News Briefs

Unlocking the Weights: What Enterprises Should Know Before Deploying Open-Weight AI Models

Wed, 12 Aug 2026 07:00:00 Z

Does every task in the enterprise really call for the biggest model on the market? That’s the question more companies are now asking. Frontier models set a high standard for pushing the boundaries of what AI can do, but as token fees climb and many everyday tasks turn out not to need frontier-level horsepower, companies are increasingly adding open-weight models to the mix as a complementary option. Deploying them, however, raises legal and governance questions that differ from those raised by hosted AI services or traditional open-source software procurement. This alert is intended to help companies and their general counsel understand and navigate those differences.

Open weight, not open source

“Open weight” is not “open source.” Open-source software is generally distributed under standardized, well-understood licenses that grant broad rights to use, modify and redistribute. Open-weight models simply make a model’s weights – the numerical settings a model learns during training that shape how it responds – available for download and local deployment. They require integration through a separate software platform to run and manage the model, and often remain subject to bespoke contractual terms on commercial use, intellectual property (IP), redistribution, attribution and downstream deployment.

Key legal risk areas

Organizations considering open-weight models should evaluate the legal framework governing deployment, not just technical performance. Licensing, IP, privacy, security and an evolving regulatory landscape all affect how these models can be used and what safeguards should accompany their deployment.

A. Licensing is the threshold issue

For many organizations, the first legal issue in evaluating an open-weight model is not copyright or regulation, but the license itself. Unlike traditional open-source licenses, open-weight licenses are increasingly customized. They typically permit downloading, deploying and modifying weights, but may impose obligations well beyond preserving copyright notices or attribution.

Depending on the model, organizations may encounter provisions addressing commercial use limitations, acceptable use restrictions, volume restrictions, and attribution or branding requirements. Some licenses also restrict using the model, its outputs or derivative works to train, develop or improve a competing AI model. Like traditional open-source licenses, organizations may also occasionally encounter “copyleft” provisions requiring that derivatives thereof be made available on the same open-source terms, which may conflict with commercial objectives of keeping the organization’s software source code a trade secret. The same issue can arise with training datasets, such as those licensed under the Creative Commons ShareAlike license, which requires that new works built from the same data be shared under the same license. That said, this concept has traditionally applied to creative works that are direct derivatives of other creative works and how it applies to models trained on those works remains a fact-specific analysis.

Intended deployment matters too. Internal productivity use may carry different obligations than incorporating the model into a customer-facing product or platform. Organizations planning to fine-tune, redistribute derivative weights or build downstream products should confirm that the license permits this, and check for added obligations, taking into account how their product’s use may evolve.

B. IP questions continue to evolve

Open-weight models also raise IP questions that courts and regulators are still working through as generative AI develops. Much of the current litigation asks whether using copyrighted material for AI training infringes copyright or falls within doctrines such as fair use. These disputes generally involve developers rather than downstream deployers, but organizations should recognize that training data provenance is not always transparent, and the governing standards remain unsettled. Questions also arise over AI-generated outputs: ownership of generated content, resemblance to protected third-party works, risk of incorporation of open-source code and security vulnerabilities into AI-generated software, and contractual allocation of IP risk.

Unlike many hosted AI services, self-hosted open-weight deployments may lack provider indemnification or related contractual and technical protections – not only for IP-infringing outputs, but also more broadly for harmful, inaccurate or discriminatory outputs. Organizations should therefore build governance around AI-generated outputs, including human review, documentation, and technical validation and safeguards, and consider how liability for AI-related risks is addressed when a model provider offers no contractual indemnities or other protections.

C. Privacy, security and deployment architecture

A principal advantage of open-weight models is deployment flexibility. Unlike provider-hosted models, which require transmitting prompts and data to a third party, open-weight models can run entirely within enterprise-controlled environments – a meaningful benefit for organizations handling sensitive commercial information, proprietary IP, or regulated data subject to sector-specific privacy and data-handling rules. That flexibility comes with a trade-off: It shifts responsibility for securing and operating the AI environment to the deploying organization. That includes integration, access controls, infrastructure maintenance, usage monitoring, safeguards against inappropriate content, vulnerability management, output optimization, and compliance with privacy, breach-notification and cybersecurity requirements that a hosted provider’s data processing terms might otherwise help address.

Conversely, managed inference providers – companies that host and run a model on their own infrastructure so customers can access it without operating it themselves –may offer contractual protections, support and established security controls, but they introduce their own vendor-management and data privacy-governance considerations. The right approach depends on the use case, legal obligations, risk tolerance and governance capability, not just technical requirements.

D. Regulatory landscape continues to develop

The legal framework for advanced AI continues to evolve, as lawmakers weigh AI governance, export controls, national security, computing restrictions, consumer protection and cross-border deployment. Many regulatory frameworks do not yet distinguish open-weight from proprietary models. One notable exception is the European Union AI Act, which exempts open-source general-purpose AI model providers from certain technical documentation and downstream information obligations. It does not exempt them from all requirements; they must still implement a policy to respect EU copyright law and rightsholders’ text and data mining opt-outs and publish a sufficiently detailed public summary of the content used for training. Recent reporting likewise suggests that the White House’s voluntary, nonpublic frontier model review guidelines do not apply to open-weight models – further evidence that this remains an evolving area of AI governance and national security policy.

Adding to this complexity, a substantial share of today’s top open-weight models are developed outside the United States, including by developers based in China. That reality has drawn its own share of policy attention. The US and other governments have begun considering supply-chain provenance, data-handling practices and security review as part of a broader conversation about foreign-developed AI models generally, separate and apart from the quality or utility of any particular model. Organizations evaluating an open-weight model of foreign origin should treat these considerations as part of standard diligence – alongside licensing and IP review – rather than as a bar to adoption, while staying alert to guidance that may apply specifically to models associated with certain jurisdictions or certain entities.

Open-weight model deployments may therefore raise a broader, and in some respects more nuanced, range of legal considerations than traditional software procurement, and even hosted frontier models.

Lawmakers have also begun examining the cross-border movement of advanced AI models, weights and related technology. Organizations should monitor developments affecting cross-border deployment and jurisdiction- or provider-specific restrictions, which remain highly dynamic and may affect deployers and developers.

Pre-deployment checklist

Before deploying an open-weight model, organizations should, at a minimum:

Carefully review the applicable license to confirm it permits the intended deployment, and identify any restrictions on commercial use, redistribution, fine-tuning, downstream deployment, attribution or other contractual obligations that may apply.
Assess the jurisdiction, ownership and supply chain associated with the model’s developer and any upstream contributors, including where the model was trained and hosted; confirm whether the developer or model is subject to export control classification, entity-list or other trade restrictions; and where the deployment involves sensitive, regulated or government-related data, consider whether additional national security or cross-border review is warranted before proceeding.
Evaluate whether a self-hosted or managed inference architecture is more appropriate given the organization’s data sensitivity, operational needs, risk tolerance, customer commitments and available contractual protections.
To the extent possible, diligence the provenance and licensing history of any third-party model weights before deployment, particularly where the model has been modified, fine-tuned or obtained through an intermediary, to understand what rights and obligations accompany the model.
Implement governance around AI-generated outputs, including human review, technical safeguards and code-scanning to help catch and prevent potential IP issues, open-source software, security vulnerabilities and other material errors before outputs are deployed or relied upon.
Build a process to keep policies current as fast-moving export controls, AI regulation and other legal rules continue to evolve.
Develop contingency plans that account for changes to licensing terms, model availability or regulatory requirements that could affect continued deployment or commercial use.

As enterprise adoption of open-weight models grows, the legal questions surrounding deployment – from bespoke licenses to IP risk, governance and emerging regulation –will keep evolving. Organizations that evaluate these issues early in procurement and deployment will be better positioned to fold open-weight models into their AI strategies while managing legal and operational risk.

Cooley combines experience in AI, technology transactions, IP, privacy, cybersecurity, national security and global AI regulation to help clients evaluate, deploy and govern AI systems across the company.

The UPC Three Years In

Tue, 11 Aug 2026 18:13:25 Z

The Unified Patent Court (UPC) opened its doors in June 2023 as a single, centralised judicial forum to handle patent disputes across participating EU countries. During a seven-year transitional period, it is possible to opt European patents out of the UPC’s jurisdiction, i.e. up to May 2030. This period can potentially be extended once by another seven years, up to May 2037. However, the consultation on whether to extend this period is due to start in June 2028, so we cannot expect to have certainty regarding the possible extension until relatively late in the current period. As such, it is possible that within a few years the UPC could become the mandatory forum for enforcement and revocation of European patents in EU Member States participating in the UPC’s system, irrespective of whether a unitary patent is requested upon grant.

In the first six months of the UPC, roughly half of newly granted European patents remained within the system. This has increased as the court has matured and case law has developed and, as of June 2026, about two-thirds of newly granted European patents are not being opted out. Of the patents under the UPC’s jurisdiction, about half are unitary patents, with the remainder being European patents validated by the traditional route. This split has been fairly consistent throughout the UPC’s lifespan. For example, in 2025, 62% of patents remained under the UPC’s jurisdiction and 29% of granted patents were registered as unitary patents. As such, it appears that patentees are becoming more accepting of the UPC and unitary patent system, with the growing use of unitary patents reflecting increasing confidence in the combined UPC/unitary patent framework, including its simplified administration and, in many cases, more cost‑efficient structure (including renewals). This trend may be explained by the UPC’s practical advantages, notably the speed of its procedures and the availability of remedies (including injunctions) with effect across multiple EU Member States in a single action.

Perhaps surprisingly, patents in the medical or veterinary science space now have a higher uptake of unitary patents than average for European patents. Whilst the expectation has been that the pharmaceuticals space would be more risk-averse, patentees are choosing strategies that involve unitary patents. That said, the still-evolving unitary supplementary protection certificate framework introduces uncertainty that may continue to influence how life sciences patentees approach unitary patents. Curiously, the smallest proportion of unitary patents is in the electronics space. This space also sees the lowest proportion of opt-outs, so this lack of unitary patents is presumably driven by cost, countries of interest and expected patent lifespan, rather than any concerns about the UPC itself.

One reason patentees may be more willing to make use of the UPC is that the revocation rates at the UPC and European Patent Office (EPO) are broadly comparable. In 2025, 32% of revocation actions or counterclaims for revocation at the UPC resulted in the patent in suit being revoked. At the EPO, there was a revocation rate of 29% at the first instance during opposition in 2025, which rises to 31% on appeal (and to 48% on appeal if dismissed appeals are excluded). The risk of a central revocation of a European patent post-grant, therefore, does not appear to significantly differ between the UPC and EPO systems.

However, it is important to recognise that the nature of this risk differs between the systems. At the UPC, revocation can arise quickly within infringement proceedings and applies across all participating EU Member States in a single decision, whereas EPO opposition follows a different procedural track and typically operates over a longer time frame. As such, the practical commercial impact of revocation risk may be more acute in the UPC context.

The case law of the UPC is developing and there are indications of greater consistency in approach between divisions, as guidance from the Court of Appeal of the UPC emerges. The Court of Appeal has overturned approximately a third of first-instance decisions, whereas the EPO Boards of Appeal at least partially overturned 64% of cases in 2025.

Overall, it appears that the UPC is gaining prominence and credibility as a forum. This may be contributing to the increasing willingness to remain within its jurisdiction.

What does this mean for patentees?

Ultimately, a more nuanced, portfolio‑based approach is now appropriate when interacting with the UPC and choosing between traditional European patent validation and the unitary patent system. As UPC case law becomes more settled and the court is used by more patentees, keeping selected cases within the UPC and considering unitary patents rather than national validations potentially becomes more attractive. This is especially true as the end of the initial transition period approaches.

In practice, many patentees are using the UPC, often in conjunction with a unitary patent, alongside the traditional national validation route and opt-outs. This is not purely a question of patent strength or importance, and the sensitivities depend both on subject matter and business model. It is not uncommon to see a blended approach even within the same patent family, for instance with commercially valuable “picture claim” patents opted out and broader offensive patents kept within the UPC’s jurisdiction.

The key balance is therefore between the UPC’s enforcement advantages (including speed and pan‑European relief) and the risk of central revocation, with the appropriate approach depending on the strength of the patent, its commercial footprint and the patentee’s risk tolerance.

For patentees with interests in the UK and other significant European markets not participating in the UPC (such as Spain and Poland), a parallel national patent strategy will remain appropriate.

If you wish to discuss any specifics of post-grant patent strategy, especially around staying in or opting out of the UPC’s jurisdiction, please contact a member of the patent counselling and prosecution group’s London team for bespoke advice.

FCC Adopts Rules Overhauling Space Station Licensing Rules

Mon, 10 Aug 2026 13:56:23 Z

The Federal Communications Commission (FCC) adopted a Report and Order and Further Notice of Proposed Rulemaking on July 22 overhauling its space and earth station licensing framework. The rules aim to provide entities with a more efficient, predictable and flexible process to support commercial deployment of space infrastructure.

Updated licensing framework

The FCC establishes a “licensing assembly line” to provide space companies a clearer and quicker process for obtaining authorizations. The framework adopts a modularized, certification-based application designed to only collect necessary information and streamline the review and approval process.

Removal of surety bond requirements

The new rules eliminate the surety bond requirements for all systems, except for non-geostationary orbit (NGSO) systems involved in processing rounds (i.e., fixed satellite service and mobile satellite service systems). For NGSO systems subject to processing rounds, the FCC will require a bond set at an initial amount of $10 million, with the bond amount being reduced based on the percentage of the total authorized satellites deployed.

Elimination of streamlined small satellite and small spacecraft rules

The FCC eliminates the streamlined small satellite and small spacecraft rules, stating that those processes are no longer necessary. The FCC does not, however, address how it will handle current streamlined small satellite or small spacecraft licenses, or how it intends to calculate annual fees for such licenses moving forward, which historically have been less than 1/20 of the annual fees of other NGSO systems.

New ‘variable trajectory space stations’ licensing category

Recognizing the continuous development and use of new space technologies, the FCC creates a new category for space stations that does not readily fit into the traditional NGSO or geostationary orbit (GSO) space station categories. The variable trajectory space stations (VTSS) category is for systems “of one or more space stations either operating beyond the geosynchronous orbit or operating without fixed or predictable patterns over the course of its lifetime and operating under one space station call sign.” These systems include, but are not limited to, orbital transfer vehicles, rendezvous and proximity operations platforms, in-service servicing systems and missions involving transit to, orbiting of, or operations on the moon or other celestial bodies.

Conditional grants

Under the new rules, the FCC will issue conditional grants of authorization to further streamline and expedite the licensing process. These conditional grants will allow applicants to move forward with launch and/or certain operations prior to obtaining full authorizations from the FCC.

Revised processing rounds

The FCC updates its processing-round framework to provide NGSO systems greater predictability. Under the new framework, the FCC will open annual processing rounds and review applications on a rolling basis for each year. The Space Bureau will initially open processing rounds for Ka-, Ku-, V- and Q-bands and then add additional bands.

Further notice of proposed rulemaking

In addition to adopting new licensing rules, the FCC seeks comments on additional rules and revisions to further modernize its licensing framework to promote deployment of space operations. Some of these proposed rules include creating a new space-based experimental license; allowing currently operating NGSO satellite systems to combine authorized satellites under a single call sign; and permitting space station licensees to change or add radio frequency sensing capabilities through a minor modification or notification process.

If you are interested in learning more about the rules and their potential impact, please register for a Lunch & Learn panel on these and related topics on August 13 from 12:00 to 2:00 pm ET, or reach out to one of the Cooley lawyers listed below.

Structuring CVC-Backed Funds: A Governance, Economics and Regulatory Deep Dive

Thu, 06 Aug 2026 11:04:42 Z

This article is the second in our series on fund structures for corporate venture capital (CVC) sponsors. The first article in the series examined the principal models through which a corporate sponsor can collaborate with a fund manager (FM) at the general partner (GP) level. This article builds on that analysis by examining the governance architecture of each approach in greater depth, specifically the allocation of control, economics, liability and regulatory exposure between the corporate sponsor and the FM. These dimensions are among the most consequential and contested aspects of any CVC fund structuring exercise.

A corporate sponsor seeking to embed governance influence alongside an FM has a range of structural options available to it.

While other approaches exist, for example, hiring an unrelated investment team, developing an in-house investment management capability or acquiring majority control of an existing GP, this article examines the four structures most commonly encountered in CVC fund formation:

Minority equity stake and board representation in the GP entity
Investment committee representation
Contractual rights arrangements
Dual/parallel co-GP structure

The four structures are presented broadly in order of increasing governance depth, with the co-GP structure representing the most extensive form of engagement. Each structure is discussed in turn below, with analysis of its key commercial terms and the principal advantages and disadvantages from both the CVC’s and FM’s perspectives. In practice, negotiated arrangements often combine elements from more than one structure to achieve a bespoke balance that reflects the relative bargaining positions and strategic objectives of the parties.

1. Minority equity stake and board representation in the GP entity

Under this structure, the CVC acquires a minority equity interest in the GP entity, with the FM retaining majority ownership and control. The equity stake is typically accompanied by minority representation on the GP’s board of directors, together with a package of protective rights designed to embed the CVC’s governance position durably within the constitutional framework of the GP entity itself.

Key commercial terms

The CVC holds minority equity in the GP, with the FM retaining majority equity and corresponding majority board representation. The CVC receives an agreed upon share of carried interest, typically pro rata to its GP equity stake. Where an investment manager is engaged to provide advisory services to the fund, management fees will typically flow to the investment manager rather than to the GP itself; any CVC participation in management fee economics is accordingly structured for gross or net economics to flow to the CVC, including through a separate fee-sharing arrangement, rather than as a direct entitlement flowing from GP equity. Protective provisions in the GP’s constitutional documents confer information rights and veto rights over defined categories of major decisions, including amendments to the limited partnership agreement (LPA) or other fund documents, hiring or termination of key persons, related party transactions, changes to the fee or carry structure, new GP equity issuances or a change of control of the GP, fund dissolution, and material or conflicted investment decisions.

The CVC’s equity position is further protected by the following provisions, and in many cases is complemented by investment committee rights (discussed in greater detail under structure 2 below), which afford the CVC influence over the most consequential investment and portfolio decisions:

Preemption rights, a right of first refusal and tagalong rights on any transfer of GP equity by the FM.
Anti-dilution protections against future issuances.
Key person provisions addressing the consequences of FM principal departures.
Noncompete obligations typically imposed on the CVC parent in respect of specified fund verticals.
Deadlock resolution mechanisms (customarily a put/call arrangement or a buy-sell “shotgun” mechanism) to address irreconcilable disagreements between the parties.

CVC’s perspective

From the CVC’s perspective, the principal advantages are economic and constitutional. The board seat is embedded within the GP entity’s constitutional framework, making it the most insulated form of governance influence across all four structures. It provides board-level visibility into GP operations and fund-level approvals, though it should be noted that the GP board’s functions are often limited to constitutional and administrative matters such as board resolutions, fund approvals of expenses and related-party transaction approvals, while strategic direction, market updates and portfolio-level discussion typically take place at the investment management or investment committee level. The participation in carried interest (and, where applicable, management fee economics as described above) delivers a direct share of the fund’s economics. Tagalong rights and the right of first refusal protect the CVC’s ability to exit the GP equity stake on the same terms as the FM. The CVC’s own regulatory position is expected to remain outside the scope of registration requirements under the Investment Advisers Act of 1940 (Advisers Act), subject to the level of the CVC’s control and ownership. Note that this analysis reflects the US regulatory position; other jurisdictions may impose different registration, licensing or regulatory requirements on a CVC that acquires a minority equity interest in a GP entity, and local counsel advice should be sought.

The disadvantages are significant. By acquiring GP equity, the CVC is indirectly subject to Advisers Act fiduciary duties owed to the fund, creating a higher standard and potentially compliance obligations than arises under other structures examined below. Affiliated transactions between the CVC parent and the fund give rise to potential conflicts of interest and, in some cases, principal transaction concerns. GP entity valuation at entry and at any subsequent exit is complex and frequently contentious. If the fund underperforms, disputes over carried interest allocation or the CVC’s share of management fee economics may arise between the CVC and the FM, particularly where fee revenues decline and the parties disagree over the apportionment of reduced economics.

FM’s perspective

From the FM’s perspective, the CVC’s equity commitment provides institutional validation (particularly for first-time or emerging fund sponsors) and working capital for the GP entity, as well as a portion of the GP’s commitment to the fund. The deadlock resolution mechanism described above (customarily structured as a put/call arrangement or a buy-sell “shotgun” mechanism) affords the FM a defined exit pathway from the CVC relationship should the parties’ interests diverge. The CVC’s commercial network and strategic resources may be committed to the fund either through the equity relationship or through separate contractual arrangements, though the equity structure creates a more durable alignment of incentives than informal or purely contractual undertakings.

The downsides for the FM are also material. The loss of sole control over the GP entity and the dilution of carry and fee economics are significant concessions. The FM must manage a minority shareholder relationship alongside a diverse LP base, adding governance complexity. There is a real risk that the FM is not perceived as an independent and disinterested fiduciary for the capital contributed by other LPs, particularly where the CVC parent has interests in portfolio companies or co-investment opportunities. Veto rights create operational friction and can delay time-sensitive investment decisions. Where the CVC’s capital is committed through the GP commitment (as is typical), the risk of most-favored-nation (MFN) claims from other LPs is reduced; however, if the CVC also invests as an LP or receives preferential side letter terms, the obligation to disclose the CVC’s preferential treatment may invite MFN claims from existing and prospective LPs unless those rights are expressly carved out of the MFN framework. Further, if the CVC parent undergoes a change of control, this may engage the assignment provisions under the Advisers Act. However, where the CVC is a minority investor in the GP and the FM retains clear majority ownership and control, a change of control of the CVC would not necessarily constitute a change of control of the GP for assignment purposes, though the analysis is fact-specific, and the fund documents should address the consequences of a CVC parent change of control expressly.

2. Investment committee representation

Under this structure, the CVC holds minority seats on the fund’s investment committee (IC) without acquiring any equity interest in the GP entity. The FM retains full GP ownership and control, as well as majority representation on the IC. The CVC’s influence over investment decisions is negotiable, ranging from observer only to effective veto rights related to specified categories of decisions.

Key commercial terms

The CVC appoints minority IC members, who may sit as voting members or as nonvoting observers depending on the terms negotiated. IC quorum requirements typically mandate the presence of at least one CVC representative (or a waiver) before a quorum is constituted. CVC veto rights could be limited to defined categories of decisions, typically including investments above a specified percentage of fund size, investments in sectors competitive with the CVC parent, follow-on investments above agreed concentration limits, below-cost or related-party exit decisions, and co-investment allocation decisions.

Mandatory recusal protocols address decisions in which the CVC parent has a conflict of interest. Strict nondisclosure obligations and information barriers between CVC IC members and the CVC parent are essential features to prevent confidential deal intelligence from migrating from the CVC's IC representatives to the CVC parent. IC appointees are removable for cause, and any replacement is subject to the FM’s reasonable consent. A fundamental drafting question concerns whether CVC IC members vote in their personal capacity or as agents of the CVC entity. If acting as agents, knowledge acquired by IC representatives may be attributed to the CVC entity directly, broadening potential liability exposure and complicating conflict management and regulatory requirements. Conversely, if acting in a personal capacity, the CVC entity has less formal control over how its nominees exercise their votes, and the enforceability of IC voting instructions may be limited. The answer to this question also affects how confidential information obligations are structured. In addition, the FM and the CVC will need to assess the FM’s regulatory requirements resulting from CVC and its employees’ access to the FM’s information and network.

CVC’s perspective

From the CVC’s perspective, this structure affords greater access to investment decisions with the potential to influence those decisions. Early visibility into proprietary deal flow in sectors of strategic relevance to the CVC parent is a significant benefit. The regulatory footprint is considerably lighter than under structure 1, and exit from the arrangement is simpler. There is no GP equity interest to unwind. There is, however, a reputational risk to the CVC if its IC representatives are perceived to have blocked or delayed deals. The parties may also negotiate a separate carry arrangement, under which IC representation is accompanied by a defined economic participation in fund profits. It should be noted that carried interest grants are not inherently tied to GP equity ownership; carry allocations may be structured independently of the GP’s equity capital structure, and accordingly the economic distinction between a carry arrangement under this structure and the carry entitlement flowing from GP equity under structure 1 may be more a matter of structural form than economic substance.

The disadvantages are meaningful. CVC IC representatives may be treated as access persons of the investment adviser, with consequent compliance and information-handling obligations. Those requirements could expand to CVC without appropriate information gates. Conflict recusal protocols are operationally complex, and contested recusals create friction with the FM and other LPs. The CVC’s veto rights likely should be disclosed to other LPs, and other investor may not want the FM’s investment discretion impacted by the CVC. Confidential deal intelligence is necessarily exposed to the CVC’s IC representatives, creating a risk that commercially sensitive information migrates to the CVC parent notwithstanding information barriers.

FM’s perspective

From the FM’s perspective, this structure preserves full GP equity ownership and economics without necessarily dilution of carry or fee entitlements. The CVC could have a range of influence investment decisions, and veto rights, if any, could be limited to defined categories of decision with the FM retaining majority control of the IC. IC rights can be structured to sunset at the end of the investment period, limiting the duration of the CVC’s governance influence.

The drawbacks are also significant. The CVC’s veto may delay or block time-sensitive investment decisions. Confidential deal flow and portfolio data are necessarily exposed to a corporate LP whose parent may compete with portfolio companies, and intelligence may migrate inadvertently to the CVC parent despite information barriers. Other LPs may invoke MFN provisions to demand equivalent observation rights. Deadlock mechanics are required but often contentious to negotiate.

3. Contractual rights arrangements

Under this structure, the CVC and FM enter into a suite of stand-alone contractual arrangements that confer defined management-adjacent rights on the CVC, without any equity stake in the GP or formal seat on any governance body. This is the lightest-touch governance structure of the four and affords the greatest flexibility to both parties.

Key commercial terms

The contractual arrangements typically comprise some or all of the following elements:

Co-investment rights. A right for the CVC (or its parent) to participate alongside the fund in portfolio investments on a pro rata or fixed-allocation basis, on no-fee, no-carry or preferential terms.
Deal sourcing exclusivity window. A contractual obligation on the FM to present defined categories of investment opportunity to the fund (rather than to competing vehicles) for a specified period before the FM may pursue them elsewhere.
Enhanced information rights. Reporting rights beyond those available to ordinary LPs, including access to deal pipeline data, portfolio company information and IC materials relevant to the CVC parent’s sectors of strategic interest.
Portfolio assistance framework. A services or secondment arrangement under which the CVC parent provides defined resources – commercial, technical or operational – to portfolio companies, typically on arm’s-length terms.
Advisory or observer rights. A right for the CVC to appoint a nonvoting observer to the IC or the GP’s board, without any veto or quorum right, to preserve visibility into fund governance without triggering the regulatory or fiduciary consequences of formal membership.

CVC’s perspective

From the CVC’s perspective, this structure carries the lightest regulatory footprint of the four; the CVC’s rights are contractual as in option 2 and are less likely to give rise to regulatory obligations associated with GP or IC status. Each right can be negotiated, transferred or terminated independently of the others, providing maximum flexibility as the CVC-FM relationship evolves. In many cases, co-investment rights can deliver direct and immediate financial value. The portfolio assistance framework directly serves the CVC parent’s corporate development agenda without requiring formal governance involvement.

The disadvantages lie principally in enforcement and durability. While all of the structures examined in this article are contractual in nature, the distinction here is one of structural resilience: Rights embedded in the GP’s constitutional documents benefit from the procedural protections and amendment thresholds applicable to those instruments, whereas stand-alone agreements may be more readily amended, waived or terminated by the parties, which may not provide timely protection in a fast-moving investment context. The deal sourcing exclusivity window can constrain the pace of both the fund and the CVC parent. All rights must be carefully drafted to ensure they survive any assignment or novation of the investment management agreement between the FM and a successor investment manager, so that the CVC’s entitlements are preserved in the event of a change in the identity of the party providing investment management services to the fund. A CVC that exercises its contractual rights with sufficient regularity and depth risks being characterized as a de facto fund manager, with associated liability consequences.

FM’s perspective

From the FM’s perspective, this structure is the least disruptive to its ownership, control and economics. Full GP ownership is retained, and the flexibility of independent contractual arrangements allows each right to be negotiated, modified or terminated without affecting the others. The strategic advisory relationship can enhance the LP value proposition at low governance cost to the FM.

The principal downsides for the FM relate to the ripple effects on its other LP relationships. Co-investment terms and enhanced information rights will frequently trigger MFN demands from other LPs. The deal sourcing exclusivity window can constrain the pace of deal execution for the fund as a whole. Multiple separate agreements create operational complexity and a risk of inconsistency between documents. Portfolio assistance arrangements must be structured on strictly arm’s-length terms to avoid self-dealing claims from other LPs. The FM will also need to assess its compliance obligations, disclosures to other investors and how the relationships fit within the FM’s compliance policies and procedures.

4. Dual/parallel co-GP structure

The co-GP structure is the most ambitious and operationally complex of the four. Unlike the joint venture model examined in our first article (model 3), which involves shared equity ownership of a single GP entity by the corporate sponsor and an industry partner, this structure involves two separate legal entities, the FM’s own GP and a newly established CVC co-GP entity, each named as a GP of the fund in the LPA. Both co-GPs bear joint and several liability to the fund’s LPs, and share in the economics of the GP according to an agreed formula. The governance, liability and regulatory issues specific to dual co-GP structures, including inter-GP coordination, separate regulatory obligations and fund continuation mechanics, are examined in detail below.

Key commercial terms

Both entities are named as co-GPs in the LPA, with carry (and occasionally, management fees as well) allocated between them in accordance with an agreed formula. A co-GP governance agreement sets out with precision the matters that require unanimous consent and those that can be decided by either a co-GP or majority. Unanimous consent matters typically include amendments to the LPA or other fund documents, changes to investment strategy or mandate, investment decisions above a defined threshold, key person appointments and terminations at either co-GP, related party transactions, dissolution of the fund or either GP entity, any assignment of GP rights or management economics, and material changes to compliance or regulatory frameworks.

While both co-GPs are jointly and severally liable to LPs under the LPA, an internal indemnification agreement allocates liability between the co-GPs. Each co-GP entity independently satisfies its own regulatory obligations, with costs allocated separately. Key persons are defined separately for each co-GP entity. Fund continuation mechanics address the scenario in which one co-GP exits or is removed for cause, permitting the remaining co-GP to continue as sole GP subject to LP consent.

CVC’s perspective

From the CVC’s perspective, this structure provides the most formal and equal governance standing of any of the four options. True co-GP status means the CVC is a named GP of the fund in the LPA, placing it on the same constitutional footing as the FM. The CVC obtains direct access to GP economics without acquiring an equity interest in the FM’s preexisting GP entity. The structure enables the CVC to build an independent investment management capability alongside the FM, and signals a long-term commitment to the fund, including through a capital commitment made by the CVC co-GP entity (or its affiliate), that may strengthen its fundraising profile with other LPs.

The disadvantages are commensurately high. GP liability represents a significant balance sheet risk for the CVC’s corporate parent. Establishing a CVC co-GP entity could trigger Advisers Act registration and compliance obligations for the CVC and CVC parent. Inter-GP coordination is operationally complex, and the risk of decision gridlock is at its highest in this structure. Advisers Act fiduciary duties are owed to the fund, not merely to the CVC. Any change of control of the CVC co-GP entity, including the CVC parent, will engage complex GP succession mechanics, potentially requiring LP consent.

FM’s perspective

From the FM’s perspective, the CVC co-GP enhances the fundraising profile and institutional credibility of the fund. The CVC bears a proportionate share of any GP-level liability, reducing the FM’s net exposure. The arrangement provides the FM with access to the CVC’s deal flow, commercial networks and LP base.

The disadvantages are the most severe of any of the four structures. The co-GP arrangement is the most operationally complex option, with the highest risk of decision gridlock. The FM loses its status as sole fund fiduciary, which may undermine its leverage in negotiations with portfolio companies and third parties. The carry pool is materially reduced by the co-GP split. If the CVC co-GP is removed for cause or withdraws, fund continuity mechanics may trigger LP removal rights or necessitate a fund restructuring. Two separately regulated entities significantly increase compliance costs.

5. Comparative analysis

The four structures can be assessed across five principal dimensions: governance footprint, CVC liability exposure, CVC economics, CVC regulatory risk and the degree of control dilution for the FM. The table below summarizes this comparison.

Structure	Governance footprint	CVC liability	CVC economic participation	CVC regulatory risk	FM control dilution
1. Minority GP equity + board	High	Moderate to high	Pro rata fees and carry	High	Moderate to high
2. IC representation	Moderate	Low	None (separate carry optional)	Low	Low
3. Contractual arrangements	Low	Low	Co-invest/carry by agreement	Low	Low
4. Dual co-GP structure	Highest	Highest	Equal to agreed GP split	Highest	Highest

Conclusion

The choice between these four structures is ultimately a function of the CVC’s strategic objectives, its appetite for liability and regulatory exposure, the FM’s willingness to accept governance dilution, and the interests of the wider LP base. A CVC that prioritizes direct economic participation and durable governance influence will gravitate toward structure 1 or structure 4, accepting the associated liability and regulatory complexity. A CVC that seeks strategic insight and deal flow access with a lighter touch will favor structures 2 or 3, preserving flexibility and minimizing regulatory risk.

It is important to note that these structures are not mutually exclusive. In practice, a negotiated arrangement commonly combines elements from multiple structures – for example, IC representation paired with a suite of contractual rights, or a minority GP equity stake accompanied by a co-investment framework. The most successful arrangements are those that are clearly documented, anticipate the principal friction points (conflicts, key person departures, deadlock and LP scrutiny), and build in mechanisms to resolve them without resorting to litigation.

As corporate venture capital continues to mature as an asset class, the governance architecture of CVC-backed funds will remain a focal point for legal advisors, fund managers and institutional LPs alike. Structuring these arrangements carefully at the outset, with clear eyes about the trade-offs involved, is essential to the long-term health of the fund and the CVC-FM relationship.

Ninth Circuit Rules on AI Agent ‘Access’ to Third-Party Websites Under CFAA

Thu, 06 Aug 2026 07:00:00 Z

On August 4, 2026, the US Court of Appeals for the Ninth Circuit vacated a preliminary injunction that had barred Perplexity’s AI agent from accessing Amazon.com on customers’ behalf, holding that Amazon was unlikely to succeed on its Computer Fraud and Abuse Act (CFAA) and California Comprehensive Computer Data Access and Fraud Act (CDAFA) claims against Perplexity. Reversing the district court, the panel explained that when a user tasks a Perplexity agent with taking actions on the user’s behalf on Amazon.com, it is “the user who ‘accessed’ Amazon’s computers,” not Perplexity. The decision is significant for both sides of the agentic AI ecosystem: It potentially offers AI developers a measure of protection from CFAA/CDAFA claims arising from agents acting at a user’s direction, while signaling to website operators that these anti-hacking statutes may not be an effective tool for policing agent access – though other legal theories, such as breach of terms of service, may remain available.

Two important limits temper the decision for both audiences. First, the ruling addresses only CFAA and CDAFA theories of liability and expressly leaves open other claims, including breach of terms of service and contract- or tort-based theories. Second, the panel made clear that the inquiry is fact-specific, noting the possibility that other AI agents with greater autonomy or more direct communication with a website’s servers could still give rise to CFAA and CDAFA liability. Because this appeal arose from a preliminary injunction, the panel’s findings reflect a likelihood-of-success assessment on the current record, not a final merits ruling.

Background

Amazon sued Perplexity in the US District Couty Northern District of California, alleging that Perplexity’s agentic browser feature, the “Assistant” (part of its Comet browser), accessed Amazon users’ password-protected Amazon accounts to browse and purchase products – at users’ direction. Amazon alleged that Assistant did so without identifying itself to Amazon as an AI agent and in violation of Amazon’s terms of service. Amazon claimed this conduct violated the federal CFAA and CDAFA. On March 9, 2026, the district court granted Amazon’s preliminary injunction, finding Amazon was likely to succeed on the merits because Perplexity’s access was not authorized by Amazon, regardless of whether the Amazon users had permitted Assistant to access their own Amazon accounts. Perplexity appealed.

The Ninth Circuit’s decision

On August 4, 2026, a Ninth Circuit panel vacated the injunction and remanded the case for further proceedings.

The panel’s decision turned on the threshold question of computer “access” under the CFAA. To prevail on a CFAA claim, a plaintiff must show that the defendant:

Intentionally accessed a computer
Without authorization or in excess of authorized access
Thereby obtaining information
From a protected computer
Causing at least $5,000 in aggregate loss in a one-year period

The court found that “access” means “entering a computer system itself,” and the statute’s use of “whoever” contemplates access by a person, not a software tool. As a result, “it was the user who ‘accessed’ Amazon’s computers, with the help of Perplexity’s AI agent, the ‘Assistant,’ to carry out specific acts on Amazon.com.” Because the user, not Perplexity, accessed Amazon’s servers, the court found Amazon was unlikely to prevail on a CFAA claim against Perplexity.

To reach this holding, the court examined how Assistant works. When a user directs the Assistant to shop on Amazon, the Assistant takes screenshots of the browser view on the user’s own machine and sends those screenshots to Perplexity’s servers, which then send back instructions on how to navigate Amazon.com to the user’s computer. Critically, “Perplexity itself does not directly communicate with Amazon’s servers,” as communications are routed through the user’s computer. The court distinguished this fact pattern from those in cases such as Facebook, Inc. v. Power Ventures, Inc., where the defendant’s own systems caused messages to be transmitted directly on Facebook’s platform, without first passing through a user’s machine.

The CDAFA was likely to fail for the same reason. Although the CDAFA defines “access” more broadly than the CFAA, the panel held that the statute still focuses on the person accessing or causing access. Because the user, not Perplexity, accessed Amazon’s systems, Amazon’s CDAFA claim was also unlikely to succeed.

Finally, the court also held that the equitable factors underlying a preliminary injunction favored Perplexity, as Amazon’s evidence of irreparable harm – claims that the Assistant might not select the best price or product for a user – was comparatively weak and abstract, and that Amazon’s cybersecurity concerns were unconvincing.

Remaining liability risk

The court made clear that different facts regarding how the agent operated may have changed the outcome. For example, if an AI company exercises greater control over its agent or if the company’s servers communicated directly with the defendant’s servers, that may yet support a finding that the company itself “accessed” a website’s servers.

The court also expressly narrowed the holding to the CFAA and CDAFA contexts. The court left open the possibility that the same conduct could be the basis for other types of claims, such as claims sounding in tort or contract.

Practical takeaways for website operators

Websites seeking to restrict AI agents from accessing accounts or taking actions on a user’s behalf should not assume that the CFAA or similar state anti-hacking statutes will provide an effective remedy, at least where the AI company’s own systems do not directly communicate with the website’s servers. Such websites may have to turn to other theories of liability, such as enforcing terms of service.

Practical takeaways for AI agent developers

Makers of agentic AI tools should take some comfort from the Ninth Circuit’s finding that a user directing an AI agent – rather than the AI company itself – is the one who “accesses” a third-party website for CFAA and CDAFA purposes, at least where communications with the third-party website’s servers are routed through the user’s computer. This finding puts new emphasis on how the AI agent communicates; agents that do not rely on the user’s computer as a relay will pose greater risk. AI developers should not treat this decision as foreclosing liability under other legal theories, including contract-based claims arising from a website’s terms of service.

The EU 21st Russian Sanctions Package Is Here: Business Implications

Tue, 04 Aug 2026 09:46:24 Z

On 23 July 2026, the Council of the European Union adopted the 21st package of sanctions measures against Russia. This package builds on the EU’s 20th package of sanctions which was adopted three months ago on 23 April 2026.

The measures focus on energy, financial services and crypto, trade and the Russian military-industrial complex. Additionally, the EU sanctioned 218 new persons (48 individuals and 170 entities), which the Council described as the largest batch of listings in four years.

We have summarised the most salient measures below.

Crypto-asset measures

In its 20th Package, the EU introduced extensive restrictions on Russia-related crypto activity, including measures against the A7A5 stablecoin, RUBx, and banned all EU support for the digital ruble. The EU further imposed a total sectoral ban on providers and platforms established in Russia allowing the transfer and exchange of crypto-assets.

The 21st package introduced three distinct crypto-asset measures:

Platform transaction bans. The 21st package extends transaction bans with crypto-assets to 14 crypto-related service platforms based in Georgia, Panama, the UAE, the Marshall Islands, Kyrgyzstan and Belarus.
Non-Russian in EU crypto-asset business. From 25 August 2026, Russian nationals and people living in Russia cannot:

i. Own or control (directly or indirectly) a crypto-asset business based in an EU Member State.

ii. Sit on the board or governing body of such a business.

This applies to all crypto-asset businesses in the EU.

Country-level ban framework. EU persons and entities will be prohibited from transacting, directly or indirectly, with any crypto-asset service provider or exchange platform established in a country that the Council of the EU determines to be undermining Russian sanctions. No country has yet been listed, but this new regulation signals the EU’s readiness to impose jurisdiction-level exclusion.

Financial measures and asset freezes

Asset freeze

All 218 new designations (48 individuals and 170 entities) are subject to EU asset freezes. This means that their assets must be frozen and EU operators may not make funds or economic resources available to them. The financial sector accounts for the largest share – 94 banks and major financial institutions including the Moscow Exchange. As part of the 20th package of sanctions, the EU had designated several banks and defence-related companies and individuals and imposed further restrictions on entities in China, Hong Kong, the UAE, Türkiye, Kazakhstan, Uzbekistan and Belarus involved in supplying dual-use or military goods to Russia.

Transaction ban

The 21st package further expands the transaction-ban framework introduced in earlier packages, to 33 additional Russian credit and financial institutions, one Kyrgyz bank connected to Russia’s SPFS system, three other non-Russian banks, and five oil traders that helped circumvent the Russian crude oil prohibition. More than 100 Russian banks are now subject to financial messaging and transaction restrictions in total.

Trade measures

Export bans

New restrictions on nickel powders and alloys (jet engine coatings), beryllium powders, self-adhesive films (aerospace and defence), and UAV items, including ground support equipment, jamming and interception systems, launch systems, servomotors and flight termination systems.

Import bans

New bans worth more than €60 million on copper, nickel, lead and precious-metal ores, unwrought zinc, alkaline-earth metals, zinc and chromium oxides, glassware, imitation pearls and car parts The new import prohibitions do not apply to contracts concluded before 24 July 2026 that are being executed until 25 October 2026.

Entity list

Fifty-one entities are added to the list of entities subject to stricter export restrictions because of their support for Russia’s military and industrial complex and role in circumvention. The newly listed entities include third-country entities in China, India, Kazakhstan, Kyrgyzstan, Türkiye and the UAE.

Next steps for companies with Russian exposure

Businesses with Russian exposure should use the package as a prompt to refresh sanctions screening, counterparty diligence and contract reviews across the areas most affected by the new measure:

Screen against new asset freezes
Screen against expanded transaction bans
Review crypto platform relationships
Review existing import contracts – transition period runs to 25 October 2026 for contracts concluded before 24 July 2026

The key point is to identify any exposure early, particularly where the package expands restrictions beyond Russian entities to third-country platforms, vessels, banks and service providers.

EU AI Act: Transparency Obligations Take Effect 2 August 2026

Mon, 03 Aug 2026 07:00:00 Z

Starting 2 August 2026, providers and deployers of certain AI systems must comply with the transparency obligations set out in Article 50 of the EU Artificial Intelligence Act (Regulation (EU) 2024/1689) (AI Act). The European Commission adopted guidelines on these obligations on 20 July 2026. Noncompliance can trigger fines of up to €15 million or 3% of worldwide annual turnover, whichever is higher. The AI Act applies globally to providers, deployers, importers and distributors of AI systems that place AI on the EU market or whose AI outputs are used within the European Union.

What the rules cover

Article 50 addresses four scenarios, split between obligations on providers (those who develop and place an AI system on the market) and deployers (those who use an AI system under their own authority):

AI systems that interact directly with individuals (e.g., chatbots, voice assistants, AI agents): Providers must disclose that users are engaging with AI, unless this is already obvious.
AI systems generating or manipulating synthetic audio, image, video or text: Providers must embed machine-readable markings and provide a detection mechanism, subject to limited exceptions (e.g., standard editing, non-substantial alterations).
Emotion recognition or biometric categorization systems: Deployers must inform affected individuals.
Deep fakes and AI-generated text on public-interest matters: Deployers must disclose that content was artificially generated or manipulated, unless it has undergone substantive human editorial review with a person assuming editorial responsibility.

Key dates and transitional relief

The obligations apply immediately from 2 August 2026 to all in-scope systems, regardless of when they were placed on the market. Content generated and published before that date need not be retroactively labeled. A limited transitional period applies only to the marking and detection obligation for generative AI systems already on the market. Providers have until 2 December 2026 to comply.

The Code of Practice

The AI Office has published a voluntary Code of Practice on Transparency of AI-Generated Content, offering providers a recognized path to demonstrate compliance with the marking and detection obligations. This includes a set of icons that may be used to label AI-generated content. Several major AI providers have already signed on. Signatories benefit from a degree of presumption of conformity and a more favorable enforcement posture; non-signatories face closer scrutiny and must demonstrate compliance through other means.

What businesses should do now

Identify which AI systems you provide or deploy, and under whose authority they operate (including where agencies or contractors are involved).
Map content and interactions against the four categories above, including deep fakes and public-interest text.
Implement disclosure, labeling and editorial-review procedures, and assess whether to sign the Code of Practice.
Complete this assessment before 2 August 2026, noting the extended 2 December 2026 deadline for marking/detection of existing generative AI systems.

If you have questions about how these obligations apply to your organization, please contact your Cooley team.

Foreign-Produced Power Inverters and Advanced Robotic Devices Added to FCC Covered List

Fri, 31 Jul 2026 19:37:38 Z

On July 28, 2026, the Federal Communication Commission’s Public Safety and Homeland Security Bureau announced the addition of foreign-produced power inverters and advanced robotic devices to the Covered List. This action, which took effect immediately, follows national security determinations (NSDs) that these devices pose supply chain vulnerabilities and cybersecurity risks to critical infrastructure.

Advanced robotic devices

The FCC’s action on advanced robotic devices also follows an NSD that advanced robotic devices are being increasingly used in monitoring and securing critical infrastructure, as well as being applied across the industrial manufacturing sector, and are vulnerable to data exfiltration, remote disruption and dependencies on unsecure over-the-air updates.

The NSD’s definition of “advanced robotic device,” as adopted by the FCC, is a mechanical mobile device that satisfies the following four prongs:

Is capable of locomotion, obstacle avoidance, navigation or movement on the ground.
Operates at a distance from a human operator or supervisor based on commands or in response to sensor data or any combination thereof.
Has a combined weight of the device and, if applicable, ground station or docking station of more than 4.4 pounds.
Contains:

A sensor capable of perceiving its environment.
A component capable of providing network connectivity with connection speeds of at least 200 kbps in either direction.
Software running either locally or remotely that controls the robot’s autonomous navigation or movement perception, data collection or remote command and control.

The defiition explicitly includes autonomous mobile robots, humanoid robots and quadrupeds with such capabilities, but encompasses other devices that fall within the four prongs. The rule appears to apply to many home robotics products, such as robotic vacuums, lawn mowers and comparable products, along with terrestrial robotic delivery devices.

The definition explicitly excludes connected vehicles, vehicles operated only on a rail line, uncrewed aircraft or uncrewed aircraft systems, unmanned underwater vehicles, fixed/nonmobile robots, or medical devices, such as surgical instruments, external limb prostheses, and ambulatory and mobility assistive devices (e.g., canes, crutches, walkers, wheelchairs).

Power inverters

The FCC’s action follows an NSD finding that power inverters’ remote connectivity creates vulnerabilities in the US energy grid. These vulnerabilities could let foreign or other malicious actors access inverters and exploit such access through various cyberattacks. As described in the NSD, power inverters facilitate the connection of direct current energy generation sources to the predominately alternating current electricity of the US energy grid, and it is estimated that more than 46 GW of electric power on the grid currently relies on inverters.

While the NSD focused heavily on power inverters’ connection to the grid, the NSD’s definition of “power inverter,” adopted by the FCC, makes no reference to the electrical grid. Specifically, under the NSD’s definition, “power inverters:”

Are any bi-directional power devices or systems that convert direct current electricity to alternating current electricity or convert alternating current electricity to direct current electricity (including microinverters, string inverters, central inverters and hybrid (battery-based) inverters).
Contain components that enable remote communication, control, sensing, data-collection or monitoring through Wi-Fi, cellular, Bluetooth or other similar connections.

The FCC may issue guidance clarifying this definition, but we anticipate that a connected device that either converts AC-to-DC or DC-to-AC (or both) is within the definition and subject to the Covered List. Similarly, until the FCC issues guidance to the contrary, manufacturers should not assume that devices not connected to the grid are outside the scope of the definition.

Effect of inclusion on the Covered List

Products placed on the Covered List cannot receive FCC equipment authorization, which effectively prevents such products from being marketed and sold in the US. The action only applies to new foreign-produced power inverters and advanced robotic devices that have not received equipment authorization prior to July 28, 2026. Devices that were granted authorization by the FCC before that date can continue to be sold in the US. Companies that produce power inverters or advanced robotic devices outside of the US can seek Conditional Approval from the Department of War or Department of Homeland Security (DHS) to exempt their devices from the Covered List going forward.

Opportunities to mitigate effects

Waiver of certain ‘permissive changes’ prohibitions

On the same day, the FCC also announced a waiver that permits previously authorized power inverters and advanced robotic devices to receive basic software and firmware updates that mitigate harm to US consumers, such as changes that ensure the continued functionality of the device (e.g., vulnerability patches and updates to facilitate compatibility with different operating systems). Accordingly, any foreign-produced power inverters or advanced robotic devices that were authorized prior to July 28, 2026, may undergo these permissive changes through at least January 1, 2029.

Producers may also be able to petition for a waiver to make certain Class I and Class II permissive changes to hardware of already certified devices. Such permissive hardware changes should not:

Improve performance or capability or alter the functionality of the previously authorized device.
Be used to market the device as a distinct model.
Involve swapping a US-produced component for a foreign-produced component.

The FCC has granted similar waivers for permissive changes to hardware in routers with existing authorizations that were subsequently placed on the Covered List.

‘Conditional Approval’

Producers of power inverters and advanced robotic devices on the Covered List may apply for Conditional Approval that would exempt the approved entity from Covered List restrictions. As with other devices that are included on the Covered List, entities seeking Conditional Approval for foreign-produced power inverters or advanced robotic devices must be prepared to provide information on the entity’s corporate and management structure, details regarding existing manufacturing and component supply chain, and a US manufacturing and onshoring plan.

What affected companies can do now

If your company manufactures, distributes or integrates these devices, you should consider the following immediate steps:

1. Audit your devices

Identify country of origin: Determine exactly where your current and future devices are manufactured. Under the new rule, even “American” brands may be affected if their physical production occurs in a foreign country.
Assess “foreign-produced” models: If only minor assembly of a product happens abroad, you may be able to demonstrate that it should not be on the Covered List.
Identify “previously authorized” models: Confirm which of your foreign-produced models already have an approved FCC ID. These can still be imported and sold. But consider whether permissive changes to hardware are or will be needed due to supply chain issues or end-of-life status.
Pipeline review: Any new models currently in development abroad will likely be blocked from the US market unless you obtain Conditional Approval or pivot your manufacturing strategy.

2. Apply for ‘Conditional Approval’

The FCC has provided a pathway for exemptions from the Covered List through the Department of War and DHS. To succeed, applicants should be prepared to provide:

Detailed background about company ownership and management.
A detailed bill of materials and country of origin for all components of each device for which Conditional Approval is sought.
A verifiable US manufacturing and onshoring plan that is time-bound, including expected capital expenditures and workforce deployment, and overseen by a dedicated officer.
Quarterly updates on the progress of bringing production to US soil.

3. Secure your legacy devices

Take advantage of the FCC Office of Engineering and Technology waiver for Class I and Class II permissive changes for previously authorized advanced robotic devices and power inverters to receive software and firmware updates to mitigate security harms. This waiver is currently set to expire on January 1, 2029. Ensure you have a plan to push security updates to existing foreign-made advanced robotic devices and power inverters before the waiver window potentially narrows or expires.
Consider filing a Petition for Waiver to permit Class I and Class II permissive changes to certain hardware that are, or are expected to become, subject to supply chain issues or end-of-life status.

4. Update certifications

Going forward, all applicants for FCC equipment authorization who have a product on the Covered List will need to self-certify, in good faith, that their device is not “covered equipment.” False certifications could lead to significant legal exposure and the revocation of existing authorizations.

Mailbox to Inbox: The SEC’s Proposed E-Delivery Rules and What Employers Need to Know Now

Wed, 29 Jul 2026 19:44:16 Z

Federal securities laws impose delivery obligations on companies in connection with director and executive incentive equity compensation programs – from Form S-8 prospectuses to equity award agreements and even tender offer materials. Now, those rules may change in a significant way. The Securities and Exchange Commission (SEC) recently proposed Regulation E-Delivery, a sweeping new rule that would dramatically expand the ability of issuers and others to satisfy information delivery requirements electronically.

That proposed regulation is the subject of a July 21 Cooley alert, and we encourage you to read that alert to understand the potential sweeping significance of the proposed rule. The purpose of this alert is to highlight some of the relief around electronic delivery that already applies in the employer-employee context pending final approval of the proposed Regulation E-Delivery rule in whatever form that might take.

How we got here

Many required regulatory disclosures and reports under the federal securities laws have long been delivered in paper format. As internet and email access began to expand in the 1990s, the SEC began issuing interpretive guidance that permitted electronic delivery in some circumstances, provided generally that the person with a right to receive the applicable disclosures and reports affirmatively consented to e-delivery. In a 2000 Interpretive Release, the SEC resisted calls to expand e-delivery opportunities first provided in 1995/1996 releases. For example, in 2000, the SEC expressly concluded that the time had not yet come for an “access-equals-delivery” model, where investors would be assumed to have access to the internet, thereby allowing delivery to be accomplished solely by an issuer posting a document on the issuer’s or a third party’s website.

At the same time, the SEC in those 1995/1996 releases recognized that special relief is appropriate in the employer-employee context. At the heart of that relief is how to demonstrate evidence of delivery, one of the three elements of satisfactory electronic delivery in the current framework (along with notice and access). The 1995 release (Securities Act Release No. 7233 (Oct. 6, 1995)) provided that one method for satisfying the evidence-of-delivery element is to obtain an informed consent from an investor to receive information through a particular electronic medium. The 1996 release (Securities Act Release No. 7288 (May 9, 1996)) then provided that an issuer could presume consent to electronic delivery by employee-security holders who use the electronic mail system “in the ordinary course of performing their duties and ordinarily are expected to log-on to electronic mail routinely to receive mail and communications.”

What this looks like in practice: Equity incentive plans and Form S-8

One critical example of where this relief is in play are the following e-delivery rules presently applicable to employers awarding grants under equity incentive plans in reliance on an S-8 registration statement based on the guidance from the 1995/1996 releases:

Presumed consent; access. As noted above, an employer generally may presume consent to e-delivery by employees who are regular email users or, for those who are not regular email users, are able to receive e-delivery via other means, such as through administrative assistants or co-workers. However, the email must prominently state that a paper copy is available upon request, and the employer must in fact make paper copies available to any employee who asks.
Former employees. Because of an expectation that former employees and service providers no longer have routine workplace access, former employees and service providers must provide informed consent to e-delivery.
Form of delivery. The applicable materials can be attached to the e-delivery vehicle (for instance as attachments to an email) or, where documents are not directly attached , the e-delivery must provide employees and service providers with the information necessary to easily locate and retrieve them (g., directions for accessing them through the company’s local area network or a third-party provider’s equity program portal). The access medium must “not be so burdensome that intended recipients cannot effectively access the information provided,” and recipients must have the opportunity to retain the documents or have ongoing access equivalent to personal retention.

The employer-employee relief is not limited to S-8 circumstances, however, and it can prove very useful in other employee compensation circumstances as well, such as issuer tender offers.

What now: What’s next?

Proposed Regulation E-Delivery will likely establish new, uniform standards for electronic delivery of securities disclosures and reports – including the 10(a) prospectus under Form S-8. But the finish line is not here yet. In the meantime, compliance obligations under the current framework are fully effective, and the employer-employee e-delivery relief described above is available to use right now. Taking full advantage of existing relief requires attention to the details.

The applicable requirements are numerous and include rules that are easy to overlook –proper legending, maintaining a file of all prospectus materials for at least five years after they were last used, and the delivery rules that are the focus of this alert. Gaps in any of these areas can result in adverse consequences for your company and your employees, and the SEC’s rule proposal is a timely reminder that employers should be aware of the obligations and monitoring compliance with them on an ongoing basis. Cooley’s compensation and benefits group is ready to help you assess your current practices, close any gaps and position your program for the changes ahead. Reach out to your Cooley contact to get started.

Quantum Computing EOs Create Immediate Compliance Deadlines, New Federal Partnership Opportunities

Wed, 29 Jul 2026 19:37:54 Z

On June 22, 2026, President Donald Trump signed two executive orders (EOs) that make quantum computing a concrete compliance and business reality for critical infrastructure operators, federal agencies, federal contractors and quantum technology companies. The first order focuses on the threats posed by a quantum future and sets hard deadlines for migrating federal systems and contractor operations to post-quantum cryptography (PQC), with initial agency steps due by late July 2026. The second order launches a coordinated federal push to develop the most advanced quantum technologies in the world, creating significant partnership opportunities for the private sector.

This alert summarizes the key provisions, deadlines and action items arising from these orders. In light of the growing importance of quantum computing to organizations’ cybersecurity, privacy and data regulatory concerns, Cooley’s cyber/data/privacy practice will be publishing an ongoing series of alerts to keep you informed about what’s to come.

Overview: Two orders, two missions

Executive Order 14412, titled “Securing the Nation Against Advanced Cryptographic Attacks” (Defensive Order), focuses on US defense and preparedness against the threats posed by quantum computing. It responds to a threat that the Trump administration understands to already be materializing: Adversaries are collecting sensitive encrypted data today with the intention of decrypting it later, once large-scale quantum computers are operational. This “harvest now, decrypt later” strategy means the window for action is defined not by when quantum computers arrive, but by when organizations complete their migrations to quantum-resilient safeguards. Experts have been aware of this attack strategy for some time, since the algorithms underlying the widespread distribution of public key cryptography (such as RSA and elliptic curve) produce output using mathematical computations that make that output feasible to decryption in a reasonable period of time with quantum technology. To counter this, the Defensive Order mandates a government-wide transition to post-quantum cryptography (PQC), meaning encryption algorithms specifically designed to withstand attacks by both quantum computers and the classical computers in use today. Federal contractors and critical infrastructure operators, as defined under the USA PATRIOT Act, are squarely in scope.

Executive Order 14413, titled “Ushering In the Next Frontier of Quantum Innovation” (Innovation Order), focuses on US innovation and achieving primacy in the quantum technology space. It directs a whole-of-government effort to:

Develop a quantum computer capable of scientific discoveries beyond anything currently possible on a classical computer.
Accelerate quantum sensing and networking capabilities.
Strengthen domestic supply chains for quantum hardware and components.
Grow a trained US quantum workforce.
Entrench US global leadership in quantum technology.

The Innovation Order also serves as a call to the private sector, signaling the federal government actively seeks industry partners.

Immediate deadlines for federal agencies

For federal agencies, the deadlines in the Defensive Order begin almost immediately. Within 30 days of its release, or by July 22, 2026, every agency head must designate a PQC migration lead, meaning an employee who will be responsible for overseeing the agency’s cryptographic inventory, developing a prioritized migration plan and coordinating across the government, and will report to the agency’s chief information officer. Within 90 days, or by September 20, 2026, the Office of Management and Budget must issue guidance requiring agencies to review their inventories of their high- value assets and high-impact systems and submit plans to transition them, with firm completion targets:

All high-value assets and high-impact systems must use PQC for key establishment purposes (i.e., the creation of a shared encryption key for communication between different systems) by December 31, 2030.
All high-value assets and high-impact systems must use PQC for digital signature purposes (i.e., for verifying the authenticity and integrity of data) by December 31, 2031.

A NIST-led pilot migration on a subset of its own systems must begin within 180 days and be complete by December 31, 2027, providing a model for agencies to follow.

Implications for federal contractors

Federal contractors are not exempt. The Defensive Order requires the Federal Acquisition Regulatory Council, within 180 days, to publish a proposed rule requiring federal contractors to comply with post-quantum cryptography standards by December 31, 2030. A separate proposed rule, due within 270 days, would require federal contractors to maintain vulnerability disclosure programs and incorporate reports of cryptographic vulnerabilities into such programs, including the use of encryption methods that do not meet federal standards.

These proposed rules are not yet final but will be soon. Federal contractors that begin cryptographic inventories now – cataloging what systems they run, what encryption they rely on and where their gaps are – will be far better positioned than those who wait for the rules to be proposed and finalized.

Implications for critical infrastructure operators

The Defensive Order extends to operators of critical infrastructure across sectors including energy, water, transportation, healthcare and financial services. The federal agencies that oversee each of these sectors are required to assist operators in developing PQC migration plans. If you operate critical infrastructure, expect outreach from your sector’s federal oversight agency. Engaging proactively now will put you ahead of that process.

Implications for quantum technology companies

For companies in the quantum technology space, the Innovation Order signals substantial federal investment and partnership opportunities. The Innovation Order directs agencies to explore advance market commitments and use prize challenges to encourage private-sector participation in building next-generation quantum computers, quantum sensors and quantum networks, as well as in developing domestic supply chains for quantum-enabling components. Companies should monitor the National Quantum Strategy update due within 180 days of the Innovation Order, which will define the specific areas of federal focus and map where the partnership opportunities will be.

The Innovation Order also carries a cautionary note for quantum technology companies. The federal government intends to work with international allies to tighten restrictions on the export of quantum-enabling technologies to countries of concern and harmonize research security policies across allied nations to prevent adversarial actors from gaining access to critical quantum technology through research partnerships or other channels. For quantum technology companies, this signals that export control compliance in this space is likely to become more demanding, and that existing research collaborations with foreign universities, institutions or individuals may warrant a closer look.

Looking ahead

These EOs mark a turning point: Quantum computing is no longer a future concern but a present compliance and strategic priority. Whether your organization faces new migration obligations or stands to benefit from federal quantum investment, prompt attention to these orders is essential. Watch for the next installment in our quantum computing series, which will break down key quantum computing concepts, contextualize these orders and help enterprises and their leaders prepare for what comes next. If you have questions about either of these orders or any other quantum computing issues, please contact the Cooley cyber/data/privacy practice.

FCC Expands Restrictions on Covered List Equipment and Supply Chains

Wed, 29 Jul 2026 07:00:00 Z

The Federal Communications Commission (FCC) has adopted changes to its equipment authorization rules aimed at strengthening the security of the communications supply chain.

Building on its previous actions, the new Order expands the scope of its equipment authorization rules beyond retail products to include certain internal hardware components produced by entities prohibited from selling their products in the US because they create national security risks. (The list of these entities is known as the Covered List.) The Order also imposes new obligations on online marketplaces selling FCC-regulated devices, including requiring certain online marketplaces to display FCC IDs for certified equipment at the point of sale, subject to limitations and differentiated standards, in addition to other certification requirements for equipment modifications.

Logic-bearing hardware components

The Order closes what the FCC describes as the “component part loophole.” Until now, the FCC restricted the sale of retail products manufactured by named entities specifically named on the Covered List but did not restrict products manufactured with parts made by those entities. Under the new rules, devices incorporating “logic-bearing hardware components” produced by Covered List entities also become ineligible for FCC equipment authorization if the finished device itself would have been prohibited had it been manufactured by the Covered List entity. The FCC concluded that these components present national security risks and could permit unauthorized access, data collection or other malicious activity if they are incorporated into completed products sold in the US.

To implement this new rule, the FCC adopted a definition of “logic-bearing hardware component” that encompasses nearly all hardware capable of performing digital processing functions, including devices, modules, integrated circuits and other physical components that generate and use radio frequency energy to perform data processing functions, but does not include software and firmware at this time. Thus, manufacturers, importers and other companies seeking FCC equipment authorization will need to focus on their supply chains to determine whether logic-bearing hardware components made by entities on the Covered List are used in their products.

New online marketplace requirements

The Order applies the FCC’s marketing rules to online marketplaces that list, distribute or offer regulated equipment for sale. The FCC also concludes that online marketplaces are engaged in “marketing” when they list third-party products, even if they do not take title to those particular products. In that context, the Order requires online marketplaces to display FCC IDs at the online point of sale for devices subject to FCC certification, which generally are products that use radio waves to communicate with other devices. While the FCC’s definition of “online marketplace” is limited to websites that accommodate third-party sellers, the Order seems to apply the rules both to entities that sell products directly to customers and to online marketplaces that provide a platform for third-party sellers.

For listings subject to the rule, the specific requirements depend on the marketplace’s role in the transaction. Notably, if the marketplace sells the device itself, takes title to a third party’s device, or has physical access to the device through warehousing, fulfillment, consignment or shipping, the Order requires display of an FCC ID that is both valid and accurate for the listed product. If, however, a marketplace hosts a third-party listing but does not take title to or have physical access to the device, the marketplace must display a valid FCC ID, take reasonable steps to confirm that the ID is valid in the FCC’s database, and require the seller to certify the accuracy of the information. Marketplace operators are not required to provide FCC IDs for products sold by third-party sellers that are not “high-volume third-party sellers” or for listings for used devices. These new rules take effect six months after Federal Register publication for marketplaces that sell, take title to or physically handle devices, and nine months after publication for qualifying third-party listings where the marketplace does not take title.

Modifications to equipment manufactured by Covered List entities

The FCC adopted new restrictions on modifications to authorized equipment manufactured by Covered List entities. Going forward, any modification or permissive change performed by a Covered List entity must undergo full FCC certification, even if the underlying product was authorized through the Supplier’s Declaration of Conformity (SDoC) process, which covers products that emit radio waves but do not communicate with other devices. In addition, previously authorized equipment cannot later be modified in a manner that causes it to become covered equipment.

FCC considering additional changes

The Further Notice of Proposed Rulemaking signals additional changes that may be on the horizon. Among other proposals, the FCC seeks comment on requiring hardware and software bills of materials to be provided with equipment applications, expanding component restrictions to software and firmware, requiring certification for additional categories of devices, strengthening import restrictions, establishing expiration dates for equipment authorizations, and codifying permanent exceptions allowing software and firmware updates for previously authorized covered equipment in certain circumstances. These developments continue to reflect the FCC’s shift toward regulating the full communications equipment supply chain rather than focusing solely on finished products. The FCC also seeks comment on whether it should expand the rules to require online marketplaces to collect, verify or display information related to approvals through the SDoC.

Companies involved in the design, manufacture or sale of FCC-regulated equipment should evaluate whether their existing compliance programs adequately address the FCC's expanding supply chain requirements. Companies that will be affected should consider filing comments, as many of the FCC’s proposals could expand compliance obligations for both manufacturers and retailers.

If you have any questions about the Order or how it may impact your company, please contact the following Cooley communications attorneys:

Cooley Submits Comments on DFPI’s Proposed Rulemaking Under California’s VC Diversity Reporting Law

Thu, 23 Jul 2026 16:35:05 Z

Cooley recently submitted a formal comment letter to the California Department of Financial Protection and Innovation (DFPI), in response to the agency’s invitation for comments on proposed rulemaking under the Fair Investment Practices by Venture Capital Companies Law (FIPVCC).

The letter urges the DFPI to use the rulemaking process to resolve critical ambiguities in the FIPVCC and establish a workable compliance framework for the venture capital industry. Key recommendations include narrowing the “covered entity” definition with clear nexus standards, permitting consolidated reporting by controlling entities to reduce duplicative obligations, limiting the scope of reportable investments, excluding foreign investments from surveying and reporting obligations, allowing use of third-party platforms and substantively equivalent survey and reporting forms, and strengthening confidentiality and anonymization protections for firms and founders. These comments build on a March 2026 letter in which Cooley separately requested regulatory guidance on consolidated reporting, registration obligations and the scope of the survey distribution requirement.

Cooley also recommended that the DFPI maintain its current suspension of implementation and enforcement until the pending constitutional challenge filed in the US District Court for the Eastern District of California (1517 Management Company, LLC, et al. v. Mohseni, No. 2:26-cv-01957) is resolved. Following Cooley’s submission, the parties filed (and the court granted) a joint stipulation to extend the response deadline to July 31, 2026, to allow time for an anticipated joint motion to stay all deadlines and proceedings in the litigation, pending the DFPI’s issuance of final rules.

Cooley will continue to monitor the rulemaking, engage with the DFPI on behalf of our clients and assist clients in assessing their obligations under the FIPVCC.

From Opt In to Opt Out: SEC Proposes Electronic Delivery as Default for Required Disclosures

Wed, 22 Jul 2026 21:50:00 Z

On July 16, 2026, the Securities and Exchange Commission (SEC) voted to propose Regulation E-Delivery, a sweeping new framework that would make electronic delivery the default method for satisfying required disclosure delivery obligations under the federal securities laws. Under the proposal, covered entities, including issuers, broker-dealers, investment advisers, investment companies and other market participants, could deliver regulatory documents electronically without first obtaining each recipient’s affirmative consent. This marks a fundamental shift from the current framework, which has required investors and other recipients to opt in for electronic delivery and has otherwise defaulted to paper.

New default electronic delivery framework

The proposal would replace the SEC’s decades-old, guidance-based approach with a uniform rule establishing clear conditions for default electronic delivery. A covered entity could rely on Regulation E-Delivery where:

The recipient has provided an electronic address.
The entity has given the recipient prominent advance disclosure that covered information will be sent electronically.
The recipient has not opted out.

Importantly, Regulation E-Delivery is not a blanket rule. It would permit but not require electronic delivery. A covered entity may rely on it only where those conditions are satisfied, and it does not permit a blanket shift of all investors and other recipients to electronic delivery regardless of circumstances.

Methods of electronic delivery

The proposal provides two permissible methods of electronic delivery. For covered information that does not include personal financial information, a covered entity may deliver materials directly to the recipient’s electronic address; for example, as an email attachment or embedded document. For covered information that does include personal financial information, however, direct delivery is not permitted; instead, the covered entity must send a statement of availability directing the recipient to a secure website where the materials can be accessed. Covered entities may also elect to use the statement of availability method for materials that do not contain personal financial information.

Key investor protections

Covered recipients would retain the right to receive paper copies free of charge at any time. Investors currently receiving paper communications would receive two paper transition notices before being moved to electronic delivery, an initial notice at least 180 days before the transition and a follow-up notice approximately 30 days before.

Transition period

If adopted, the rule’s effective date would be 60 days after publication of the final rule in the Federal Register, with a two-year transition period before the current guidance-based framework is rescinded. The comment period will be open for 60 days following publication of the proposing release in the Federal Register, with comments due on or before September 21, 2026. The SEC has invited comment on several implementation aspects of the proposal, including the transition timeline, the mechanics of paper notice requirements and the framework’s treatment of recipients who prefer to continue receiving paper materials.

Impact on proxy season

For public companies, the proposal’s most immediate practical impact falls on the annual proxy process. Transitions to default electronic delivery of proxy statements and annual meeting materials could meaningfully reduce printing and mailing costs and lessen the administrative burden associated with annual meeting preparation.

Current delivery framework

Currently, issuers may satisfy proxy delivery obligations either by mailing a full set of proxy materials (on paper or electronically, for shareholders who previously opted in) or by using the SEC’s notice-and-access model, under which shareholders receive a paper Notice of Internet Availability directing them to proxy materials posted online.

Replacing the paper notice

The proposal would eliminate the paper Notice of Internet Availability as a stand-alone delivery method. In its place, shareholders with an electronic address who have not opted out would receive an electronic statement of availability, delivered to their electronic address and including a direct link to the proxy materials posted online. Shareholders would retain the right to opt out and receive a full paper set of materials at any time.

Related amendments to Exchange Act Rule 14a-16

The proposed changes to Rule 14a-16 under the Securities Exchange Act of 1934, as amended (Exchange Act), would also eliminate the long-standing 40-calendar-day e-proxy deadline. Because that deadline was specifically designed to give shareholders sufficient time to receive the paper notice, request paper copies of the materials, if desired, and review the proxy materials prior to executing a proxy, its removal follows naturally from the elimination of the paper notice itself. The proposal would also extend the electronic delivery framework to business combination proxy solicitations, which have historically required delivery of a full paper set of materials.

Additional amendments

In addition to establishing the new default delivery framework, the proposal would rescind Rule 30e-3 under the Investment Company Act, which currently provides registered investment companies with an alternative means to satisfy shareholder report transmission requirements. The proposal would also amend the rules governing the dissemination of tender offer materials in Rule 14d-5 under the Exchange Act. The SEC has noted that the proposal is intended to reduce unnecessary printing and mailing costs while providing investors with more timely, accessible and interactive disclosures that better reflect current communication practices.

***

Regulation E-Delivery is part of a broader pattern in the SEC’s current regulatory agenda: revisiting existing rules and guidance to give issuers and market participants greater flexibility to disclose and disseminate material information in real time, while maintaining the investor protection principles that underpin the existing federal securities framework.¹

Cooley’s corporate governance and securities regulation attorneys are available to discuss these issues with you.

Notes

This approach is further illustrated by two Corporation Finance Interpretations issued by the SEC’s Division of Corporation Finance in July 2026 (CFIs 104.03 and 131.04), which expanded the methods available to bidders for disseminating tender offer materials at commencement. Under the updated guidance, bidders in all-cash and exempt securities issuer and third-party tender offers that are not going-private transactions may satisfy the commencement dissemination requirement by issuing a press release through a widely disseminated news or wire service that contains a hyperlink to the full offer materials, in lieu of a summary newspaper advertisement or a mailing to shareholders. A bidder relying on this method must still mail by first-class mail, or otherwise furnish with reasonable promptness, its offer materials to any shareholder who requests them.

Seventh Circuit Holds Texts Not ‘Telephone Calls’ Under Key TCPA Provision

Wed, 22 Jul 2026 18:06:00 Z

On July 14, 2026, the US Court of Appeals for the Seventh Circuit decided Steidinger v. Blackstone Medical Services, holding that text messages “do not fall within the private right of action created by § 227(c)(5),” an important and heavily litigated provision of the federal Telephone Consumer Protection Act (TCPA).¹ Section 227(c)(5) creates a private right of action for individuals “who ha[ve] received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of the regulations prescribed under [§ 227(c)].”² Those regulations include the Federal Communication Commission’s rules establishing the National Do-Not-Call Registry and requiring entities to maintain internal do-not-call lists.³

The Steidinger complaint alleged that class members received marketing texts from Blackstone Medical Services urging them to purchase home sleep tests. The plaintiffs claimed to have received these messages even after indicating they did not want to be contacted, including by replying “STOP” or registering on the National Do-Not-Call Registry.

The appeal turned on a single issue: whether texts are “telephone calls” within the meaning of § 227(c)(5). Beginning with the statutory text and applying the ordinary meaning of the term at the time of the TCPA’s 1991 enactment, the court observed that a “telephone” was then defined as an instrument for reproducing sounds at a distance, and a “call” meant communicating with someone by telephone. Because text messages do not reproduce sounds, the court concluded, they do not qualify as a “telephone call.” It further reasoned that the surrounding provisions of § 227(c) – which consistently use the broader term “telephone solicitation” when referring to communications that include non-voice messages – reinforce this reading. That is, the court presumed Congress used the narrower term “call” in § 227(c)(5) deliberately, given the alternative of “solicitation.” The Seventh Circuit affirmed the district court’s dismissal.

Why this ruling matters

The TCPA is a heavily litigated statute. It provides for statutory damages of $500 to $1,500 per violation, so even modest-sized class actions can present millions of dollars in exposure. Defendants frequently face pressure to settle even meritless cases due to the litigation costs and substantial damages potential.

Steidinger meaningfully changes the calculus. Because § 227(c)(5) is now confined to voice calls in the Seventh Circuit, text-based suits brought under this specific TCPA provision will no longer be viable in Illinois, Indiana and Wisconsin. For companies facing class action exposure under § 227(c)(5), this ruling eliminates a significant category of federal claims. The decision is also powerful persuasive authority for litigants in courts outside the Seventh Circuit. However, as discussed below, companies that communicate with customers via text remain subject to other TCPA provisions and to state telemarketing laws – including laws in the Seventh Circuit states that expressly apply their do-not-call rules to text messages.

Caveats

Several limitations are noteworthy. First and most importantly, Steidinger is binding only in the Seventh Circuit. Companies operating nationally should not assume text-message TCPA exposure has been eliminated.

Second, other circuits have reached the opposite conclusion. For example, in Howard v. Republican National Committee, decided in January 2026, the Ninth Circuit held that texts do constitute “calls” within the meaning of the TCPA, relying on agency interpretations and statutory context.⁴ The Seventh Circuit in Steidinger expressly acknowledged other circuits’ contrary holdings, including those from the First, Second, Ninth (Howard) and Eleventh Circuits, but declined to follow them.

Third, Steidinger addressed only the private right of action under § 227(c)(5) for violations of the do-not-call rules. The decision did not reach the separate TCPA provisions that prohibit nonconsensual autodialed calls to cell phone numbers.⁵ The FCC and many courts have interpreted those provisions to cover text messages, and that interpretation – while potentially vulnerable to challenge under the same textualist logic the Seventh Circuit applied in Steidinger – technically has not been disturbed. For the time being, § 227(b)’s autodialer rules remain a potential source of text-message litigation even in the Seventh Circuit. Companies should continue to maintain robust TCPA compliance programs addressing all applicable provisions of the statute.

Fourth, telemarketing laws in the Seventh Circuit states independently regulate text messages. For example, Indiana’s Telephone Solicitation of Consumers Act expressly defines “telephone sales call” to include the transmission of text messages via SMS and multimedia messages via MMS.⁶ Wisconsin’s telephone solicitation statute similarly defines “telephone solicitation” to include “the unsolicited initiation of a telephone conversation or text message” for commercial purposes,⁷ and the implementing regulations (ATCP 127.80(12)) separately define “text message” to include SMS and similar electronic communications. Both states prohibit solicitation texts to numbers on their state do-not-call registries. These state-law obligations operate independently of the federal TCPA, and Steidinger does not affect them.

What’s next?

Steidinger is powerful new authority for companies that use text messages to communicate with their customers. Looking ahead, this question may be a candidate for US Supreme Court review, given the growing split among circuit courts considering this issue. In the meantime, companies should not treat this ruling as blanket protection for their text messaging programs and should continue to carefully evaluate their compliance obligations under federal and state law.

Notes

__ F.4th __, 2026 WL 2028517, at *5 (7th Cir. July 14, 2026).
47 USC § 227(c)(5).
See 47 CFR § 64.1200(c)-(d).
164 F.4th 1119, 1123–25 (9th Cir. 2026).
See 47 USC § 227(b)(1)(A)(iii).
Ind. Code § 24-4.7-2-9(b).
Wis. Stat. § 100.52(1)(i).

FTC Secures Record $12 Million Penalty for HSR Violation

Wed, 22 Jul 2026 13:07:14 Z

FTC takes aim at deal structures that avoid HSR filing obligations

On July 13, 2026, the Federal Trade Commission (FTC) announced that Edwards Lifesciences and Genesis MedTech Group agreed to pay a combined civil penalty of $12 million to settle allegations that they intentionally structured Edwards’ acquisition of JC Medical, a subsidiary of Genesis, to avoid premerger reporting requirements under the Hart-Scott-Rodino (HSR) Act, a “device in avoidance.” The settlement is the largest civil penalty ever imposed for failure to file an HSR notification.

This enforcement action appears to have grown out of the FTC’s earlier substantive investigation into Edwards’ proposed acquisition of JenaValve Technology, which the FTC alleged was the only other company besides JC Medical that was, at the time, conducting US clinical trials for transcatheter aortic valve replacement for aortic regurgitation (TAVR-AR) devices. Edwards announced the JenaValve acquisition the day after closing the JC Medical acquisition. The FTC successfully sought a preliminary injunction blocking the JenaValve deal in January 2026, shortly after which Edwards abandoned the deal.

The Edwards/Genesis complaint centered on two contemporaneous transactions between Edwards and Genesis: a $115 million acquisition for JC Medical voting securities and a $25 million investment in nonvoting securities of Genesis, which, if both counted toward the size of transaction, would have been over the then-applicable threshold. The FTC alleged that the parties’ internal documents “made clear that both [payments] were part of a single transaction.” The complaint also cited an email in which Edwards reportedly described such two-tiered deal structure as “below the threshold! Intentional[.]”

While device-in-avoidance enforcement actions are rare (only two in this century), the Edwards/Genesis settlement may be part of a larger agency push to rein in deal structures that result in transactions not requiring filings, especially acquihires, which have become more common in the AI space.

FTC alleged payment for nonvoting securities of Genesis was really consideration for acquisition of JC Medical

On July 22, 2024, Edwards acquired JC Medical from Genesis by purchasing all voting shares of JC Medical for $115 million, plus contingent milestone payments. Concurrently, Edwards committed to a separate $25 million investment in nonvoting shares of the parent company, Genesis, which closed on August 9, 2024. Taken individually, the $115 million subsidiary purchase fell below the then-applicable $119.5 million HSR size-of-transaction threshold, and the $25 million parent investment involved nonvoting equity. Under standard HSR aggregation rules, two purchases from the same ultimate parent entity are aggregated if the acquiring person is purchasing voting securities or assets in both instances. However, because the $25 million investment in Genesis involved nonvoting securities, the consideration paid for such shares was excluded from the size-of-transaction calculation under the HSR Act. Consequently, the transactions closed without premerger HSR notifications.

The FTC alleged that the $25 million nonvoting investment in Genesis was “intended [… ] to be additional compensation to Genesis for the sale of JC Medical to Edwards,” and, when combined with the $115 million acquisition price, would have resulted in total consideration of $140 million, exceeding the then-applicable $119.5 million threshold and triggering an HSR filing obligation. The FTC pointed to the parties’ internal documents indicating that the split payment structure was not reached for independent commercial reasons. Per the preliminary injunction opinion from the related JenaValve litigation, after Edwards internally flagged an “H[SR] concern” with its offer, JC Medical’s then-CEO proposed that “‘[if] the HSR component [wa]s a no-go for the deal structure,’ Edwards could close the valuation gap by making a separate investment in Genesis” rather than by increasing the stated acquisition price.

The FTC challenged the transaction as a “device in avoidance” under 16 CFR § 801.90 (Rule 801.90), which provides that “[a]ny transaction(s) or other device(s) entered into or employed for the purpose of avoiding the obligation to comply with the requirements of the [HSR Act] shall be disregarded, and the obligation to comply shall be determined by applying the [HSR Act] and these rules to the substance of the transaction.”

Edwards/Genesis is particularly noteworthy because the antitrust agencies rarely invoke Rule 801.90 in enforcement actions. Indeed, before Edwards/Genesis, the enforcement action against Canon/Toshiba, settled on June 10, 2019, was the only civil penalty case in the 21st century invoking the anti-evasion rule.

In Canon/Toshiba, Toshiba transferred all voting shares in Toshiba Medical Systems Corporation (TMSC), a subsidiary of Toshiba, to a newly created special purpose vehicle (SPV) for nominal consideration. Simultaneously, Canon purchased the only nonvoting share in TMSC – coupled with options to purchase all voting shares from the SPV for nominal consideration – for $6.1 billion. The complaint alleged that, despite the nonvoting nature of the share acquired by Canon, the terms of this single-share-plus-options package effectively transferred full beneficial ownership and economic interest in TMSC to Canon. The FTC alleged that such structure was designed to allow Toshiba to recognize the $6.1 billion sale proceeds before its fiscal year-end without observing the HSR waiting period. To settle the allegations, Canon and Toshiba each paid a $2.5 million civil penalty ($5 million combined).

Edwards/Genesis is also notable because the allegations involve consideration attributed to nonvoting securities, which is a feature of recent acquihire structures, often involving an acquisition of nonvoting securities and a nonexclusive license to intellectual property, both of which are traditionally considered not reportable.

Record fine levied against buyer and seller, plus five-year notice requirement

The proposed settlement requires Edwards to pay $10 million and Genesis to pay $2 million. The combined $12 million is the largest civil penalty ever imposed for failure to make an HSR filing. The penalty is notable in part because civil penalties are more commonly imposed on acquirers; requiring a seller to pay is less common, though not unprecedented (e.g., Canon/Toshiba split the $5 million penalty equally between buyer and seller).

The $12 million penalty is a relatively small fraction of the theoretical maximum exposure. The government alleged that the parties were in violation of the HSR Act for 721 days beginning July 22, 2024. At the current maximum penalty of $53,088 per day per defendant, the government could have sought approximately $38 million from each party, or roughly $77 million combined. The $12 million settlement thus represents approximately 16% of the maximum.

In addition to the monetary penalty, the proposed judgment requires Edwards, for a period of five years, to provide at least 30 days’ advance written notice to the FTC before acquiring any interest in any firm that commercially sells, is conducting US clinical trials for, or holds a US Food and Drug Administration Investigational Device Exemption for a TAVR-AR device, regardless of whether such an acquisition would otherwise require an HSR filing. Edwards must also implement an antitrust compliance program, including designation of a compliance officer and annual certifications from relevant personnel. The five-year term is two years longer than the three-year term imposed in the Canon/Toshiba judgment.

What this means for dealmakers

The HSR rules elevate substance over form, and fewer bright lines remain. Edwards/Genesis shows that the antitrust agencies are prepared to look past the formal structure of related payments – including payments characterized as a nonvoting equity investment in the seller parent – to assess whether, in substance, they constitute integrated consideration for one acquisition.
Internal documents and deal communications carry significant weight. The FTC’s complaint relied heavily on how the transaction was discussed internally and in negotiations, not only on how it was documented in the final agreements. Emails, board presentations and deal correspondence that reference the HSR threshold in connection with pricing decisions, including discussions about structuring around the threshold, may be used to establish the purpose of a transaction structure under Rule 801.90.
The FTC’s skepticism of nonvoting securities as consideration may have implications for acquihires and other nontraditional structures. The FTC under the Trump administration has expressed concerns about transactions being structured to avoid HSR filings. For example, Chairman Andrew Ferguson has said that the agency is examining acquihires, particularly in AI, for potential HSR evasion and substantive antitrust concerns, and may issue additional guidance. Similarly, Commissioner Mark Meador has warned companies against acquihire structures that are deliberately “designed to fall below premerger notification thresholds” to “limit[] the opportunity for advance [agency] review,” emphasizing the importance for the agency to “look past formal transaction labels and assess whether a deal, however packaged, forecloses competition and constrains access to the specialized talent on which dynamic markets depend.” To address these concerns, the FTC issued a Request for Public Comment, seeking input on whether to formally extend HSR coverage to “non-traditional transaction structures,” including acquihires and convertible security transactions. Edwards/Genesis may be part of this initiative, offering a real-time example of how parties have allegedly attempted to structure transactions to avoid HSR filings.
Buyers and sellers can each be on the hook for civil penalties. Both buyers and sellers have independent HSR filing obligations and can each face civil penalties for structures that the government deems to violate the HSR Act. The $2 million penalty against Genesis illustrates that sell-side exposure is real. Sell-side counsel should conduct an independent HSR analysis and should not rely solely on the buyer’s threshold determination, particularly where the deal structure involves payments to the seller or its affiliates that are structured separately from the stated acquisition price.

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.