a move to semiannual reporting may make more sense for a pre-revenue biotechnology company whose investors tend to care more about the outcome of clinical or regulatory developments than the information that is required by Form 10-Q. Meanwhile, companies that have robust analyst coverage, or that have debt covenants requiring quarterly information, may find that continuing with a quarterly reporting cadence better serves their needs.

Open questions

The SEC has solicited comments on a range of issues that may shape the final rule. Key areas of uncertainty include:

Eligibility for electing semiannual reporting (i.e., a mandatory or optional requirement)
Filing deadline for Form 10-S
Permissibility of midyear changes to reporting frequency and method of such changes
Treatment of earnings releases for semiannual filers (i.e., whether earnings releases should be “filed” rather than “furnished”)
Auditing and accounting implications, including with respect to the comfort letter process
Implications to insider trading policies, trading windows and Rule 10b5-1 plans
Comparability of financial information among quarterly and semiannual reporters
Compliance date, including any applicable transition period

Observations and commentary

When evaluating a shift to semiannual reporting, companies should consider a number of factors, including:

Impact on quarterly earnings disclosure. Depending on their investor profile, companies may feel compelled to continue to issue earnings releases and hold quarterly earnings calls. Additionally, because semiannual filers will be reporting financial and other material information on a less frequent basis, there may be an increase in Forms 8-K filed by semiannual filers. Companies will also need to consider the impact on their guidance practices – shifting from quarterly guidance to semiannual, annual or no guidance – when evaluating a move to semiannual reporting.
Implications for active registration statements. Companies that have active registration statements are required to keep them current to ensure investors have all of their material information. For many companies, this is achieved through incorporation by reference of their Exchange Act reports into their registration statements. A company moving to semiannual reporting would need to be mindful of the fact that extant registration statements would be regularly updated only two times per year rather than four times per year. This consideration would be relevant not only for companies with shelf and resale registration statements but also for companies with employee equity plans registered on Form S-8.
Capital raising needs. Given the current practices regarding auditor comfort letters and negative assurance for securities offerings, depending on the timing of an offering, an underwriter may request auditor review of more recent interim financial statements than those included in the last semiannual or annual report in order to obtain traditional negative assurance comfort. Companies with near-term capital raising needs may need to continue to report quarterly, depending on how the underwriting process adapts to a semiannual reporting structure.
10b5-1 plan, insider trading policy and Regulation FD considerations. Semiannual reporting could affect the cooling-off period for Rule 10b5-1 trading plans adopted by directors and Section 16 officers. Under Rule 10b5-1, trading cannot begin until after a cooling-off period expiring the later of 90 days after adoption or modification of a plan or two business days following disclosure of a company’s financial results for the relevant fiscal period in a Form 10-K or 10-Q, subject to a maximum cooling-off period of 120 days. For companies that elect semiannual reporting, trading plans adopted during the first or third quarter would more likely be subject to the full 120-day cooling-off period before trading may begin under the plan.

Additionally, companies adopting a semiannual reporting framework may need to impose longer trading blackout periods under their insider trading policies. A semiannual reporting framework could result in longer gaps between the disclosure of financial and other material information. Companies may prefer to continue a quarterly reporting cadence, or to continue issuing quarterly earnings releases, to allow for more frequent open trading windows. Relatedly, a semiannual framework may result in the need for more rigorous policies and protocols around Regulation FD. If companies are in possession of material nonpublic information for longer periods of time, the risk of inadvertent disclosure of such information increases, and a company’s ability to have discussions with analysts and investors could be impacted.

Competitive (dis)advantages. A semiannual reporting framework could create information asymmetries between companies that report semiannually and those that continue to report quarterly. Companies that elect to continue to report quarterly would disclose financial results, legal developments and other information more frequently, which may provide semiannual reporters with additional visibility into competitors’ performance and strategies they can use to inform their own decision-making.

At the same time, semiannual reporting companies may be at a disadvantage in the public markets. Investors may rely on more frequent disclosures from quarterly reporting peers as indicators of industry trends, which could cause the stock prices of semiannual reporters to move in response to competitors’ results, even when those companies have not provided updated information about their own performance.

Next steps

The SEC’s semiannual reporting proposal is open for public comment, and the SEC is actively soliciting input on the numerous questions it has posed. As highlighted in this alert, there are many important factors that companies will need to carefully consider as they evaluate whether moving to semiannual reporting makes sense for them. Cooley’s corporate governance and securities regulation attorneys are available to discuss these issues with you.

Executive Order Targets Federal Contractors’ ‘Racially Discriminatory DEI Activities’

Wed, 06 May 2026 07:00:00 Z

On March 26, 2026, President Donald Trump issued Executive Order No. 14398 (EO) targeting DEI activities by federal contractors and subcontractors. The EO, titled “Addressing DEI Discrimination by Federal Contractors,” highlights the administration’s belief that some entities, including federal contractors, continue their discriminatory practices through “diversity, equity, and inclusion” (DEI) activities that are sometimes concealed from public view.

To address this, the EO requires federal departments and agencies to add a new, DEI-specific clause to contracts and “contract-like instruments” through which contractors and subcontractors would pledge not to “engage in any racially discriminatory DEI activities” and would agree to “furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency … for purposes of ascertaining compliance with [the new] clause.”

Notably, the EO focuses only on “racially discriminatory DEI,” or disparate treatment based only on race and ethnicity, and it does not include other categories protected under federal law, such as sex or gender, which is a departure from the administration’s January 21, 2025, Executive Order No. 14173, which was broader than race-based DEI. However, the EO’s narrowed approach is consistent with the General Services Administration’s recently proposed DEI certification requirement (GSA requirement) for federal financial assistance recipients, which directs recipients to certify compliance with laws prohibiting race and color discrimination, but notably omits sex and other protected categories. While ethnicity and color are two legally distinct protected characteristics, the EO and GSA requirement interestingly take differing approaches on whether to cover each such characteristic, while both address race.

On April 20, 2026, in Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, No. 8:26-cv-01532, (D. Md. filed Apr. 20, 2026), five organizations composed of membership organizations and nonprofit trade associations challenged the EO in the US District Court for the District of Maryland. Among other things, the complaint alleges that the EO’s requirement that federal contractors certify that they will not engage in “racially discriminatory DEI activities,” regardless of whether those activities comply with federal antidiscrimination law or are discriminatory, violates the First Amendment. The plaintiffs seek an injunction enjoining enforcement and implementation of the EO, striking any contract language implementing the EO that has been inserted into any federal contract or contract-like instrument, and rescinding any agency implementation directives relating to the EO. While employers should track this and any other legal challenge to the EO, they should continue to prepare to comply with the order until a court rules otherwise.

Key details of the new clause

Under the new clause, contractors must expressly agree to:

Refrain from engaging in any racially discriminatory DEI activities.
Furnish information and reports, including providing access to books, records and accounts, to the extent required by the contracting agency so that it can ascertain the contractor’s compliance with the clause.
In the event of the contractor’s or subcontractor’s noncompliance with the clause, be subject to cancellation, termination or suspension of the contract, and be deemed ineligible for further government contracts.
Report any subcontractor’s “known or reasonably knowable conduct that may violate the clause” to the contracting department or agency, and take any remedial actions if directed by the contracting department or agency.
Inform the contracting department or agency if a subcontractor sues the contractor if such suit implicates the validity of the clause.
Recognize that compliance with the clause is material to the government’s payment decisions for purpose of the False Claims Act (FCA).

The EO defines certain terms, including defining “[r]acially discriminatory DEI activities” broadly as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” “Program participation” is also defined broadly to mean “membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.” This array of activities could include employee resource or affinity groups, mentorship programs and diverse recruiting efforts, if access to such activities is limited on the basis of race or ethnicity.

Although the EO does not define “disparate treatment” for EO purposes, disparate treatment is already unlawful under federal, state and/or local anti-discrimination law. Disparate treatment discrimination can occur when a contractor takes race or ethnicity (or any other characteristic protected under applicable law) into account when engaged in any of the activities identified above. For example, the Equal Employment Opportunity Commission’s DEI-related guidance notes that consideration of a protected characteristic does not have to be the exclusive or sole reason for an employment action, or the “but-for” deciding factor for the action, to be unlawful under Title VII.

Penalties for failing to comply with the clause include full or partial cancellation, termination or suspension of the contract. In addition, contracting agencies are directed to “take appropriate action to suspend or debar” contractors or subcontractors for failing to comply. The clause’s requirement that contractors certify materiality is designed to increase the risk of FCA liability by making it easier for the government or a qui tam relator to establish materiality in an FCA case.

Other EO requirements

To support enforcement of the new clause, the EO requires the head of each federal agency to review its implementation of the EO and report on its compliance to the assistant to the president for domestic policy by July 24, 2026. Such agency reviews are also expected to continue on a regular basis thereafter. In addition, the EO actively leverages the FCA by requiring the attorney general (in consultation with relevant contracting agencies) to “consider whether to bring actions under [the FCA] against contractors or subcontractors” for compliance violations, and to “ensure prompt review of civil actions brought by private persons under [the FCA] concerning Federal contracts or subcontracts.”

Furthermore, the EO directs the Office of Management and Budget (in coordination with the attorney general, assistant to the president for domestic policy and chairman of the EEOC) to identify economic sectors that “pose a particular risk of [their] entities engaging in racially discriminatory DEI activities based on current or past conduct,” and to issue “best practices” guidance to contracting agencies for compliance within such sectors.

Expected timing of rule changes and implementation

The EO directs federal agencies to ensure, within 30 days after the date of the EO (or by April 25, 2026) and “to the extent permitted by law,” that contracts and contract-like instruments, specifically including first-tier subcontracts and lower-tier subcontracts, include the new contract clause.

In an aggressive push toward EO implementation, on April 17, 2026, the Federal Acquisition Regulatory (FAR) Council issued implementation guidance to federal agencies. The guidance supplies a new clause at FAR 52.222-90, “Addressing DEI Discrimination by Federal Contractors (APR 2026) (DEVIATION APR 2026)” for inclusion in new or currently open solicitations (along with the resulting contracts), beginning on April 24, 2026, and in existing contracts that are valued over the micro-purchase threshold, including those for commercial products and commercial services, and for which the place of delivery or performance is in the United States.

In relation to existing contracts, the guidance directs agency contracting officers to “make every effort” to bilaterally modify existing contracts by July 24, 2026, and, if a contractor were to refuse the bilateral modification, the agency contracting officer “should consider, whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience.” The guidance also notes that contracts with a final expiration on or before December 31, 2026, are to be modified at the agency contracting officer’s discretion.

Formal amendment of the FAR to add the new clause to governmentwide regulation is subject to formal rulemaking under the Administrative Procedures Act, including publication in the Federal Register and review by the Office of Information and Regulatory Affairs.

Next steps for federal contractors and subcontractors

At this time, federal contractors and subcontractors should evaluate their existing DEI-related programs, policies and practices to assess whether any DEI activities could be construed as involving disparate treatment based on race or ethnicity (or any other protected characteristic), including incorporating proxies for such protected characteristics. For example, the DOJ cited the use of “unlawful proxies” as one way a DEI program or policy may violate federal anti-discrimination law, in its July 30, 2025, guidance to federal funding recipients. The guidance defined the term as the intentional use of “neutral criteria that function as substitutes for explicit consideration” of protected characteristics like race.

The significant enforcement risk under the FCA was underscored recently by a settlement with IBM Corporation for more than $17 million, the first resolution under the Department of Justice’s Civil Rights Fraud Initiative launched in 2025. The settlement resolved allegations that IBM violated the FCA by failing to comply with anti-discrimination requirements in its federal contracts due to practices the government alleged discriminated against employees and applicants by race, color, national origin and sex. The government alleged, among other things, that IBM took these protected classes into account when making employment decisions, including by using a “diversity modifier that tied bonus compensation to achieving demographic targets,” altering interview criteria though the use of “diverse interview slates,”¹ developing “race and sex demographic goals for business units,” and offering “certain training, partnerships, mentoring, leadership development programs and educational opportunities only to certain employees, with eligibility, participation, access or admission limited on the basis of race or sex.”

Contractors should also review their subcontractor oversight processes to ensure they can satisfy the EO’s reporting obligations with respect to subcontractor conduct that may violate the clause. Given the clause’s express acknowledgment of materiality under the FCA, and in light of the DOJ’s recent settlement, contractors should ensure they also have robust internal complaint reporting mechanisms. Contractors and subcontractors should prepare for the inclusion of the clause in their contracts imminently, including ensuring relevant stakeholders overseeing government contracts are aware of the new requirements. Finally, contractors and subcontractors should monitor forthcoming guidance, as well as individual agency implementation efforts, and keep a close eye on legal challenges filed against the EO.

Note

Not all challenges to “diverse slate” policies will succeed, as outcomes will depend on the specific factual circumstances. In Vaughn v. CBS Broadcasting, Inc. et al., No. 2:24-cv-05570-HDV-RAO (C.D. Cal.), for example, the court recently granted summary judgment for the employer, finding that CBS’s diverse slate policy did not support an inference of pretext where the undisputed evidence established that the employer maintained no numerical goals, mandates, targets or quotas for the relevant position, and the policy applied only to interviewing – not hiring – decisions and expressly required selection of the most qualified candidate. Citing Armstrong v. WB Studio Enterprises, Inc., 2025 WL 3002614, at *1 (9th Cir. Oct. 27, 2025) (unpublished), the court held that the slate policy “did not constitute a race-based reason for hiring other candidates because [it] did not contain any specific instructions or directive on whom to hire,” and that promoting diversity in the interview process alone was “insufficient to create a disputed issue of fact showing that [plaintiff's] termination was a mere pretext for anti-white racial discrimination.”

Virginia Requires Severance or Other Monetary Payment to Enforce Noncompetes for Discharged Employees

Mon, 04 May 2026 15:36:59 Z

Effective July 1, 2026, Virginia has amended its noncompete statute to prohibit enforcement of a noncompete against an employee discharged without cause unless the employer provides “severance benefits or other monetary payment.” The amendment – SB 170 – applies to agreements entered into, amended or renewed on or after July 1, 2026, and does not apply retroactively.

Existing Virginia noncompete law

Virginia currently restricts noncompete agreements for “low-wage employees,” defined as those whose average weekly earnings are below the Commonwealth’s average weekly wage (currently $1,507 per week, or $78,364 annually), and, as of July 1, 2025, employees entitled to overtime compensation under the Fair Labor Standards Act (FLSA), regardless of their earnings.

The amendment does not change the statutory definition of a noncompete, which covers any provision that “restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his former employer.” Notably, the existing law provides that a noncompete does not “restrict an employee from providing a service to a customer or client of the employer if the employee does not initiate contact with or solicit the customer or client.” In a recent case, Sentry Force Security, LLC v. Barrera, the Virginia Court of Appeals clarified the scope of this exception, holding that customer nonsolicitation provisions fall outside the statute and remain enforceable against low-wage employees, but that employee nonsolicitation provisions may constitute noncompetes subject to the statute’s restrictions.

Amended law

SB 170 requires employers to provide “severance benefits or other monetary payments” to enforce a noncompete against an employee discharged without cause. Employers must disclose the severance benefit or other monetary payment at the time the noncompete is executed. Notably, the terms “severance benefits,” “monetary payments” and “cause” are undefined, and the law does not specify a minimum payment amount or form of severance.

The new requirement applies in addition to the existing low-wage threshold restriction. Moreover, because Sentry interpreted employee nonsolicitation clauses as constituting noncompetes, and because SB 170 does not alter this framework, employers should also consider whether severance or other monetary payments may be required to enforce employee nonsolicitation provisions.

The amendment also extends the private right of action – previously limited to low-wage employees – to all employees, permitting any employee to now bring a civil action against a former employer that attempts to enforce a noncompete in violation of the statute. An action must be brought within two years of the latest of the date the noncompete was signed, the date the employee learns of the noncompete, the date of termination, or the date the employer takes any step to enforce the noncompete.

Notably, the law does not restrict nondisclosure agreements protecting trade secrets, proprietary information or confidential information. Employers that violate the law are subject to civil penalties of $10,000 per violation. In addition, employers must post a copy of the statute, or a state-approved summary, alongside other required workplace notices. Failure to post can result in a written warning for the first violation, a penalty of up to $250 for the second and up to $1,000 for each subsequent violation.

Next steps

In advance of the July 1, 2026, effective date, Virginia employers should take the following steps:

Review and update noncompete (and nonsolicitation) provisions: Employers should ensure they include disclosures of any severance or monetary payment that will be provided upon termination, as well as consider providing a definition of “cause” within such agreements.
Evaluate termination practices: Employers should ensure procedures for providing severance or monetary payments are in place, and that employee separations are appropriately recorded and documented as “for cause” or “not for cause.”
Review employee classifications: Employers should review and confirm employee classifications as nonexempt or exempt from the FLSA to mitigate misclassification liability and liability under Virginia’s noncompete law.
Update workplace postings: Employers should update their workplace postings to include the newly required provisions.
Train HR and management teams: Human resources and management teams should be trained on the amended law to ensure they are clear about the law’s restrictions on entering into, enforcing or threatening to enforce a noncompete in violation of the law.

Virginia Enacts Paid Family and Medical Leave Insurance Program

Fri, 01 May 2026 07:00:00 Z

In late April 2026, Virginia enacted a new Paid Family and Medical Leave Insurance Program (PFML). Like many other state paid family and medical leave programs, Virginia’s PFML will be funded through payroll contributions paid by employers and employees, with rates set annually by the Virginia Employment Commission (VEC). Payroll contributions begin April 1, 2028, and benefit payments begin December 1, 2028.

Key details of the new law are described below.

Contributions and funding

The program is funded through employer and employee payroll contributions. Employers with 11 or more employees must remit the full per-employee contribution to the state; such employers may deduct from each employee’s wages up to 50% of the per-employee contribution (or a lesser percentage as may be agreed upon with the employee). Employers with 10 or fewer employees must deduct from each employee’s wages 50% of the per-employee contribution rate applicable to larger employers and remit that amount to the state, with no additional employer contribution required. Deductions may not reduce an employee’s wages below the applicable minimum wage. Contribution rates will be set by the VEC no later than October 1, 2027, and annually thereafter.

Benefit amounts

The weekly benefit amount is 80% of the employee’s average weekly wages, subject to a statutory maximum. Employees may take leave on an intermittent schedule, with benefits prorated accordingly. Employees taking leave on an intermittent schedule are required to make reasonable efforts to avoid undue disruption to business operations when scheduling PFML leave.

Coverage

Beginning December 1, 2028, covered employees may take up to 12 weeks of paid leave for the following reasons:

Caring for a new child during the first year after birth, adoption or placement of the child through foster care.
Caring for a family member with a serious health condition.
Addressing the employee’s own serious health condition that prevents them from performing their job functions.
Caring for a covered service member who is the covered individual’s next of kin or other family member.
Qualifying exigency leave arising from a family member’s active duty service or call to active duty in the Armed Forces.
Seeking safety services, such as legal or law enforcement assistance, medical treatment, relocation, and home security services for the covered individual or a family member, related to domestic violence, harassment, sexual assault or stalking. Leave taken for this reason is capped at four weeks per benefit year.

“Serious health condition” means an illness, injury, impairment, pregnancy, recovery from childbirth, or physical or mental condition involving inpatient care or continuing treatment by a healthcare provider. “Family member” includes a child, grandchild, grandparent, parent, sibling, spouse or domestic partner (including step, foster or adopted relationships), as well as any individual who regularly resides in the employee’s home or where the relationship creates an expectation that the employee care for such individual, and who depends on the employee for care. The definition does not include an individual who simply resides in the home with no expectation that the employee care for the individual.

Employer notice obligations

Employers must provide written notice to each employee at hire, annually, and when the employee requests PFML or when the employer “acquires knowledge of an employee’s intent to take [PFML].” The notice must address:

The employee’s right to benefits and how they may be used
Benefit amounts
Claims procedures
Job protection and benefits continuation rights
Anti-discrimination and anti-retaliation protections
The right to file a complaint

Employers must also display a VEC-provided poster in a conspicuous location in English, Spanish and any language spoken as a first language by at least 5% of the workforce.

Job restoration and benefits continuation

Employees employed for at least 120 days before taking PFML are entitled to restoration to the same or an equivalent position upon return, including equivalent seniority, status, pay, benefits, and other terms and conditions of employment, including fringe benefits and service credits upon return from leave. Employers must also maintain healthcare benefits during leave.

Anti-discrimination and anti-retaliation protections

Employers may not discriminate or retaliate against employees for filing, applying for or using benefits; communicating an intent to file a claim or complaint; assisting in any investigation; or informing others of their PFML rights. Protections extend to good-faith, but mistaken, allegations of violations.

Coordination with FMLA and private plans

As with other state programs, leave taken under the PFML program that also qualifies under the federal Family and Medical Leave Act (FMLA) will run concurrently with PFML leave. Employers may apply to the VEC to satisfy their PFML obligations through a private plan offering equal or greater benefits. Approval must be renewed every two years, with disclosure of benefit changes and payment of a fee

Enforcement and liability

Employers that violate job restoration, benefit continuation or anti-retaliation obligations may be liable for:

Lost wages, benefits or other compensation (or actual monetary losses up to 12 weeks of wages)
Interest
Equal liquidated damages, unless the employer proves a good-faith violation

Courts may also order equitable relief, including reinstatement and promotion.

Next steps

Employers should audit current leave policies against the new requirements and determine whether to participate in the state program or pursue a private plan. Handbooks and leave policies should be updated to reflect the law, including FMLA coordination language. Employers should also prepare the required notice and stay tuned for the VEC-provided workplace poster. HR teams and managers should be trained on the new obligations, including anti-retaliation protections. Finally, employers should also monitor VEC rulemaking, as implementing regulations must be promulgated by April 1, 2028.

If you have questions about the PFML, please contact the Cooley employment team or one of the lawyers listed below.

What Teva v. Eli Lilly Means for Written Description and Enablement of Method-of-Use Patents

Thu, 30 Apr 2026 14:17:00 Z

On April 16, 2026, the US Court of Appeals for the Federal Circuit issued a precedential decision in Teva Pharmaceuticals International GmbH v. Eli Lilly and Company, No. 2024-1094 (Fed. Cir. Apr. 16, 2026), reversing the district court’s grant of judgment as a matter of law that the asserted claims lacked adequate written description and enablement under 35 USC § 112.ⁱ The Federal Circuit found that the district court applied an overly stringent standard that failed to account for the well-established background knowledge in the field and the specific nature of the claimed invention as a method of treatment.ⁱⁱ Previously, Lilly successfully challenged Teva’s related composition of matter patents claiming the same genus of humanized anti-CGRP antibodies in inter partes review proceedings that were affirmed by the Federal Circuit.

The technology and patents at issue

Calcitonin gene-related peptide (CGRP) is a neuropeptide associated with migraines, and blocking CGRP signaling through antagonist antibodies has become an important therapeutic approach. Anti-CGRP antagonist antibodies can be made in mice, and “humanization” refers to the process of converting nonhuman antibodies into a form that the human immune system will not reject, resulting in “humanized” antibodies.ⁱⁱⁱ Teva’s patents (sometimes referred to as the “headache patents”) claim a method for treating headaches by administering any humanized monoclonal anti-CGRP antibody.^iv Expert testimony indicated that a very large number of antibodies would need to be screened in order to identify those that could antagonize CGRP.^v

While there were no humanized versions of anti-CGRP antagonist antibodies in the prior art, it was undisputed that the prior art was “replete with exemplary disclosures of anti-CGRP antagonist antibodies,” techniques for making such antibodies were “extensively described in the prior art,” and humanization “was a well-established and routine procedure.”^vi Lilly itself made those same points in arguing obviousness during the earlier inter partes review proceedings against Teva’s anti-CGRP antibody patents.

The Teva headache patents disclosed only one exemplary humanized anti-CGRP antagonist antibody, referred to as “G1,” but also disclosed several mouse (murine) anti-CGRP antagonist antibodies. The specification also states that “anti-CGRP antagonist antibodies may be made by any method known in the art” and referenced established prior-art methods for humanizing antibodies.”^vii Based on the data in the specification and the testimony heard at trial, the district court acknowledged that a jury could have found “that a person of ordinary skill would have … understood from the specification that all humanized anti-CGRP antagonist antibodies would treat headache.”^viii

Written description: Using a well-known genus as part of a different invention

The written description requirement demands the specification demonstrate that the inventor was “in possession” of the claimed invention as of the filing date. According to the Federal Circuit’s en banc decision in Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co,^ix generally, a genus can be disclosed by either “a representative number of species falling within the scope of the genus” or “structural features common to the members of the genus so that one of skill in the art can ‘visualize or recognize’ the members of the genus.”

In life sciences, where genus claims may encompass vast numbers of compounds, this can be a daunting standard. For example, the Federal Circuit invalidated genus claims for lack of written description in AbbVie Deutschland GmbH v. Janssen Biotech, Inc.^x (disclosing more than 300 exemplary antibodies) and Juno Therapeutics, Inc. v. Kite Pharma, Inc.^xi (disclosing two embodiments from a known class; “Even accepting that scFvs were known and that they were known to bind, the specification provides no means of distinguishing which scFvs will bind to which targets.”).

In Teva, the court acknowledged the Ariad written description standard, but then pivoted to “analyzing written description in circumstances like those here—where a claim pertains to a well-known genus that is not, itself, the invention.”^xii

The court started with Ajinomoto Co. v. International Trade Commission – the only binding precedent in this part of the court’s analysis that post-dates Ariad – for the proposition that the specification could be “read in light of the background knowledge in the art” to find a representative number of species, where the genus “was already well explored,” techniques for producing the relevant functionality were “well known,” and those “well-known techniques” were not the core invention.”^xiii

The court then turned to In re Herschler, a case from 1979 that in turn relied heavily on the reasoning from a 1963 plurality opinion from In re Fuetterer for the proposition that an inventor does not necessarily need to identify every member of a genus that is not, itself, the invention.^xiv In a footnote, the court quoted a more recent case from the US District Court for the Eastern District of Texas, Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., to emphasize that “when a genus is well understood in the art and not itself the invention but is instead a component of the claim, background knowledge may provide the necessary support for the claim.”^xv

Applying those cases, the court concluded that a reasonable jury could find that:

The claimed invention was the use of anti-CGRP antagonist antibodies to treat headache, not the antibodies themselves.
Nonhumanized anti-CGRP antagonist antibodies and methods of humanization were well-established in the art.
The specification could have led a skilled artisan to understand that all humanized anti-CGRP antagonist antibodies would treat headache.^xvi

Notably, the court found this conclusion was supported, in part, by Lilly’s own statements during inter partes review proceedings in which it successfully challenged Teva’s anti-CGRP antibody claims as unpatentable.^xvii

Lilly argued that humanized anti-CGRP antibodies were not known in the prior art at all (much less well-known), and that murine antibodies could not be representatives of a humanized antibody genus.^xviii In rejecting that argument, the court reasoned that the jury could find humanization was a routine step, and that the specification explicitly disclosed humanization and identified prior-art methods for accomplishing it.^xix Thus, the court effectively accepted a single representative humanized antibody, combined with murine antibodies, and the “routine” process of humanization, as demonstrating possession of the entire genus of humanized anti-CGRP antibodies.

The court also rejected Lilly’s reliance on University of Rochester v. G.D. Searle and Ariad because the patents in those cases did not disclose any compounds that could be used in the claimed methods, nor was there any evidence that such compounds were known.^xx By contrast, the specification in Teva included one example that could be produced from a well-known class of antibodies using a routine procedure, along with data that a skilled artisan would understand to show that any humanized anti-CGRP antibody would be effective for the claimed method of treatment.^xxi

Enablement: Claim scope defined by specific use

As with written description, the standard for enablement of genus claims in life sciences cases has been demanding. The US Supreme Court’s unanimous decision in Amgen Inc. v. Sanofi reinforced that a patentee claiming an entire class of compositions “must enable a person skilled in the art to make and use the entire class” (emphasis added).^xxii Applying this principle, the Federal Circuit found a lack of enablement for genus claims in Baxalta Inc. v. Genentech, Inc.^xxiii and Idenix Pharms. LLC v. Gilead Scis. Inc.^xxiv

The Teva court reiterated the foundational principle that the specification must teach persons of ordinary skill in the art to make and use the full scope of the claimed invention without undue experimentation, and that the scope of enablement must be commensurate with the scope of the claim.^xxv However, the court went on to distinguish Amgen and Baxalta by characterizing Teva’s claims as narrow in functional scope, as opposed to claiming the entire antibody genus “for any and all purposes.”^xxvi Rather, the Teva claims covered only the use of humanized anti-CGRP antagonist antibodies to treat headaches.^xxvii

The court reasoned that, in light of the well-known status of anti-CGRP antibodies and the routine nature of humanization, the only determination a person of skill would need to make is which humanized anti-CGRP antagonist antibodies treat headache.^xxviii That determination was already made, because a reasonable jury could have found that all humanized anti-CGRP antagonist antibodies work for that specific therapeutic purpose.^xxix As a result, unlike Amgen and Baxalta, a practitioner did not need to identify and screen vast numbers of candidate antibodies to determine which ones are effective for treating headache, as the answer was effectively already known. In other words, even assuming in Lilly’s favor that making all anti-CGRP antagonist antibodies would require screening a very large number of candidates, and that the time and expense of doing so could constitute undue experimentation, such experimentation would not be required.^xxx

The court also distinguished Idenix on its record, noting that while the evidence in Idenix did not support a finding that all members of the claimed genus would be effective for the claimed therapeutic use, in the Teva case, Lilly did not dispute that the jury could have found that all humanized anti-CGRP antagonist antibodies treat headache.^xxxi

Conclusion

The Federal Circuit’s decision in Teva v. Eli Lilly introduces an important distinction between claims directed to a novel genus of compounds and claims directed to the use of a well-known genus for a specific therapeutic purpose. Practitioners should carefully consider how this framework may affect the drafting, defense and challenge of method-of-use and genus claims in the pharmaceutical and biotechnology space.

Notes

Teva Pharms. Int’l GmbH v. Lilly, No. 2024-1094, slip op. at 2 (Fed. Cir. Apr. 16, 2026).
Id. at 13 – 14, 22 – 24.
Id. at 2 – 3.
Id. at 3 – 4 (“a method for reducing incidence of or treating headache in a human, comprising administering to the human an effective amount of an anti-CGRP antagonist antibody, wherein said anti-CGRP antagonist antibody is a … humanized monoclonal antibody.”)
Memorandum and Order, Teva Pharms. Int’l GMBH v. Eli Lilly and Co., 18-cv-12029-ADB, ECF No. 695 at 24 (D. Mass. Sept. 26, 2023) (hereinafter D.Ct. Order) (“[T]he jury could only have found that (1) there are a very large number of antibodies that would need to be screened in order to identify those that could antagonize CGRP, … and (2) the size of the genus, i.e., the number of anti-CGRP antagonist antibodies that could be humanized and treat headache, was “unknowable,” and thus not necessarily very large or small.”) (record citations omitted); see also Teva Pharms., No. 2024-1094, slip op. at 21 – 22 (Federal Circuit assuming a “very large number of candidate antibodies”).
Teva Pharms., No. 2024-1094, slip op. at 4, 13 – 14.
Id. at 3, 13.
Id. at 5 (see also D.Ct. Order at 25 (“That said, the jury could have credited testimony that a POSA would understand … that all humanized anti-CGRP antagonist antibodies would treat headache.”))
Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336 (Fed. Cir. 2010).
AbbVie Deutschland GmbH v. Janssen Biotech, Inc., 759 F.3d 1285 (Fed. Cir. 2014).
Juno Therapeutics, Inc. v. Kite Pharma, Inc., 10 F.4th 1330, 1336 (Fed. Cir. 2021).
Teva Pharms., No. 2024-1094, slip op. at 9.
Id. at 9 – 10 (citing Ajinomoto Co. v. International Trade Commission, 932 F.3d 1342, 1346-47 (Fed. Cir. 2019).
Id. at 10 – 11 (citing In re Herschler, 591 F.2d 693 (CCPA 1979) and In re Fuetterer, 319 F.2d 259 (CCPA 1963).
Id. at 12 n.11 (citing Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., 276 F. Supp. 3d 629, 648 (E.D. Tex. 2017) (Bryson, J., sitting by designation), aff’d, 739 F. App'x 643 (Fed. Cir. 2018)) (nonprecedential).
Id. at 12 – 14.
Id. at 4, 12 – 13.
Id. at 14.
Id. at 14 – 15.
Id. at 16 – 17 (citing University of Rochester v. G.D. Searle & Co., 358 F.3d 916, 918 (Fed. Cir. 2004) and Ariad, 598 F.3d at 1341, 1355-58).
Id. at 16 – 17.
Amgen Inc. v. Sanofi, 598 U.S. 594, 610 (2023).
Baxalta Inc. v. Genentech, Inc., 81 F.4th 1362 (Fed. Cir. 2023).
Idenix Pharms. LLC v. Gilead Scis. Inc., 941 F.3d 1149, 1153 (Fed. Cir. 2019).
Teva Pharms., No. 2024-1094, slip op. at 21.
Id. at 22.
Id.
Id. at 23.
Id; see D.Ct. Order at 25.
Id. at 22 – 23.
Id. at 24.

Who’s Got That Kind of Time: SEC Shortens Tender Offer Window for Equity Awards in Certain Circumstances

Thu, 30 Apr 2026 07:00:00 Z

On April 16, 2026, the Securities and Exchange Commission (SEC) issued relief permitting certain types of tender offers to remain open for only 10 business days, cutting in half the prior general requirement of 20 business days. This alert explores what this relief means for companies navigating the tender offer rules involving equity incentive compensation awards.

Background on tender offers

A “tender offer” is an opportunity for security holders to “tender” – i.e., sell – their security at a fixed price. Tender offers are typically structured in one of two ways:

As a company-led “self-tender” where the company offers to buy back securities.
As an investor-led “third-party tender” where an investor looks to take or increase a position in company securities.

While the SEC does not precisely define the term “tender offer,” it does prescribe many complex technical requirements governing tender offers. One of the simpler requirements was that the offer to purchase must stay open for at least 20 business days from the date of announcement of the offer.

What the SEC relief does

In basic terms, the relief shortens the time a tender offer must remain open to 10 business days from 20 – but subject to certain important conditions. As with the tender offer rules generally, most of those conditions are complicated, technical and outside the scope of this alert. For equity incentive awards, three notable conditions are:

The consideration offered must consist solely of cash.
For private companies, the relief is available only for self-tenders, not for third-party tenders.
For public companies, third-party tenders must be conducted pursuant to a negotiated merger or other business combination agreement and be for all of the securities of the particular class.

What this means for equity award tenders

Because of the conditions attached to the reduced 10-day tender period, the SEC relief should generally work in favor of companies, but it is limited. For both private and public company equity award tender offers, the 10-day window is effectively limited to company self-tenders for cash. Notably, it does not apply to tender offers in connection with repricings, modifications or option exchanges – areas where incentive equity compensation often implicates the tender offer requirements.

In the right circumstances – for instance, an option award buyback – a company will now be able to launch and close a cash tender offer more quickly than has been the case in the past, and can do so without inadvertently disqualifying options intended to qualify as incentive stock options.

Two caveats to note:

First, because of the procedure used to grant the relief, it may be revoked by the SEC at any time.
Second, and more importantly, the tender offer rules remain a highly technical and complicated thicket requiring great care to successfully navigate.

Cooley’s compensation and benefits group has extensive experience leading companies through the tender offer process in connection with equity awards, and can help you determine whether and how this relief can be used to streamline your company’s equity award tenders.

State AI Laws – Where Are They Now?

Fri, 24 Apr 2026 07:00:00 Z

The US artificial intelligence (AI) regulatory landscape is at an inflection point. With accelerating pace starting in the 2020s, hundreds of proposed state measures signaled a fast-developing state-level regulatory AI landscape. However, as compliance deadlines in 2026 approached, many of these state AI laws that initially passed just a few years ago have undergone significant changes or delays since their passage. At the same time, federal action is potentially threatening to reshape or constrain state-level initiatives. In this alert, we check in on the current status of some of the major state AI laws.

As we discussed on March 25, the White House recently released its National Policy Framework for Artificial Intelligence, urging Congress to enact sweeping AI legislation to preempt certain state AI laws, with a focus on state laws that risk stifling innovation and avoiding “undue burdens.” States like California are also leveraging executive action. For example, on March 30, 2026, California Gov. Gavin Newsom issued Executive Order N-5-26, directing state agencies to draft recommendations for AI safety requirements – including related to illegal content, bias, and civil rights and free speech – for companies doing business with state agencies. In parallel, other states are reconsidering or delaying their AI laws. Below we outline the key AI laws where companies should watch for potential changes over the coming months.

Colorado: SB 205

In May 2024, Colorado SB 205 created one of the first comprehensive state AI regimes, regulating “high-risk artificial intelligence systems” used in “consequential decisions.” The law imposes broad obligations on developers and deployers related to risk management, impact assessments, consumer disclosures and reporting to the Colorado attorney general.

Since its enactment, SB 205 has been subject to significant debate and criticism, particularly from the tech industry, with concerns raised over its scope and feasibility. These concerns prompted a special legislative session in August 2025 that led to the postponement of the initial enforcement date, from February 1, 2026, to June 30, 2026.

Now, with the delayed effective date, Colorado is considering a more substantive revision. The March 2026 working group draft would repeal and reenact the newly focused law on automated decision-making technology (ADMT) and reset the effective date to January 1, 2027. The group is led by the Colorado governor’s office and is composed of legislators, industry representatives, consumers and school district representatives, among others. The group was tasked with evaluating whether the original framework was workable in practice, with the ultimate goal of protecting consumers.

Key proposed changes by the working group include:

Replacing “high-risk AI” with “covered ADMT” that must “materially influence” a consequential decision, excluding incidental or low-stakes uses.¹
Clarifying and narrowing what constitutes a “consequential decision” – specifically, limiting “consequential decisions” to high-impact decisions affecting access to education, employment, housing, financial services, insurance, healthcare or government services, where the outcome materially influences eligibility, access or opportunity.
Carving out routine business processes, marketing and other low-risk uses (e.g., advertising and marketing tools, recommendation and search systems, content moderation, and summarization and presentation assistance).
Substantially scaling back governance obligations for both developers and deployers, including eliminating requirements to implement formal risk-management programs, impact assessments, annual reviews and Colorado attorney general incident reporting. Instead, it shifts to a more targeted framework that still requires developers and deployers to maintain records and documentation regarding covered ADMT, provide consumer-facing disclosures, and implement processes for requests to correct inaccurate information and seek human review or reconsideration of certain decisions, where commercially reasonable.
Replacing the pre-decision notice framework with a point-of-interaction requirement (meaning at the specific moment a user engages with the system) that may be satisfied via a prominent public posting, and adding a separate post-adverse disclosure that explains the decision, the role of ADMT and available recourse options.
Retaining Colorado attorney general-only enforcement but adding a 90-day notice-and-cure period and clarifying developer versus deployer liability.
Removing the stand-alone affirmative duty to “avoid algorithmic discrimination” that appeared as an explicit, independent requirement in the original SB 205.

These proposed, significant changes signal state action moving away from a broad “high-risk AI” framework toward a narrower, decision-focused model. With the effective date of June 30, 2026, approaching, it remains unclear whether and when the proposed amendments will be enacted. As such, companies should continue preparing for compliance under the current framework, while maintaining a watchful eye on legislative developments that could reshape obligations in the near term.

California: AB 2013, SB 942 and AB 853

California enacted 18 AI-related laws across 2023 and 2024, some of which we discussed at the time. Many of these laws impose transparency, disclosure and governance requirements on AI systems and digital services.

Given many compliance effective dates now start in 2026 and beyond, these laws have not yet seen enforcement activity or further interpretive guidance to aid in compliance; however, that may change as the year progresses.

Key California AI laws that have recently come into effect or been amended include AB 2013, SB 942 and AB 853:

AB 2013 (training data transparency) requires developers to disclose information regarding training datasets. It was enacted on September 28, 2024, and became effective on January 1, 2026, with limited implementation guidance beyond the law’s original provisions. The law requires a “high-level summary of the datasets used in the development of the generative artificial intelligence system or service,” and identifies certain information for inclusion in said summary, as well as certain security-related exceptions to the disclosure requirement. Industry stakeholders have raised concerns regarding feasibility and scope, and clear patterns around the form of compliance (such as the format or level of detail for the summary) have not yet emerged. In addition, the lack of guidance or action from the California attorney general has contributed to some uncertainty on the regulatory compliance obligations.
SB 942 (AI disclosure requirements), enacted September 19, 2024, requires providers of generative AI image, video and audio tools with more than one million monthly visitors or users to provide an AI detection tool, “manifest” disclosures (a watermarking option) and “latent” disclosures, enabling individuals to detect whether content was generated by the provider’s tool. Its effective date was delayed from January 1 to August 2, 2026, via AB 853, which also added new obligations on large online platforms with an operative date of January 1, 2027, and capture device manufacturers with an operative date of January 1, 2028.
AB 853 (California AI Transparency Act) introduces the phased implementation for SB 942 discussed above and also expands SB 942, including to add requirements applicable to large online platforms (public-facing social media platforms) and capture device manufacturers (persons producing capture devices for sale in California). These obligations include ensuring that content is appropriately labeled or identifiable as AI-generated, as well as implementing mechanisms to enable detection of such content.

Utah: SB 149

Utah’s Artificial Intelligence Policy Act (SB 149), enacted on March 13, 2024, and effective on May 1, 2024, is widely viewed, together with other laws discussed in this article, as one of the first state AI governance frameworks. Rather than creating a stand-alone regulatory regime, the law primarily extends existing consumer protection principles to AI by making companies liable where AI-driven conduct would otherwise violate deceptive or unfair practices laws. The law also introduced targeted disclosure requirements, such as requiring businesses in regulated professions to proactively disclose when consumers are interacting with AI.

Utah narrowed this framework through multiple bills in 2025, a reflection of early implementation concerns raised by state legislators and industry stakeholders. SB 226 and SB 332 narrowed the scope of disclosure obligations, limiting these obligations to “clear and unambiguous” consumer requests or “high-risk” interactions involving sensitive data and consequential advice, and narrowing the definition of covered AI systems to exclude routine uses (such as technologies that do not simulate human communication or generate human-like, nonscripted outputs). The Utah Division of Consumer Protection has authority to enforce SB 149, though enforcement remains limited to date.

New York: RAISE Act

California’s Transparency in Frontier AI Act (TFAIA) was one of the first state regulatory frameworks for developers of frontier models. As we discussed in this April 1 alert, New York has since revised its frontier AI framework to align more closely with California’s law. New York Gov. Kathy Hochul signed the Responsible AI Safety and Education (RAISE) Act in December 2025 with the expectation that legislators would amend the law to mirror TFAIA. Hochul signed those amendments on March 27, 2026, shifting the RAISE Act toward a transparency and reporting-based framework.

As revised, the RAISE Act imposes:

Model-level obligations, including transparency and reporting on training, deployment, safety protocols and incidents.
A shift away from deployment restrictions, removing earlier prohibitions on models posing an “unreasonable risk of critical harm.”
Alignment with California’s framework, emphasizing safety testing, documentation and reporting.
Key differences from TFAIA include:

Higher civil penalties (up to $1 million for a first violation and up to $3 million for subsequent violations).
Shorter incident reporting timeline (72 hours versus TFAIA’s 15-day window). Other states, including Utah and Illinois, are considering similar frontier model regulation.

Key takeaways for companies

The evolution of AI laws is not limited to the US. The European Union AI Act – one of the earliest and most comprehensive cross-sector AI laws, imposing obligations on AI models based on risk tiers and categories of models – is also now being reconsidered by EU lawmakers for revision. While the AI Act entered into force on August 1, 2024, key obligations were set to phase in over time, with the main requirements starting in 2026, and certain obligations extending into 2027. However, the European Commission’s November 2025 “Digital Omnibus” proposal, now advancing through the legislative process, would delay application of certain high-risk AI requirements and make targeted changes to exemptions, governance and implementation. As of April 2026, EU institutions are actively considering pushing key compliance deadlines to 2027 – 2028, reflecting implementation challenges and concerns about regulatory burden. The EU’s AI regulatory framework continues to be refined and tailored in real time.

In combination, these developments underscore a broader shift: Even the most comprehensive AI regulatory regimes are being recalibrated as implementation approaches. Given the pace of change to these regulations, companies may benefit from a phased approach to compliance that accounts for evolving requirements and still emerging enforcement priorities. As such, companies should consider the following:

Reassessing compliance strategies: Several key state AI laws have upcoming deadlines, but some requirements are subject to amendment or delay. While enforcement currently has been minimal, regulators may begin issuing guidance and early enforcement actions as compliance dates approach.
Monitoring federal action: With the recent release of its AI legislative recommendations, the White House outlined an innovation-oriented federal approach to AI, recommending Congress preempt state laws that relate to AI development, “unduly burden” lawful activity assisted by AI or “penalize AI developers” for unlawful third-party conduct. Even if Congress does not act, or does so slowly, the administration is positioned to move through executive and enforcement channels. The Department of Justice’s AI Litigation Task Force is expected to identify and potentially challenge state AI laws in court, and other federal agencies, such as the Department of Commerce, may target certain states regulating AI by restricting federal funds. As such, companies should monitor both congressional developments and near-term federal activity, as the administration considers multiple pathways to shape the AI regulatory landscape.
Tracking state-level changes: As state AI regulation evolves, key areas to watch include the revisions to Colorado SB 205, further changes to California’s AI laws, and the continued development of frontier regulations, including in New York and potentially Illinois, Washington and Utah.

Note

ADMT is defined as an automated decision-making technology that processes personal data to generate outputs (including predictions, scores and classifications) and is used to materially influence a consequential decision. The definition excludes (i) basic web infrastructure (such as web hosting and caching) that require human analysis and do not use machine learning; (ii) tools that solely summarize, organize or present information for human review; and (iii) general-purpose technology that provides information or recommendations.

New Ex Parte Reexamination Procedure at USPTO: What Patent Owners and Challengers Need to Know

Fri, 17 Apr 2026 16:38:00 Z

USPTO announces new reexamination procedure in response to increased filings

Under 35 USC § 303(a), the US Patent and Trademark Office (USPTO) must determine within three months of the filing of a reexamination request whether the request raises a substantial new question of patentability. A substantial new question exists when the cited prior art presents a noncumulative teaching that a reasonable examiner would consider important in assessing patentability, and the same question has not already been decided by the USPTO or a federal court. Until now, the USPTO made this determination based solely on the reexamination request, without any input from the patent owner.

On April 1, 2026, the USPTO published an Official Gazette Notice establishing a new pre-order procedure in ex parte reexamination proceedings. For the first time, patent owners will have a formal opportunity to submit arguments to the USPTO before the agency decides whether a reexamination request raises a substantial new question of patentability – the statutory threshold for ordering reexamination. The new procedure applies to all ex parte reexamination requests filed on or after April 5, 2026.

The change comes amid a significant increase in ex parte reexamination filings since October 2025. According to the USPTO website, the agency recorded 223 filings in Q1 FY2026 alone (October – December 2025) – an annualized rate of nearly 900, compared to 407 filings in FY2024 and 495 in FY2025. The director expressly cited this surge as a basis for the new procedure, invoking the need to obtain information from patent owners before deciding whether to order reexamination in the face of a rapidly growing caseload.

What patent owners and challengers need to know

Patent owners may now file a “pre-order paper” without a petition or fee within 30 days of service of the reexamination request, arguing that the cited references do not raise a substantial new question of patentability. The paper is limited to 30 pages and should focus squarely on why the teachings in the request are insufficient to warrant reexamination of some or all of the challenged claims. The paper should not address 35 USC § 325(d) discretionary denial arguments, nor should it include arguments about whether a teaching is truly new or noncumulative. Patent owners may support their paper with a declaration, but the USPTO will rely on the arguments in the paper itself, and incorporation by reference is not permitted.

Patent challengers should factor this dynamic into their overall reexamination strategy. It is more important than ever that the initial request be as comprehensive and well-supported as possible – and anticipate potential patent owner arguments that may now be filed before the order decision. If the patent owner does file a pre-order paper, the requester may petition under 37 CFR 1.182 to file a responsive paper of up to 10 pages to address misrepresentations of fact or law, or other improper arguments that materially impede the determination of a substantial new question. Any such responsive paper must be filed within 15 calendar days of service of the patent owner’s pre-order paper and must be accompanied by the applicable fee.

Conclusion

The USPTO’s new pre-order procedure marks a significant shift in ex parte reexamination practice. By giving patent owners an opportunity to weigh in before the order decision, and giving challengers a limited right to respond, the procedure introduces new strategic considerations for both sides.

If you have questions about the new pre-order procedure, or about navigating the evolving post-grant proceedings landscape, Cooley’s experienced patent litigation team is available to help.

European Commission Proposes EU Industrial Accelerator Act Including ‘Made in EU’ and Low-Carbon Requirements, Stricter Rules for FDI in Strategic Sectors

Tue, 14 Apr 2026 14:11:20 Z

On 4 March 2026, the European Commission published a proposal for an EU Industrial Accelerator Act (IAA). The proposal will now be negotiated in the European Parliament and by EU Member States in the Council. If adopted as proposed, the IAA would introduce several measures aimed at making the EU more competitive and resilient, increasing manufacturing in the EU and contributing to the EU’s climate goals.

The IAA could have broad implications for non-EU investors, businesses taking part in public tenders in the EU, and any companies operating manufacturing sites in strategic sectors in the EU, such as steel, cement, aluminium, automotive, batteries, solar, wind and heat pumps.

Background

The IAA aims to increase manufacturing activity in the EU generally, with the European Commission targeting the manufacturing sector reaching 20% of the EU’s gross domestic product (GDP) by 2035 by including this objective in the IAA. This follows a decline of manufacturing in the EU from 17.4% to 14.3% of GDP between 2000 and 2024.

The IAA is being proposed against the background of the EU striving for greater strategic autonomy and security. The recitals of the proposal expressly refer to the IAA being a response to factors such as hostile economic actions, cyberattacks, foreign interference, the weaponisation of EU economic dependencies, the arbitrary deployment of trade measures, the increasing effects of climate change and rising geopolitical tensions. While there is a general consensus among Member States that the EU’s vulnerabilities and dependencies need to be addressed, there is some disagreement on how to do this. Ahead of publication of this final proposal, a debate had already started. This will continue as the IAA makes its way through the legislative procedure.

The measures of the proposed IAA can be divided into four broad categories:

1.‘Made in EU’ and low-carbon requirements

‘Made in EU’ requirements

The proposed IAA introduces “Made in EU” requirements in public procurement and other forms of public intervention, such as government schemes supporting individuals or businesses purchasing electric vehicles or renovating buildings. These new EU-origin requirements would apply to sectors that are considered strategic, including steel, cement and aluminium, as well as technologies included in the EU’s Net-Zero Industry Act (NZIA), such as battery energy storage systems, solar photovoltaic (PV) technologies, heat pumps, onshore and offshore wind technologies, electrolysers and nuclear fission energy technologies. For example, for solar PV technologies, from three years after entry into force of the IAA, the PV inverter and the PV cells purchased by a public body would need to be of “EU origin”.

The concept of “EU origin” is broad and would include content originating in third countries with which the EU has an agreement establishing a free trade area or a customs union, or that are parties to the World Trade Organization Government Procurement Agreement, including the US.

However, the European Commission would have the power to adopt delegated acts to exclude countries from this broad approach where:
(a) The country failed to give EU products and entities access under the relevant agreement on terms no less favourable than to their domestic entities or products (national treatment).
(b) The exclusion is justified to avoid dependencies or a threat to the security of supply in the EU.
(c) The exclusion is justified under any other exception under the relevant agreement.

Low-carbon requirements

For public procurement and other forms of public intervention benefiting households or companies in the EU, the proposed IAA would also introduce low-carbon requirements in relation to steel, cement and aluminium used in buildings, infrastructure and motor vehicles. These sectors were selected as they are some of the most energy-intensive sectors, and the European Commission aims to create demand for low-carbon versions of these products.

The European Commission would also be empowered to adopt delegated acts laying down additional EU-level demand-side measures for products from the chemical industry.

2. Foreign direct investment in strategic sectors subject to prior authorisation requirement

With the IAA, the European Commission proposes a new mandatory foreign direct investment (FDI) regime for “emerging strategic sectors”. This supplements Member States’ existing, broader FDI approval systems and the updated EU FDI Screening Regulation.

The new review system would apply to investments that afford investors “control” (defined as 30% or more of share capital/voting rights/ownership) over an EU target where:

The value of the investment exceeds €100 million.
More than 40% of global manufacturing capacity in the target’s sector is held by a third country of which the foreign investor is a national or undertaking.

The relevant “emerging strategic sectors” are battery technologies, electric vehicles, and solar PV technologies, and extraction, processing and recycling of critical raw materials. The European Commission would have powers to extend this list of emerging strategic sectors by adopting delegated acts, but such acts could not cover digital technologies, artificial intelligence, quantum technologies or semiconductors.

Investors and investments covered by economic partnership agreements or free trade agreements concluded by the EU, and investments targeted at providing services and portfolio investments, are not subject to this pre-approval requirement.

Notifications under the new system should be made to the national investment authority designated by the Member State where the target is based (or to all relevant authorities and the European Commission, in parallel, where the target is located in more than one Member State). Although reviews are conducted nationally, the substantive standard for approval is set at the EU level and common to all Member States. Departing from the traditional approach to FDI in the EU, focused on security and public order criteria, approval under the IAA would only be granted to investments that meet at least four out of the following six conditions:

Ownership requirement: The ownership interest to be acquired, held or exercised is no more than 49%.

JV requirement: The investment is a joint venture (JV) with an EU entity meeting relevant conditions.

Technology transfer requirement: The investor licensed intellectual property and know-how to benefit the EU target to help carry out its economic activities in the context of the investment.

R&D requirement: The foreign investor annually directs at least 1% of gross annual revenue of the EU target, or generated by the EU asset, to research and development (R&D) spending in the EU as applied in proportion to the foreign investor’s share of control.

Workforce requirement: At least 50% of the workforce at implementation and throughout the operation of the investment is made up of EU workers across all levels of the workforce.

Input requirement: The foreign investor publishes a strategy for enhancing EU value chains and endeavours to source at least 30% of inputs for products placed on the EU market from the EU.

Although Member State authorities would be responsible for the review and retain the last word on approvals, the IAA envisages central oversight and coordinating roles for the European Commission.

Investments that qualify for review under the IAA would be subject to a mandatory standstill requirement and must not be implemented unless and until approval has been granted. This could result in potential delays, with review taking up to 75 days (which can be extended by 30 days) from receipt of the application. However, many of these investments, particularly in Member States which already have sophisticated FDI screening mechanisms in place, would likely already have been covered by national screening requirements and would therefore already have to undergo screening even without the IAA.

Even after approval, foreign investors would need to report regularly to the investment authority on the ongoing compliance with the conditions.

Penalties for failure to notify are high at no less than 5% of the average daily aggregate turnover of the foreign investor undertaking.

3. Boosting sustainable manufacturing through creation of industrial manufacturing acceleration areas

Within one year of the IAA’s entry into force, each Member State is required to designate at least one “industrial manufacturing acceleration area” within its territory for projects in one or more of the strategic sectors listed in an annex to the proposed IAA. This includes energy-intensive industries like paper manufacturing, the automotive industry and net-zero technologies listed in the NZIA, such as heat pumps, battery and energy storage technologies, and biotech climate and energy solutions. These areas are intended to make it easier for industrial activities to cluster in one geographical zone with the aim of promoting favourable conditions for the industries established there.

Once established, industrial manufacturing acceleration areas would benefit from a range of measures. For example, Member States would be required to facilitate financing of projects, promote research and innovation investments, analyse the energy needs and identify the required energy infrastructure, and support the development of a highly skilled workforce.

Member States also need to issue an aggregated baseline permit authorising industrial activities within the industrial manufacturing acceleration area. This would be a single permit that covers all necessary permits generally needed for industrial manufacturing projects in that area.

4. Easier permitting via digital one-stop shop at national level

To facilitate the development of industrial manufacturing projects, the proposed IAA requires processes to be streamlined and digitalised. It requires Member States to set up a single access point at the national level where project promoters can submit one single application to obtain all necessary permits for an industrial manufacturing project. An authority designated by the Member State then coordinates the permitting processes via a single permit-granting procedure. They should be able to pass on the applications to relevant authorities and provide information, all via the digital European Business Wallet.

Energy-intensive decarbonisation projects will moreover be subject to the streamlined administrative and permit-granting procedures under the NZIA and benefit from the measures in the proposed regulation to speed up environmental assessments once it is adopted.

Next steps

The IAA proposal is now being scrutinised by the European Parliament and the representatives of the 27 EU Member States in the Council. The Council and the European Parliament can each propose amendments and will enter into negotiations to reach a compromise on a final text. This process usually takes around one to one-and-a-half years. We do not expect the IAA to be adopted before 2027. Given the intensity of debate around this proposal even before it was published, the text as it now stands is likely to undergo considerable amendments before it is adopted.

FCC Proposes Sweeping Rules on Foreign Call Centers: Onshoring Mandates, Consumer Protections and Robocall Deterrence

Thu, 09 Apr 2026 17:27:00 Z

FCC Proposes Sweeping Rules on Foreign Call Centers: Onshoring Mandates, Consumer Protections and Robocall Deterrence

On March 27, 2026, the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (Call Center NPRM) seeking comment on a broad package of rules governing foreign call centers. The rulemaking addresses three distinct objectives: encouraging the onshoring of call center operations to the United States; establishing quality and security standards for foreign call center operations that remain; and deterring unlawful robocalls originating from foreign countries through financial mechanisms, such as bonds and fees.

The proposed rules would apply to providers of telecommunications services, commercial mobile radio services (CMRS), interconnected voice over internet protocol (VoIP), cable television, and direct broadcast satellite (DBS) services, as well as their affiliates that provide internet access service. The FCC also seeks comment on extending some or all of these rules more broadly, including all calls covered by the Telephone Consumer Protection Act (TCPA), which could subject a range of commercial entities to new FCC requirements. Companies that use or rely on foreign call centers for customer service, sales or telemarketing should evaluate these proposals and consider participating in the comment process.

Key proposals

Cap on foreign-handled calls

The FCC proposes to limit the percentage of customer service calls that providers may route to or answer at foreign call centers. The NPRM uses 30% as an illustrative threshold and seeks comment on whether this cap should apply separately to inbound and outbound calls or on a combined basis. The FCC asks about the appropriate measurement period (annual, quarterly, monthly or daily) and whether to phase in the cap over time to allow providers to build domestic capacity.

English proficiency requirements

The proposed rules would require providers using offshore call centers to ensure that all calling staff are proficient in both spoken and written American Standard English. The FCC emphasizes that proficiency must extend beyond vocabulary to include understanding of tone, idioms and cultural context. The NPRM seeks comment on which testing regime should apply (referencing the OET, TOEFL and TOEIC as potential models) and whether the FCC should assess compliance per employee or on an aggregate basis. The FCC also asks how these requirements would apply to call centers serving non-English-speaking US customers.

Consumer right to transfer to a US-based representative

Upon consumer request, the proposed rules would require providers to transfer any call that a foreign call center is handling to a representative located in the US. Providers would need to ensure that wait times for transferred calls are no longer than for calls they initially route domestically.

Mandatory disclosure of foreign call center use

The proposed rules would require providers to inform customers at the beginning of each call that a representative outside the US is handling the call. The FCC proposes specific disclosure language that would include the name of the country where the call center operates and notification of the consumer’s right to request transfer to a US-based representative. The disclosure requirement would apply to both inbound and outbound calls.

Sensitive transactions: Domestic-only requirement

The FCC proposes to require that US-based call centers exclusively handle customer interactions involving sensitive data like passwords, multifactor authentication information, Social Security numbers, and bank account or credit card numbers. This requirement would apply regardless of the communication channel used (voice, chat, email or text) and proposes to exclude calls handling sensitive data from any percentage-cap calculation.

Prohibition on call centers in foreign adversary nations

The NPRM proposes to prohibit covered providers from using call centers located in “foreign adversary” nations, as defined under existing Commerce Department regulations. Foreign adversary nations include China, Russia, Iran, North Korea, Cuba and Venezuela. The FCC further seeks comment on an even broader prohibition –barring the use of any call center, wherever located, that employs citizens or residents of a foreign adversary nation. This is a hard prohibition, not a cap.

Broadband label and transparency disclosures

The FCC proposes to amend its broadband consumer label rules to require display of the percentage of customer service calls handled by US-based representatives. For providers of non-broadband services covered by the proposed rules, the FCC asks whether providers should publish comparable information on their websites.

Compliance tracking and reporting

The proposed rules would require providers to track and report to the FCC their compliance with all adopted rules. Reports would cover English proficiency testing results, call volumes by location (domestic versus foreign), transfer rates, wait times and dropped call data. The FCC seeks comment on reporting frequency (monthly, quarterly or annually) and whether the FCC should make compliance reports public.

Extension to nonvoice channels

Beyond the sensitive-transaction requirement (which already extends to all channels), the FCC asks whether all of the proposed rules should apply to nonvoice customer communications, including online chat, text messages, email and video conferencing.

Bond and fee requirements for robocall deterrence

In a separate but related set of proposals, the FCC seeks comment on requiring providers that transmit calls from foreign countries to the US, particularly international gateway providers, to post bonds. The FCC asks detailed questions about bond amounts, drawdown triggers, due process safeguards, replenishment obligations and administration. As an alternative, the FCC also asks about government-imposed fees on unlawful traffic.

Comment dates will be set after publication in the Federal Register. If you have questions about this proceeding or are considering submitting comments, please contact one of the Cooley lawyers listed below.

Washington State Expands Personality Rights Law to Cover AI-Generated Deepfakes

Thu, 09 Apr 2026 07:00:00 Z

Washington state expanded its existing property rights law to address use of a person’s “forged digital likeness” without the person’s consent. Substitute Senate Bill 5886 (SSB 5886), signed into law by Gov. Bob Ferguson on March 16, 2026, amends Washington’s Personality Rights Law to address the growing use of artificial intelligence to create realistic but deceptive audio and video, and impacts those that rely on such technology to create content. The law takes effect on June 11, 2026.

What changed?

The Personality Rights Law already prohibited the use of an individual’s name, voice, signature, photograph or likeness without their consent. The amended law expands that list to include a person’s “forged digital likeness,” defined as:

A visual representation which is either persistent or transmitted in real-time of an actual and identifiable individual, or an audio recording which is either persistent or transmitted in real-time of an actual and identifiable individual’s voice, which: (a) has been digitally created, adapted, altered, or modified to be indistinguishable from a genuine visual representation or audio recording of the individual; (b) misrepresents the appearance, speech, or conduct of the individual; and (c) is likely to deceive a reasonable person into believing that the visual representation or audio recording is genuine.

This property right applies to both living and certain deceased individuals.

Strengthened remedies

In addition to the potential for injunctive relief, actual damages and recovery of attributable profits and reasonable attorneys’ fees, the law significantly increases the potential consequences violators face:

Doubled civil penalty: Under the prior law, violators could be subject to financial penalties of $1,500 or actual damages, whichever was greater. The amended law raises the potential civil penalty to $3,000. There remains the potential recovery of actual damages and any attributable profits.
Noneconomic damages for deepfake violations: Where the violation involves a forged digital likeness, the violator is also responsible for noneconomic damages, such as mental or physical pain and suffering, or injury to reputation and humiliation.

Broader legal landscape

SSB 5886 is part of a broader national trend. Washington had already passed a law extending the state’s criminal impersonation statute to cover the distribution of someone’s forged digital likeness with the intent to defraud, harass or threaten them. Other states, such as California, New York and Tennessee, have passed legislation regulating digital likenesses.

Key takeaways and next steps

Businesses and content creators should act now to prepare for the June 11, 2026, effective date. In particular:

Review content workflows. Any use of AI tools to generate, alter or reproduce audio or visual representations of real individuals should be audited for compliance.
Update consent frameworks. Existing consent language in contracts, talent agreements and terms of service may not be sufficient to cover AI-generated digital likenesses under the new statutory definition.
Assess liability exposure. The expanded civil penalty and the addition of noneconomic damages for deepfake-specific infringements substantially raise the stakes of noncompliance.

Areas requiring further clarification include how courts will interpret the “likely to deceive a reasonable person” standard in practice, and how the law will interact with First Amendment protections for satire, parody and commentary.