Business Vantage Point Blog

Stock options can be an important component of total rewards packages. For private companies, equity grants can be used to attract and retain qualified employees, consultants and directors by offering the potential for significant appreciation in the value of their awards and to align the interests of the company’s service providers with those of its shareholders and investors. Equity grants can also improve service provider productivity, resulting in increased company value, and preserve capital by paying less in cash compensation. Ensuring a stock option process is correct from the start is simpler — and cheaper — than fixing mistakes later. Adopting any equity compensation plan, including a stock option plan, is subject to applicable state laws and a company’s foundational documents, e.g., the corporate charter and bylaws. Typically, a company’s board of directors is empowered to adopt a stock option plan, and a plan is deemed adopted when it is approved by the board of directors, unless the board’s approval is subject to the occurrence of a subsequent event. For more on delegating grantmaking authority under an equity compensation plan, see our previous blog post. The Two Categories of Stock Options: ISOs and NQSOs Stock options fall into two categories: incentive stock options (ISOs) and nonqualified stock options (NQSOs). ISOs provide employees with more favorable tax treatment than NQSOs. An individual who exercises an NQSO must pay ordinary income taxes on the excess of the fair market value of the underlying shares on exercise over the exercise price (the spread). However, ISOs are not subject to ordinary income taxes if the shares are held for both (1) one year from the date of exercise and (2) two years from the grant date. An employee incurs no income tax at the grant or upon the exercise of an ISO (although the spread is a tax adjustment item for purposes of calculating alternative minimum tax), and the profit (if any) made on the sale of the shares is taxed as a long-term capital gain. As with ISOs, there is no tax at the grant of an NQSO. However, when an NQSO is exercised, ordinary income is recognized in an amount equal to the spread. When the shares are subsequently sold, there is a capital gain or loss on the difference between the sale price and the sum of the exercise price paid, plus the ordinary income recognized on exercise. Whether it is a long-term or short-term gain or loss depends on how long the shares are held. What Conditions Must a Plan Meet for ISO Grants? In order to be treated as an ISO under Section 422 of the Internal Revenue Code, and to therefore be subject to favorable tax treatment, the plan under which the ISO is granted must meet the following conditions. (Note: The terms of the ISO itself must also meet additional requirements.) Conditions: The plan must designate the maximum aggregate number of shares that may be issued under the plan through ISOs. A plan that merely provides that the number of shares that may be issued as ISOs under the plan may not exceed a stated percentage of the shares outstanding at the time of each offering or grant under such plan does not satisfy this requirement. The plan must also specify the employees or class of employees who are eligible to participate in the plan. The shareholders of the company must approve the stock option plan within 12 months before or after the date the plan is adopted. Shareholder approval must comply with all applicable provisions of the corporate charter, bylaws and applicable state law(s) prescribing the method and degree of stockholder approval required for the issuance of corporate stock or options. If state law does not prescribe a method and degree of stockholder approval in such cases, an equity plan that purports to include ISOs must be approved by either:A majority of the votes cast at a duly held stockholders’ meeting at which a quorum representing a majority of all outstanding voting stock is present and voting (either in person or by proxy). A method and degree adequate under state law for actions requiring stockholder approval. If any of the above conditions are not satisfied with respect to the plan, then any options granted pursuant to such plan will be treated as NQSOs.

Delaware limited liability companies (LLCs) offer unparalleled contractual flexibility, which can be a significant advantage for founders, investors and other business owners who want to tailor rights, whether economic or governance-related, to the specific deal terms agreed upon by the parties. This flexibility, however, can create risk if the LLC agreement gives one group of members broad powers to amend the LLC agreement without express limitations that protect the other affected members. Why Amendment Provisions Are Important in Delaware LLC Agreements An LLC agreement (or operating agreement) is the primary document governing the relationship of a limited liability company’s owners or members. It provides a roadmap for both economics and decision-making among the parties. Among other provisions, a Delaware LLC agreement typically addresses who has the right to approve fundamental decisions, the requisite threshold for taking such fundamental actions, the different voting rights among classes of members and how the LLC agreement can be amended and by whom. Delaware law allows LLC agreements to provide for varying classes or groups of members, unequal voting rights and specific amendment procedures, but the express language of the LLC agreement is what matters most. Under Delaware LLC  law, most provisions of the statute default to the LLC agreement as being the final word on how the LLC will operate. For example, a typical provision of the LLC law will state that “unless the LLC Agreement provides otherwise ….” As such, a broad, vague, or incomplete provision providing for the vote or consent required to amend the agreement or specific sections thereof could lead to major disputes among the members about what actions the company can or cannot take or the validity of such actions, particularly those that materially differ from the core business bargain that was previously negotiated among the members. When the parties rely on a very general amendment clause, e.g., “This agreement may be amended by majority vote,” there may still be specific key provisions that deserve more scrutiny as to whether a supermajority, class or series vote would be more appropriate to protect the rights of individual members or a particular class or series of ownership. Such provisions may include: Distribution priorities. Class voting rights. Approval thresholds for major decisions. Management rights. Exit rights. Transfer restrictions. Drag-along or tag-along rights. Capital contribution obligations. The problem is not that majority rule is always inappropriate. The problem is that failing to distinguish the approval threshold for routine amendments from the approval threshold for amendments could materially adversely impact certain parties. A recent Delaware Court of Chancery decision, Lehr v. Aspen Power Partners LLC, underscores why LLC agreement amendment provisions should not be treated as boilerplate. The dispute arose after Aspen Power adopted a Fifth Amended LLC Agreement as part of a restructuring and capital raise, relying on amendment authority that required a particular party’s consent and unanimous board approval — but also contained separate protective consent rights for affected members. Although many of the plaintiffs’ challenges were dismissed, the court allowed breach-of-contract claims to proceed where it was “reasonably conceivable that the amendment adversely modified the Class B plaintiffs’ preemptive rights and economic distribution hurdles without the required prior written consent.” The case is a useful reminder that an amendment clause must be read together with any class- or member-level veto rights. Even where the formal approval threshold appears satisfied, amendments that impair bargained-for economic or participation rights may still require targeted consent from the affected holders. Rights That May Require Special Consent When negotiating a Delaware LLC agreement, the members should, and typically do, give careful thought to concepts that are so fundamental that they require heightened consent. These types of provisions often relate to: Distributions, including preferred returns and tax distributions. Voting and approval thresholds. Management and officer rights. Transfer restrictions. Preemptive rights, including anti-dilution protection. Drag-along and tag-along rights. Dissolution rights. Information and inspection rights. Capital call obligations. Exit rights. The heightened standard for approving some or all of these decisions depends on the specified deal terms among the parties, including the resulting ownership breakdown. For some provisions, a supermajority vote may be sufficient; for others, unanimous consent or the specific consent of a particular member may be required. The LLC agreement may also require separate approval by a group of members or the written consent of a particular member whose rights would be materially and adversely affected. The clearer the parties are in documenting these rights, the lower the chance of disagreement. Routine Amendments Can Be Treated Differently LLC agreements frequently permit flexibility for routine or administrative amendments, such as: Correcting notice information. Fixing typos. Updating schedules to evidence approved actions. Modifying provisions that do not materially and adversely affect member rights as compared to other members. Even for these types of amendments, the LLC agreement should be clear on who can make the change, whether notice is required to the other members and whether the amendment must be in writing — which it always should be. Drafting Considerations – Amendments For Delaware LLC agreements, the parties should pay specific attention to the economic and governance terms of the LLC agreement. But they should never forget how those provisions work in tandem with the amendment provisions, as allowing amendments by simple majority vote could lead to significant undesirable changes to originally negotiated rights of minority owners. Specifically, the parties should ensure that their LLC agreement expressly addresses: Which parties may approve amendments. Whether certain types of amendments require heightened voting thresholds. Whether certain provisions require the approval of a specific class of members. That all amendments must be in writing. Whether notice of any amendment must be provided to parties that do not consent to the amendment. Takeaways Parties to a Delaware LLC agreement should understand that the amendment provision is not boilerplate and should be carefully negotiated. Failure to think through the implications of the amendment provision as it relates to all rights that a member considers key to its bargain could lead to the future loss of that bargain without any recourse to protect its investment. A well-drafted LLC agreement is clear and unambiguous as to the right to amend the agreement and identifies the specific thresholds for approval, whether majority, supermajority, or unanimous consent. Amendments should always be in writing to memorialize the agreement among the parties.

When a controlling stockholder causes a corporation to engage in business with the stockholder or another entity the stockholder controls, the transaction raises questions about the controlling stockholder’s fiduciary duty to the corporation. Is the transaction really in the best interests of the corporation, or is the controlling party merely trying to further its own interests at the expense of the minority shareholders? Non-controlling stockholders seeking to challenge such actions in Delaware will now have a much steeper hill to climb, in light of a recent ruling issued by the Delaware Supreme Court in Rutledge v. Clearway Energy Group, affirming the broad protections for controlling stockholders set forth in a Delaware statute passed in 2025. Delaware Legislation Provides Safe Harbors for Self-Interested Controller Transactions Delaware courts were long protective of the minority shareholder in these “self-dealing” scenarios, generally subjecting self-interested transactions to the heightened scrutiny of “entire fairness” review. “Entire fairness” is Delaware’s most exacting corporate law standard of review, sitting on the opposite end of the spectrum from Delaware’s most deferential standard, the “business judgment” rule. A court’s determination of which standard of review to apply can often decide the litigation’s eventual outcome. Application of entire-fairness review to a self-interested transaction therefore increases the likelihood that the controlling stockholder will ultimately be found liable for breaching its fiduciary duty. Over many years and multiple decisions, Delaware courts developed a framework by which entire-fairness review applied to self-interested transactions unless the corporation engaged in two separate “cleansing mechanisms” in advance of pulling the trigger on the proposed transaction. First, the transaction needed to be approved by an independent special committee free to negotiate the transaction without the influence of the controlling stockholder. Second, the transaction would also need to be approved by a free and informed vote of the minority stockholders. Only if both of these requirements were satisfied would the court apply the deferential business-judgment rule to the challenged transaction. In 2025, the Delaware Legislature passed a bill substantially reducing the court’s traditional protections for minority shareholders in self-interested transactions and increasing protections for the controlling stockholder. The law, Senate Bill 21 (SB 21) — which amended Section 144 of the Delaware General Corporation Law (DGCL) — protects controlling stockholders, officers and directors from liability for breach of fiduciary duty in connection with a self-interested transaction so long as at least one of the two “cleansing mechanisms” is employed. So, if either an independent special committee or an informed vote of the minority shareholders approves the transaction, the controlling stockholder, officer or director on both sides of the transaction is immune from liability for breach of fiduciary duty. And only if neither mechanism is utilized is the transaction subject to the exacting entire-fairness review. Supreme Court’s Decision Affirms Constitutionality of Section 144 Amendments A minority shareholder brought suit challenging the constitutionality of SB 21 shortly after its enactment. In Rutledge, the minority shareholder sued the corporation’s CEO and its controlling stockholder in connection with a self-interested deal and challenged the new statute, arguing that it represented an unlawful restraint on the Delaware Court of Chancery’s jurisdiction in violation of the Delaware Constitution. But even though SB 21 effectively undid the minority-protecting jurisprudence the Delaware courts had developed and applied over many years, the Delaware Supreme Court denied the plaintiff’s challenge to the new law. Instead, the court determined that SB 21 constituted a valid and constitutional exercise of the legislature’s authority that merely altered the standard of review applicable to a minority shareholder’s claim for breach of fiduciary duty, but did not deprive the minority shareholder of the right to assert such a claim. The end result is that Delaware law now offers substantially greater protections for controlling stockholders, directors and officers in connection with self-interested transactions, so long as the transaction is approved by a special committee or minority stockholder vote. Minority shareholders seeking injunctive relief or damages with respect to such transactions face a significantly tougher challenge, and will likely need to take the affirmative position at the outset of litigation that whatever “cleansing mechanism” the corporation utilized did not meet the statutory requirements. Where a special committee was utilized, that may include arguing that the committee did not act in good faith, or that its members were not in fact disinterested in the transaction. Where the transaction was approved by the minority shareholders, the dissenting shareholder could argue that the voting shareholders were not fully informed, were coerced, or were not appropriately disinterested. However you slice it, SB 21 and Rutledge substantially strengthen the controlling stockholder’s position with respect to self-interested transactions.

Significant ink has been spilled over the past few years over state privacy laws and enforcement actions. (View our pieces from last May and last October regarding the California Privacy Protection Agency’s enforcement actions over alleged violations of the state’s data privacy laws.) However, private litigants have been equally, if not more, aggressive in bringing a variety of claims against website operators. When considering the potential privacy risks attached to the design of its privacy policy and website, a company needs to consider the potential litigation risk that can attach to certain decisions, especially with respect to its deployment of third-party analytics. Claims over websites typically involve some combination of contract, equity (unjust enrichment), statutory and tort claims. Whatever the basis, all of these claims ordinarily start with a fundamental proposition: the failure to appropriately disclose and/or seek consent for the website’s use of third-party analytics from “big data” (Google Analytics, Meta’s Pixel, Microsoft’s LinkedIn cookies, etc.) that serve to track and profile users during their interactions with the website. Recent Privacy Litigation Against Website Operators Of the potential menu of claims available to plaintiffs, the one that often presents the rudest surprise is a claim that a company’s website is violating a wiretapping statute by recording and sharing users’ interactions with third-party analytics providers. These statutes typically provide for penalties that can scale beyond what a layperson might expect. For example, Pennsylvania’s Wiretapping and Electronic Surveillance Control Act (WESCA) provides for civil damages to be “computed at the rate of $100 a day for each day of violation, or $1,000, whichever is higher,” along with punitive damages and attorney fees (18 Pa. C.S. § 5725). The California Invasion of Privacy Act (CIPA) allows a person who has been injured to seek $5,000 per violation (Cal. Penal Code § 637.2). In many jurisdictions, these kinds of wiretapping claims have been found sufficient to survive motions to dismiss and, in one notable instance, have resulted in a significant jury verdict. Earlier this month, Forbes Media preliminarily agreed to a $10 million settlement to resolve wiretapping claims under CIPA. However, plaintiffs have not had it all their way in the courts. For example, the Massachusetts Supreme Judicial Court tossed the plaintiffs’ wiretapping claims in Vita v. New England Baptist Hospital, 494 Mass. 824 (2024), a case in which the plaintiffs had alleged that their interactions with a hospital’s website were subject to tracking technologies. Applying the rule of lenity, the court held that it could not “conclude with any confidence that the Legislature intended ‘communication’ to extend so broadly as to criminalize the interception of web browsing and other such interactions.” (The rule of lenity is a legal principle of judicial restraint originating out of criminal law that requires a court to resolve ambiguous or unclear criminal statutes in the way most favorable to the defendant. The Massachusetts Supreme Judicial Court looked to the rule of lenity because the wiretapping statute also established criminal penalties — fines and/or imprisonment — for violations of the statute.) In the Third Circuit, although plaintiffs could take heart from a favorable ruling in Popa v. Harriet Carter Gifts, 52 F.4th 121 (2022), finding that WESCA applied to interactions with websites, subsequent decisions from the U.S. Court of Appeals for the Third Circuit have gone against plaintiffs on issues of personal jurisdiction and/or Article III standing. (See, e.g., Hasson v. Fullstory, 114 F4th 181 (3rd Cir. 2024) (upholding dismissal of cases for lack of personal jurisdiction); Cook v. GameStop, 148 F.4th 153 (3rd Cir. 2025) (plaintiff who interacted with a website but did not input any sensitive or personal information did not suffer a sufficiently concrete injury-in-fact); and Popa v. Harriet Carter Gifts, (3rd. Cir. 2026) (upholding dismissal of claims as lacking a cognizable Article III harm).) The California Senate attempted to address litigation over CIPA in 2025, but the bill (SB 690) died in the California Assembly. However, there is a forthcoming case to watch in Variety Media v. Superior Court of the State of California, where the defendant is challenging the application of CIPA to ban the collection of IP addresses, arguing that the California Consumer Privacy Act (CCPA) should govern rather than CIPA and the courts should apply the rule of lenity (following the lead of the Massachusetts Supreme Judicial Court) to bar the application of CIPA to website tracking. Next Steps In short, while there is the potential for relief on the horizon, this is hotly contested terrain with the potential for significant litigation spend (through a combination of counsel fees and/or settlements). The best way to steer clear of these risks is for a company to: (1) understand the third-party tracking technologies in use on its website(s) (including, but not limited to, what the tracking technologies “see” when users interact with the site through forms, search bars, etc.); (2) appropriately disclose the use of third-party tracking technologies (and to comply with regulations regarding opting out from same); and (3) to consider coming in for an annual privacy checkup with counsel to get a holistic look at its compliance with privacy laws and regulations.

As part of the One Big Beautiful Bill Act, the sweeping tax and domestic policy bill signed into law last July, the Trump Accounts were established under the Working Families Tax Cuts legislation to create new tax-advantaged savings accounts for children. The accounts can be funded starting July 4, 2026. The U.S. Department of the Treasury and the IRS have issued proposed regulations that provide guidance on general requirements and elections. The proposed regulations are expected to affect 73 million children in 44 million families. Initial Guidance Regarding Trump Accounts Trump Accounts are governed by Sections 530A and 6434 of the Internal Revenue Code (IRC). Trump Accounts are generally treated similarly to individual retirement accounts (IRAs), which are governed by IRC Section 408A, for federal income tax purposes. Trump Account beneficiaries must be under 18 years of age, possess a Social Security number, and elect (either directly or through an authorized individual) to create a Trump Account. Through the Trump Account Contribution Pilot Program, children born after December 31, 2024, and before January 1, 2029, will be credited $1,000 upon establishing their Trump Accounts. Contributions to Trump Accounts are limited to a maximum of $5,000 per calendar year (which figure will be subject to cost-of-living adjustments for tax years after 2027), though the following contributions are exempt from the $5,000 cap: Qualified rollover contributions (e.g., transferring funds from one Trump Account to a new Trump Account opened with a different custodian for the same beneficiary). Qualified general contributions (e.g., payments from nonprofit organizations or state or local governments to the Treasury Department on behalf of a qualified class). Contributions made under IRC Section 6434 (e.g., the aforementioned $1,000 seeding for eligible beneficiaries). No distributions are allowed prior to the beneficiary reaching 18 years of age (what is known as the “growth period"). Distributions after age 18 are treated similarly to early IRA withdrawals and may be subject to a 10% penalty if made before the beneficiary reaches 59-and-a-half years of age, unless the distribution is for a qualified use (e.g., higher education expenses and health insurance premiums during a period of unemployment).  Trump Accounts may only invest in mutual funds or exchange-traded funds (ETFs) that track a “qualified index” (e.g., the S&P 500), do not use leverage, and do not have annual fees and expenses of more than 0.1% of the balance of the investment in the fund. Eligible investments do not include any industry or sector-specific index but may include an index based on market capitalization. Proposed Regulations Cover Trump Account Requirements, Elections On March 6, the Treasury Department and the IRS issued Proposed Section 1.530A–1, the main points of which are summarized below: General Requirements Trump Accounts would be considered a type of traditional IRA and, as such, be governed by a written instrument meeting the requirements of IRC Sections 408(a)(1) through (6). Trump Accounts could not be a SIMPLE IRA (Savings Incentive Match Plan for Employees) under IRC Section 408(p) and could not accept contributions from an employer’s simplified employee pension (SEP) arrangement under IRC Section 408(k). Trump Accounts must be titled as such, and a beneficiary will be treated as attaining an additional year of age as of their birthday for purposes of IRC Section 530A. Electing to Open a Trump Account Individuals authorized to open a Trump Account would include, in order of priority, a legal guardian, parent, adult sibling or grandparent of the eligible individual. Comments are requested on whether definitions are needed for “legal guardian,” “parent,” “sibling” and “grandparent.” Such authorized individual would represent, under penalty of perjury, that he or she is authorized to open the initial Trump Account for the eligible individual and that there is no other person with a higher priority available to make the election. Elections would be made via a form prescribed by the secretary of the Treasury (i.e., Form 4547) or through an electronic application or website made available by the secretary. The responsible party of the Trump Account would be the individual who makes the election to open such account. What’s Next? The proposed regulations reserve several items for further comment, including employer contributions to Trump Accounts and the proposed applicability date. Written or electronic comments and requests for a public hearing must have been received by May 8, 2026. Stradley Ronon is monitoring for further developments from the Treasury and government.

The rapid onset of generative artificial intelligence (AI) — particularly its ability to create hyper-realistic deepfakes and appropriate the image, voice, mannerisms and likeness of celebrities and other public figures (collectively, NIL), sometimes for nefarious or unauthorized purposes — has sparked interest in finding new and novel ways to protect public figures and their NIL. One novel avenue being explored recently is the use of trademark law in conjunction with the rights of publicity and privacy. As generative AI makes it easier to replicate identity, trademark law and the right of publicity are increasingly viewed by some as tools for preserving commercial value, preventing unauthorized exploitation, and addressing consumer confusion.          What Is the Right of Publicity? The right of publicity is an intellectual property doctrine that safeguards individuals from the unauthorized use of their NIL, including their voice, signature or photograph for commercial purposes. It is a state-level legal right that allows individuals to control and profit from the commercial exploitation of their likeness and identity. However, because no federal statute exists, protections vary wildly by state. Some states have adopted the right of publicity through legislation, while others recognize it via judicial decisions. The current differences in the various state laws on the right of publicity have created an inconsistent framework for protection. For example, states vary in their treatment of postmortem publicity rights, including whether the right continues after death, how long any such protection lasts, and whether the right may be inherited or assigned. The Intersection of Trademarks and Right of Publicity A person’s NIL can, through proper trademark use in commerce and/or registration with the U.S. Patent and Trademark Office (USPTO), function as a trademark under federal law if that person can establish that an aspect of their identity would be recognized as a source identifier. Such trademark protection can confer nationwide rights, and if used and maintained correctly, can last with no end or termination date. As a result, some celebrities register their names, popular phrases and likenesses as trademarks. Trademark law and the right of publicity serve distinct purposes, but are closely related and often used by celebrities and other public figures to protect the same commercial interests. Trademark law protects words, phrases, symbols and other source-identifying features that distinguish goods or services in the marketplace. Its focus is on the consumer’s perspective, preventing confusion about the source and protecting the goodwill associated with the trademark holder. The right of publicity, by contrast, protects an individual’s identity from unauthorized commercial exploitation. While trademark law protects consumers from confusion, the right of publicity protects the individual’s ability to control the commercial use of their identity. In that sense, the two doctrines operate as two sides of the same coin. This also explains why many celebrities seek trademark registration as a way of controlling how their names and images are used commercially. Courts consider both bodies of law as close analogs and are increasingly recognizing that each aims to safeguard the commercial value associated with identity. In some jurisdictions, case law has established that the right of publicity focuses on the right of an individual to reap the reward of their endeavors and to prevent unjust enrichment by theft of goodwill, while trademark protection focuses on ensuring consumers know the source of the good or service they are receiving and preventing the theft of goodwill created by the producer of the good or service. A celebrity’s name, likeness and voice can each be a trademark, indicating source and constituting the protected aspect of identity, focusing on protecting consumers from confusion about the source of the good or service. The right of publicity seeks to protect much of the same interest but on the other side of the coin; rather than focusing on and protecting against consumer confusion, like trademark law, it concerns the ability of a person, especially a celebrity whose identity itself holds commercial value, to control that identity and to decide how their NIL is used in commerce. Both should allow celebrities to protect themselves from unauthorized endorsements, deepfakes or AI-generated likenesses, where the harm is both to the individual’s autonomy and identity and to consumer understanding. A Fad or a Modern Trend? The convergence of trademark doctrine and publicity rights may become a defining legal response to AI-enabled reproductions and derivatives, as demonstrated by recent USPTO actions taken by celebrities seeking to formalize protection around their distinctive identity features. In January, actor Matthew McConaughey obtained eight trademark registrations for several audio specimens of him saying well-known phrases from his films, including, “Just keep livin’, right? I mean, what else are we gonna do?” and “alright, alright, alright,” as well as visual specimens consisting of photographs and videos of himself. Most recently, in April, singer-songwriter Taylor Swift, following McConaughey’s lead, filed three trademark applications to trademark her voice and likeness. The audio specimens include Swift’s voice saying, “Hey, it’s Taylor Swift,” and “Hey, it’s Taylor,” and the visual specimen is described as “a photograph of Taylor Swift holding a pink guitar, with a black strap and wearing a multi-colored iridescent bodysuit with silver boots. She is standing on a pink stage in front of a multi-colored microphone with purple lights in the background.” None of these trademarks have been tested in court, including in the context of unauthorized AI-generated uses. The Need for a Federal Right-of-Publicity Law Recent cases involving McConaughey and Swift, both of whom have utilized protections at the intersection of federal trademark law and the right of publicity, suggest that other celebrities and individuals whose identities hold commercial value may pursue similar protections for their NIL. As a result, the need for a uniform federal right-of-publicity law is more pressing than ever. The rapid rise of AI has only heightened that need, particularly given the increasing overlap between the right of publicity and key trademark protections in the entertainment and sports industries. AI tools now allow a celebrity’s NIL to be copied, manipulated and exploited at a speed and scale that existing state law protections may not be equipped to address. A federal regime would provide consistency and reduce the confusion and lack of uniformity created by the current state-by-state framework. It would also relieve some of the burden on courts and the USPTO, which are increasingly required to adapt and stretch existing law, such as the Lanham Act and current right-of-publicity case law, to address gaps exposed by novel AI-related disputes. In addition, a federal law would reduce forum-shopping based on variations in state laws. A uniform federal law would also give celebrities and other similarly situated individuals considering the McConaughey and Swift approach a greater measure of control over how their identities are used in commerce; clearer guidance on the scope of available protection; and a stronger, more predictable legal framework to challenge unauthorized uses. Much like trademark law, which provides federal protection while still allowing for parallel state-law rights, a similar structure for right-of-publicity law would allow celebrities with national and global reach to pursue nationwide protection, while preserving state law remedies for more local uses. Ultimately, a federal right-of-publicity law would complement federal trademark protection under the Lanham Act by giving individuals a more effective and nationwide means of protecting the commercial value of their NIL in the AI era. Trademark Applications for NIL Likely to Increase The intersection of trademark law and right-of-publicity protection appears less like a passing fad and more like an emerging long-term trend. As AI makes it easier to imitate a celebrity’s NIL, more artists, celebrities and brands are likely to look to trademark law and the right of publicity as practical tools to protect the commercial value of their identities. High-profile examples like McConaughey and Swift suggest that this strategy is gaining traction, and it would not be surprising to see more celebrities follow suit. As concerns over AI-generated deepfakes and unauthorized digital reproductions continue to grow, a federal right-of-publicity law addressing joint right-of-publicity and trademark protection would provide a more coherent and effective means of protecting commercially valuable identity rights.

A key advantage to structuring an M&A transaction as an asset purchase, rather than a stock purchase or merger, is the buyer’s ability to limit the liabilities of the target that the buyer agrees to assume under the deal documents. But even the most careful drafting can be defeated if a court imposes successor liability on the buyer based on the equitable doctrine of de facto merger. Just over one year ago, in Campbell v. WeCare Organics, 2025 PA Super 44 (Pa. Super. Ct. Feb. 25, 2025), the Pennsylvania Superior Court provided a helpful review of the circumstances under which Pennsylvania’s de facto merger doctrine would — and would not — impose successor liability after an asset purchase. The Dispute In 2014, Jonathan Campbell entered into a waste-hauling contract with WeCare Organics LLC. Two years later, Denali Water Solutions LLC purchased the core business assets of WeCare, with WeCare retaining certain customer contracts and equipment. WeCare also retained its debt to Campbell for unpaid amounts due under the hauling contract. Campbell sued both WeCare and Denali in 2019, asserting that Denali was liable for WeCare’s unpaid debt under the de facto merger doctrine. The trial court agreed with Campbell and granted summary judgment against Denali in 2024. On Denali’s appeal, the Pennsylvania Superior Court reversed and remanded the case for further proceedings. The De Facto Merger Test Citing the Pennsylvania Supreme Court’s decision in Fizzano Brothers Concrete Products v. XLN, 42 A.3d 951, 954 (Pa. 2012), the Superior Court began by confirming the general rule that the buyer of a corporation’s assets does not assume the seller’s debts solely by reason of the purchase. The court then identified five exceptions to this general rule: If the buyer expressly or implicitly agreed to assume the debt. If the transaction amounted to a consolidation or a de facto merger. If the buyer is merely a continuation of the seller. If the buyer fraudulently entered into the transaction to escape liability. If the transfer was without adequate consideration and no provisions were made for creditors of the seller. Proceeding to its specific analysis of the de facto merger doctrine, the Superior Court identified the four factors that would contribute to a finding of successor liability: Continuity of ownership between the seller and buyer. Cessation of the seller’s ordinary business and dissolution as soon as practically and legally possible. The buyer’s assumption of liabilities ordinarily necessary for the uninterrupted continuation of the seller’s business. Continuity of management, personnel, physical location and general business operations between the seller and the buyer. The Superior Court noted the Pennsylvania Supreme Court’s admonition that these factors are not to be applied mechanically, but that they should serve to guide the reviewing court in its determination of whether a de facto merger has occurred. The Superior Court’s Analysis Denali conceded the third and fourth factors in the de facto merger analysis, acknowledging that it had assumed a significant portion of WeCare’s liabilities and that there was significant continuity of management, operations and facilities between WeCare and Denali. The appeal, and the Superior Court’s analysis, turned on the first two factors. Continuity of Ownership While recognizing the Fizzano court’s holding that continuity of ownership could be shown through forms of stockholder interest beyond a direct exchange of shares, including promissory notes, the Superior Court characterized as an issue of first impression the question of whether the asset purchase agreement’s requirement that Denali enter into a three-year executive employment agreement with WeCare’s founder, Jeffrey LeBlanc, coupled with a payment of cash for LeBlanc’s indirect ownership interests in WeCare, would be sufficient to establish continuity of ownership for purposes of the de facto merger doctrine’s first factor. The trial court had reasoned that the executive employment agreement was a type of alternative merger consideration contemplated by Pennsylvania’s merger statute and held that Campbell had established continuity of ownership between WeCare and Denali as a matter of law. The Superior Court reversed. Relying on Fizzano’s holding that continuity of ownership requires “some sort of” proof that the seller’s shareholders retained an ownership interest in the successor entity, the court held that LeBlanc’s employment agreement did not, as a matter of law, constitute an ownership interest in Denali because it did not provide him with equity in Denali. The court further explained that successor liability is justified under the de facto merger doctrine when it prevents one or more equity holders of a seller from retaining the benefits of ownership of the transferred assets after those assets have been cleansed of liabilities through the sale, leaving the creditors of the seller without any remedies to collect their debts. The court could not conclude as a matter of law that LeBlanc’s employment agreement was the equivalent of an ownership interest in Denali, so Campbell had not established this prong of the de facto merger test for purposes of his motion for summary judgment. Prompt Cessation of Ordinary Business and Dissolution The Superior Court then turned to the question of whether WeCare had ceased its ordinary business and dissolved as soon as practically and legally possible, as required by the second factor of the de facto merger doctrine. In essence, a merger provides for one company to survive while the other party to the merger ceases to exist. Thus, the second prong of the de facto merger doctrine requires not only that the seller’s ordinary business activities cease, but that they cease more or less contemporaneously with the sale. The court emphasized that the timing in question is when the seller’s ordinary operations cease, not when the seller entity is formally dissolved. The Superior Court acknowledged that WeCare was undisputedly “defunct” as of August 2020, but it pointed to several facts indicating that WeCare and Denali did not intend for WeCare to cease all business activities after the closing of the asset sale in October 2016: The asset purchase agreement did not require WeCare to dissolve. WeCare represented that it would be a solvent “ongoing business” at closing. WeCare retained certain customer contracts and equipment after the sale. LeBlanc was permitted to remain as WeCare’s president, notwithstanding his employment with Denali. WeCare wrote to its vendors in March 2017 stating it had sold only a portion of its business and was preparing for its upcoming season. The court therefore held that there was a genuine issue of material fact as to whether WeCare maintained post-closing business operations at a level sufficient to negate the cessation of ordinary business and dissolution prong of the de facto merger test. Since Denali might be able to prove on remand that the second prong of the de facto merger test had not been satisfied, the Superior Court reversed the trial court’s summary judgment for Campbell. Applying the Superior Court’s Lessons By clarifying two of the four factors that comprise the de facto merger doctrine, the Superior Court’s opinion suggests ways in which buyers can reduce their risk of incurring successor liability under that doctrine. First, a buyer will increase its risk of successor liability if the consideration for an asset purchase includes any issuance of the buyer’s equity to the seller or its owners. This is true even if the equity issuance is based on an agreement other than the asset purchase agreement, such as an executive employment agreement with the seller’s founder. At the same time, a court may find that non-cash consideration that allows the seller’s owners to retain the benefits of ownership of the transferred assets after the sale (such as promissory notes or employment agreements) is sufficient to establish continuity of ownership under the first prong of the de facto merger doctrine. Buyers can reduce their risk of successor liability by avoiding such types of consideration in their asset purchase transactions. In addition, the Superior Court makes clear that a de facto merger should not occur if the parties allow the seller to continue to conduct a portion of its business after the asset sale. This may be accomplished by allowing the seller to retain certain non-core assets or by providing for reinvestment of at least a portion of the sale proceeds into the seller’s ongoing business. Even if the seller ultimately becomes insolvent, the buyer is more likely to be insulated from successor liability if the seller’s creditors can pursue recovery against an operating seller entity after the asset sale. By contrast, requiring the seller entity to dissolve after closing of the asset sale would increase the buyer’s risk of successor liability. The parties’ business needs will ultimately determine both the nature of the consideration and the scope of the assets transferred in an asset purchase, but buyers would be well advised to consider the factors that could lead to successor liability under the de facto merger doctrine when structuring their transactions.

A recent decision from the Delaware Court of Chancery serves as an important reminder for directors of Delaware corporations on their significant oversight responsibilities and potential court scrutiny of their actions — or inaction. In Los Angeles City Employees’ Retirement System v. Sanford, (C.A. No. 2024-0998-KSM (Del. Ch. Jan. 16, 2026)), Chancellor Kathaleen McCormick, in denying motions to dismiss breach of fiduciary duty claims brought against an executive officer and the directors of eXp World Holdings Inc. (eXp Holdings), held on January 16 that failures to respond to sexual misconduct allegations may support claims for breaches of fiduciary duties to properly exercise oversight under standards set in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). What Happened in the eXp Holdings Case? The complaint arose out of allegations of the sexual assault of female eXp Holdings employees by two male employees, including accusations of drugging of the female employees at events sponsored by eXp Holdings. The allegations were apparently widely known within the company and had been repeatedly brought to the attention of senior management and the board of directors, including through multiple communications by a member of the board to other directors. Two key counts of the derivative plaintiffs’ complaint survived the defendants’ motions to dismiss. One of those counts involved Glenn Sanford, the company’s CEO, who also served as a director. The other count involved the other members of the board. In each case, the complaint alleged that Sanford and the other directors breached their fiduciary duties of loyalty based on Caremark standards by: Failing to ensure that eXp Holdings had in place reasonable reporting and information systems that would have allowed the company and its board to know about and prevent acts of sexual assault and misconduct (an “information systems claim”). Failing to respond to, and consciously disregarding, the accounts of sexual assault and misconduct that were brought to the attention of Sanford and the board (a “red flag” claim). The complaint alleged a wide variety of actions and failures to act relating to information systems and red-flag failures, including active concealment of the alleged sexual misconduct, failing to follow outside counsel’s advice (including by conducting an internal investigation controlled by interested parties rather than an independent investigation) and retaliation against a “whistleblower” member of the board, who had been provided substantial information regarding the sexual misconduct and had reported that information to Sanford and the other directors on multiple occasions through multiple means. What the Chancery Court Found In denying the motion to dismiss relating to the claims against Sanford, the chancellor concluded that it was "reasonably conceivable" that he engaged in the alleged cover-up and retaliatory actions and, therefore, it was also reasonably conceivable that he breached his duty of loyalty to eXp Holdings. The court noted that if the allegations against Sanford were proven, they could support a claim for breach of the duty of loyalty, in that he had placed his own personal and financial self-interests (including the value of his equity holdings and compensation that was tied, at least in part, to the production of the eXp Holdings agents involved in the misconduct) ahead of those of the company and its stockholders. In considering the plaintiffs' allegations against the other members of the board of directors and denying their motion to dismiss, the chancellor focused on the information available to the board about the alleged misconduct, the number of ways the information had been conveyed to them, the seriousness of the allegations, and the action the board took and/or failed to take in response. The chancellor believed that the communications received by the board were sufficient to warrant board action, but in reviewing the board's response, said that it was "reasonable to infer that the Board effectively did nothing in response to the Company-wide allegations … at the heart of the red flags." In particular, the chancellor noted that the board did not change any eXp Holdings policies, failed to enact any of the reforms recommended by the whistleblower (who, as noted above, was a member of the board), failed to follow the advice of the company's outside counsel, and otherwise "took no meaningful steps to address the systemic problem of rape at eXp." The chancellor, likely in anticipation of future defendants’ arguments based on Caremark standards, also noted that the board’s “red flag” response efforts would not be sufficient under Caremark “when it is reasonably conceivable that those efforts were nominal, tainted by deliberate heel-dragging, and ran parallel to a campaign of concealment." A Brief Recap of Caremark In the Caremark case, the Chancery Court held that directors of a Delaware corporation could be liable for breaches of fiduciary duty if the directors fail to implement and monitor systems that are reasonably designed to provide senior management and the board with timely, accurate information sufficient to reach informed judgments concerning both the company’s compliance with law and its business performance. While the court noted that the level of detail for any system is a business judgment matter for the board to determine, a failure to have some reasonable system may result in a director having breached a fiduciary duty tied to losses caused by noncompliance with applicable legal standards. Plaintiff claims based on Caremark and later cases generally fall within two categories: (1) “information systems claims,” which typically allege a failure to have in place reasonable reporting and information systems that would allow senior management and the board to know about and act on matters involving noncompliance with the law; and (2) “red flag” claims, which typically allege a failure to adequately monitor or oversee the systems that have been put in place (including failures to respond to issues identified by those systems). Caremark and later cases have emphasized the high bar that plaintiffs have to overcome to prevail on these types of claims. As a general matter, establishing liability requires some sort of showing of conduct (including failures to act) that goes beyond negligence and is indicative of sustained or systemic failures of oversight representative of bad faith. Takeaways for Directors Although the eXp Holdings decision only addresses motions to dismiss and does not reach any substantive conclusions as to whether fiduciary duty breaches have occurred, it does serve as a reminder that directors of Delaware corporations have significant oversight responsibilities and their actions (including failures to act) will be closely scrutinized by Delaware courts. In this age of heightened scrutiny of corporate governance, most companies of any size (and, in particular, public companies) have in place systems that are intended to identify and report to senior management and the board relevant, risk-related information regarding the company’s compliance with the law and its business performance. But Caremark and its progeny make clear that having systems in place is only part of the oversight responsibilities. Boards can take steps to reduce the possibility of successful Caremark-based claims, including by: Ensuring that the systems in place are not generic but instead cover “mission-critical” risks in the context of the company’s particular business. Setting up and following a system of regular compliance reporting to the full board (both through the company’s risk management functions, as well as a board committee specifically empowered to monitor and report on compliance matters). Documenting the board’s consideration of, and action on, compliance and risk matters. Consulting, where appropriate, with outside experts on compliance and risk matters, including retaining third-party service providers to fill any gaps in the company’s monitoring capacity or expertise. What’s Next? Appeals arising from this Chancery Court case will be essential reading. The egregious nature of the sexual misconduct, combined with the subsequent conduct and actions (or lack thereof) on the part of the CEO and the board, will certainly be of interest to the Delaware Supreme Court. The decision on appeal will likely receive significant attention, particularly with regard to how the Delaware Supreme Court attempts to fit the eXp Holdings decision into two recent Chancery Court decisions — one that would appear to support the denials of the motions to dismiss in eXp Holdings, and one that would appear to be inconsistent with the eXp Holdings decision. In a 2023 decision (In re McDonald's Corp. Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 29, 2023)), Vice Chancellor J. Travis Laster held that allegations that a human resources chief of McDonald’s Corp. had engaged in sexual harassment formed a sufficient basis for a derivative claim based on a breach of the fiduciary duty of loyalty. Although the claim was dismissed due to the plaintiff's procedural failure (failure to adequately plead demand futility), the vice chancellor found that the alleged misconduct could support a claim that the officer had “acted disloyally and for an improper purpose, unrelated to the best interests" of the company. The decision in eXp Holdings, however, stands in contrast to Vice Chancellor Lori Will’s holding in the 2025 Credit Glory case (Brola v. Lundgren, C.A. No. 2024-1108-LWW (Del. Ch. Dec. 1, 2025)). In that case, the court held that allegations that an executive officer of Credit Glory Inc. had engaged in sexual misconduct did not adequately state a breach of fiduciary duty claim, even though the impacted employees had successfully pursued U.S. Equal Employment Opportunity Commission (EEOC) and state employment law claims against the officer (including a monetary judgment). The vice chancellor, while acknowledging the McDonald's ruling, said that McDonald's did not open the door to fiduciary-duty breach claims whenever a corporate officer engages in sexual harassment, and Delaware corporate law concepts of fiduciary duty are not meant to serve as a catch-all for every form of wrongdoing, particularly when the affected persons successfully pursued claims under employment-specific laws, and the conduct, while egregious, comprised “personal malfeasance, not a misuse of his corporate office.” The facts in the eXp Holdings case are somewhat different than in the McDonald’s and Credit Glory cases. In particular, the alleged breaches of fiduciary duty in the McDonald’s and Credit Glory cases were made specifically against the corporate officers who had been accused of the sexual misconduct, while the eXp Holdings officer and directors who are the subject of the fiduciary duty breach claims were not personally involved in the alleged sexual misconduct. How those factual differences may impact the court’s decision on appeal remains to be seen. As it considers the eXp Holdings decision, it is reasonable to expect that the Delaware Supreme Court will try to balance the interests of Delaware corporation stockholders to hold boards accountable for oversight failures with the desire to reduce the possibility of a flood of plaintiff actions that attempt to leverage what are essentially employment-based claims into fiduciary duty-based actions.

Under Section 253 of the Delaware General Corporation Law (DGCL) and Section 18-209(i) of the Delaware Limited Liability Company Act (DLLCA), a parent company owning at least 90% of the outstanding shares of a Delaware corporation has the right to merge with that subsidiary without approval of the board of directors or stockholders of the subsidiary. This mechanism — used to eliminate the shareholdings of the subsidiary’s minority stockholders without their consent, or even over their objections — is referred to by various names, including short-form merger, parent-subsidiary merger, cash-out merger, freeze-out merger, squeeze-out merger, and (in the M&A context) triangular merger. While minority stockholders cannot prevent a short-form merger, they can challenge the consideration paid for their shares in the merger by demanding an appraisal under Section 262 of the DGCL. In the recent case of Abraham v. Estate of Wirtz, 2025 WL 3625719, the Delaware Court of Chancery resolved a motion to dismiss with respect to an exercise of appraisal rights in a short-form merger — and reinforced a key lesson for counsel of both controlling and minority stockholders. Delaware Court of Chancery Weighs In In Abraham, Wirtz Corp. owned, directly and indirectly, 97% of the outstanding shares of American Mart Corp., a Delaware corporation. Wirtz caused American Mart to merge with its newly formed subsidiary American Mart Co. LLC (AMLLC) under Section 18-209(i) of the DLLCA, with the retail investors who owned the remaining 3% of American Mart receiving merger consideration equal to $357 per share. One of those retail investors, David Abraham, claimed that the merger consideration undervalued his shares of American Mart by up to 19 times and demanded an appraisal under Section 262 of the DGCL. AMLLC rejected Abraham’s appraisal demand on the grounds that it failed to comply with Section 262, and Abraham sued. Requirements Under Section 262 The court agreed with AMLLC that Abraham had not properly exercised his appraisal rights, noting that: Appraisal is a minority stockholder’s sole recourse in a short-form merger absent fraud or illegality. Exercise of appraisal rights requires strict compliance with Section 262 of the DGCL. A good-faith effort to comply is not sufficient. A controlling stockholder does not have to establish the entire fairness of a short-form merger; the controlling stockholder must only satisfy its duty of disclosure. To satisfy its duty of disclosure under Section 262, a controlling stockholder must provide minority stockholders with a notice of appraisal rights that includes (1) a correct copy of the appraisal statute and (2) sufficient information for the minority stockholder to determine whether seeking appraisal is worthwhile. The controlling stockholder’s notice need not repeat the procedures that are outlined in the statute. Abraham’s appraisal demand failed to satisfy the requirements of Section 262 in part because it did not identify the record owner of the shares beneficially owned by Abraham. The court would not excuse this failure even though all American Mart shares not owned by Wirtz were held in street name by Cede & Co., so AMLLC knew the identity of the record owner. A “quasi-appraisal” remedy is only available when the controlling stockholder breaches its duty of disclosure, not when a minority stockholder’s demand for appraisal fails to comply with Section 262. Once AMLLC satisfied its duty of disclosure, the remedy of quasi-appraisal was no longer available, and the burden fell on Abraham to exercise his appraisal rights in accordance with Section 262. Because Abraham failed to strictly satisfy the statutory requirements, he was not entitled to an appraisal. A Final Surprise But, after shooting down all of Abraham’s arguments under Section 262, the court had a final surprise: The merger may not have been valid after all, since AMLLC may not have in fact owned the shares of American Mart at the time of the merger. Based on statements in the notice of appraisal rights, Abraham argued that affiliates of Wirtz other than AMLLC owned 90% of the shares of American Mart at the time of the merger and that, as a result, AMLLC could not have validly completed the merger under Section 18-209(i) of the DLLCA. Rather than simply respond that AMLLC did, in fact, own the American Mart shares, AMLLC argued that it had the right to complete the short-form merger as an affiliate of the 90% owner, Wirtz. The court rejected this “confounding” argument — stating that the short-form merger statute does not support that interpretation — and held that Abraham stated a claim for violation of Section 18-209(i) while limiting Abraham’s relief to targeted discovery into AMLLC’s share ownership at the time of the merger. The Upshot: Counsel Must Check, and Double-Check, All Statutory Requirements Abraham had no appraisal remedy for the purported undervaluing of his American Mart shares because he failed to include certain straightforward statements in his appraisal demand. And notwithstanding the careful preparation and distribution of an eight-page, single-spaced notice of appraisal rights, Wirtz may see the short-form merger invalidated if it failed to ensure that the shares of American Mart were in fact transferred to the newly formed AMLLC before consummation of the merger. These undesirable results — not to mention the costs of litigation — could have been avoided by strict compliance with the applicable statutes. Thus, this case serves as a reminder of counsel’s responsibility to carefully review, and ensure compliance with, all statutory requirements when advising clients on short-form mergers.

With a new year comes new obligations. For employers, that means making several key changes to ensure they are compliant with the changing California employment law landscape. In 2025, the California Legislature enacted into law several bills that alter and expand employer obligations as of January 1, 2026. These new measures include changes in the minimum wage, pay reporting, stay-or-pay provisions and notice requirements — and will require employers to review and update their handbooks, job postings, onboarding materials, recordkeeping practices and relevant notices to employees.  Contracts AB 692: Ban on ‘Stay or Pay’ Provisions As of January 1, 2026, employment agreements shall not require a worker to repay a debt, or impose a fee or penalty upon the worker, when the employment relationship terminates. This will bar common arrangements that require workers to reimburse employers for costs such as relocation or training programs and that impact certain promissory note arrangements, with exceptions for specified tuition and upfront discretionary bonus repayments. This limitation on “stay or pay” agreements is part of the state’s continued efforts to protect employee mobility pursuant to Section 16600 of the California Business and Professions Code. Compensation Increased Minimum Wage California’s minimum wage will increase to $16.90 per hour for all employers statewide, regardless of employee headcount. This likewise increases the minimum annual salary for exempt employees to $70,304. Living wage ordinances have been adjusted in various counties and cities, so employers should confirm requirements with the relevant localities to ensure compliance. For instance, the City of Los Angeles Living Wage Ordinance significantly expanded coverage to new categories of entities, including hotel workers. SB 464: Expanded Pay Data Reporting and Penalties As of January 1, 2026, all employee demographic data must be stored separate from employee personnel files. Civil penalties for failure to comply with the state’s pay data requirements will become mandatory (rather than permissive) upon request of the Civil Rights Department. Beginning January 1, 2027, employers with more than 100 employees must report pay data for 23 job categories (up from 10). SB 261: Penalties for Unpaid Wage Judgments California employers with unpaid wage judgments will be subject to significantly increased liability in 2026. If a final wage judgment remains unsatisfied after 180 days, potential civil penalties may increase to up to three times the outstanding judgment amount. Additionally, SB 261 creates significant enforcement opportunities for public prosecutors as well as "successor" joint and several liability issues. SB 642: Updates to Equal Pay and Pay Transparency Laws In 2022, SB 1162 required employers with 15 or more employees to include an expected pay scale in job postings, as well as to provide employees with pay scale information for their current roles upon request. For 2026, pay transparency laws were amended to require more accurate salary estimates “upon hire” in job postings and to ensure the value of stock, bonuses and other benefits are factored into equal pay determinations. Additionally, employers cannot pay employees of “another” sex — not just the “opposite” sex — less for “substantially similar work.” Workplace Notices SB 294: Workplace Know Your Rights Act Notice Beginning February 1, 2026, all employers must provide a standalone written notice to all current employees and employees upon hire regarding workplace rights related to union organizing, immigration and other workplace protections, and provide such notice annually thereafter. The Labor Commissioner’s Office has prepared a model notice available in English and Spanish. Additionally, by March 30, 2026, employers must allow employees to designate an emergency contact and must notify the contact if the employee is arrested or detained on the employer’s worksite. If the arrest or detention occurs during work hours, or during the performance of the employee’s job duties, but not on the worksite, the employer shall notify the employee’s designated emergency contact only if the employer has actual knowledge of the arrest or detention of the employee. Employers that fail to comply may be subject to penalties of $500 per employee for each day the violation occurs, up to a maximum of $10,000 per employee. SB 617: WARN Act Notice Expansion California has enacted legislation that significantly expands the information that employers must include in their WARN notices and the actions they must take under the California Worker Adjustment and Retraining Notification Act (CalWARN). Employers can no longer simply include the federal WARN Act notice content in their CalWARN notices. As of January 1, 2026, existing CalWARN Act notice requirements for layoffs, closures and relocations have been expanded to include information on whether an employer plans to coordinate reemployment services through a local workforce board or another entity, the workforce board’s contact information and description of services, and a description of CalFresh, the state’s food assistance program. Leaves of Absence AB 406: Expanded Uses of Paid Sick Leave As of October 1, 2025, employees may use paid sick leave if they or a covered family member are crime victims and must attend specified court proceedings, such as sentencing hearings and delinquency hearings. Discrimination California Civil Rights Division regulations clarify that antidiscrimination laws apply to Automated-Decision Systems (ADS) (including vendor tools) used in employment as of October 1, 2025. Employers can be liable if ADS use results in unlawful disparate treatment/impact or fails to accommodate disabilities. Training SB 513: Personnel Records – Training/Education As of January 1, 2026, education and training records must be maintained in employee personnel files. Such documents must specify certain information, including employee name, training provider, date and duration of training, core competencies of training and certification, and these records must be available for employee inspection within 30 days of request. This applies to all employers that maintain such records. SB 303: Bias Mitigation Training As of October 1, 2025, California law clarifies that acknowledging personal bias during employer-provided bias mitigation training does not constitute unlawful discrimination. The law is intended to encourage bias mitigation training, including self-reflection exercises, without fear of retaliation or discrimination claims arising from such activities. Next Steps Employers are invited to contact Stradley Ronon’s employment team to discuss compliance with these and other California employment law requirements.

The media landscape is bracing for a seismic shift as Warner Bros. Discovery (WBD) finds itself at the center of a high-stakes tug-of-war between Netflix’s $82.7 billion strategic acquisition and Paramount Skydance (Paramount)’s $108.4 billion hostile takeover bid. With billions of dollars and iconic franchises like HBO and DC Studios on the line, the WBD board of directors has officially entered “Revlon-land,” a legal reality where their primary duty shifts from corporate stewardship to becoming aggressive auctioneers focused solely on maximizing shareholder value. Grab your popcorn: we’re breaking down the complex legal chess moves that determine who wins the battle to reform media platforms in the United States. Netflix vs. Paramount Offers In December 2025, Netflix reached a definitive agreement to acquire the WBD streaming and studios division, including HBO and HBO Max, in a deal valued at approximately $82.7 billion. The offer consists of a mix of cash and stock and prices WBD at roughly $27.75 per share. Under this arrangement, WBD would spin off certain networks — such as CNN, TNT and Discovery — into a separate entity called “Discovery Global.” Shortly after the Netflix deal was announced, Paramount (led by Chairman and CEO David Ellison) launched a hostile $108.4 billion all-cash tender offer to acquire the entirety of WBD. At $30 per share, the Paramount bid represents a significant premium over Netflix’s offer and includes the acquisition of WBD's debt and cable networks. WBD’s board of directors has voiced concerns to its shareholders about Paramount’s ability to finance this offer. To address the board's concerns regarding financial certainty, Oracle’s co-founder and David Ellison’s father, Larry Ellison, personally guaranteed $40.4 billion in equity to back the bid. The board has also considered that the Paramount offer does not guarantee coverage for the substantial $2.8 billion break-up fee that WBD would owe Netflix if the current deal is abandoned, as well as an estimated $1.5 billion in additional financing costs that WBD shareholders would bear if the Paramount deal were accepted. On January 7, WBD's board of directors unanimously recommended to its shareholders that the shareholders reject the latest $108.4 billion offer from Paramount, which includes the Larry Ellison personal guarantee as well as an increased breakup fee. The rejection of this competing bid again solidifies Netflix as WBD’s preferred acquirer, but is likely to continue to highlight whether the WBD board of directors’ fiduciary duties are being carried out properly when the Paramount offer is approximately $25 million more and an all-cash offer. Board’s Legal Requirement: Revlon Duties The stakes are high in this tug-of-war over WBD, both in terms of the billions on the table as well as the textbook case study in the Revlon doctrine’s application to the modern media mergers and how corporate boards must balance competing offers in this high-stakes environment where shareholder value, antitrust scrutiny and corporate strategy collide. Under the 1986 Delaware Supreme Court case Revlon v. MacAndrews & Forbes Holdings, 506 A.2d 173, 182 (Del. 1986), once a board decides to sell the company (or a controlling stake), its fiduciary duty shifts from “the preservation of [the company] as a corporate entity to the maximization of the company’s value at a sale for the stockholders’ benefit.” Given the two competing offers to purchase WBD, WBD has likely entered “Revlon-land,” a term that strikes a mix of excitement and anxiety in the heart of every M&A lawyer. Revlon fundamentally rewrote the rules for a company’s board of directors when evaluating the sale or break-up of a company. Normally, directors enjoy the protection of the “business judgment rule,” meaning courts will generally uphold a board’s decision when such decision can be attributed to some rational corporate purpose. The business judgment rule allows directors to focus on long-term strategy and corporate health and generally shields directors from second-guessing so long as a basic level of standard of care is met. Once a sale of the company becomes inevitable, or to a lesser extent is in “play,” the board’s role shifts dramatically. According to Revlon, the directors’ role is no longer “defenders of the corporate bastion” protecting the company’s independence. Instead, the board becomes an auctioneer, legally obligated to act with one singular purpose: securing the highest value reasonably attainable for the shareholders. This duty is not limited to just traditional mergers but also extends to asset sales that effectively terminate shareholders' ongoing investment, as clarified last January in In re Dura Medic Holdings Inc. Consolidated Litigation, 331 A.3d 796, 819 (Del. Ch. 2025). For media conglomerates like WBD, which holds valuable content libraries and streaming platforms, the Revlon doctrine's relevance is amplified. In the case of WBD, the board can no longer hide behind vague long-term strategic goals to justify a lower-priced deal. Every decision, from agreeing to deal protection fees with Netflix to rebuffing Paramount’s hostile advance, will be subject to enhanced scrutiny by the courts in which its sole duty is to maximize shareholder value. Further, Revlon ensures that when a corporate empire is being dismantled or sold, the directors cannot prioritize their own job security or preferred partners over shareholder returns. Critical Factors for Boards in Discharging Revlon Duties As the WBD board weighed Netflix’s friendly offer against Paramount’s hostile bid, it is safe to assume that any dispute over its decision-making is likely to be evaluated under Revlon’s enhanced scrutiny standard. When evaluating the competing bids, WBD’s board should have considered the following. Stay Adequately Informed A board’s duty to be informed requires it to fully consider alternative transactions. The board must fully investigate alternative offers and use independent financial advisers to show it has analyzed the true value of both bids. Neutrality Directors cannot favor one bidder over another for reasons unrelated to shareholder value (such as preserving their own board seats). If they provide Netflix with “deal protections” like the $5.8 billion breakup fee, they must prove that those protections were necessary to secure a superior bid and weren't just a “poison pill” to kill Paramount's offer. The board will need to consider a committee of disinterested directors to the extent there are any conflicts among certain directors on the board. The ‘Highest Value’ vs. ‘Highest Price’ Distinction Revlon does not strictly require the board to take the highest purchase price. The board can reject Paramount’s $108.4 billion cash offer in favor of Netflix’s lower bid if it believes the Paramount deal has a higher closing risk (e.g., deal certainty is low due to Paramount’s ability to satisfy financing and other conditions). Despite the Netflix offer having a higher value due to the long-term upside on its stock price, the board will need to weigh the heightened risk to deal certainty given the indications that the combination of Netflix and WBD will create market share in streaming services that will be heavily scrutinized and potentially blocked by antitrust regulators. Deal Structure Deal structure is a huge factor when analyzing competing bids. Paramount’s all-cash offer, assuming the reliability of the Larry Ellison guarantee, provides a clean exit for shareholders at a fixed price, shielded from market volatility. In contrast, Netflix’s mix of stock and cash offers potential valuation upside, allowing WBD shareholders to participate in the future growth of the combined streaming giant. However, this upside is a double-edged sword. If Netflix’s stock price spirals after the deal closes, the value of the deal declines, leaving minority shareholders with less than they bargained for. The bid structure also serves as a critical signaling mechanism to the market and the workforce. A cash-heavy bid like Paramount’s signals high confidence in the target's underlying value, suggesting the bidder believes it can extract enough value out of the target to justify the massive debt load. Yet, all-cash competing bids often raise red flags with regulatory agencies, creating a barrier to closing the deal. WBD’s Rationale for Rejecting Paramount’s Offer In analyzing and ultimately rejecting the hostile bid from Paramount, it is clear that WBD’s board did so through Revlon-colored glasses by applying the factors discussed above. “Paramount’s latest offer remains inferior to [WBD’s] merger agreement with Netflix across multiple key areas,” said Samuel Di Piazza, Jr., chair of the WBD board, in a release. The WBD board justified its rejection under Revlon by noting that “Paramount’s offer continues to provide insufficient value, including terms such as an extraordinary amount of debt financing that create risks to close and lack of protections for [WBD’s] shareholders if a transaction is not completed. [WBD’s] binding agreement with Netflix will offer superior value at greater levels of certainty, without the significant risks and costs Paramount’s offer would impose on [WBD’s] shareholders.” WBD’s board also highlighted that the Paramount offer carries a staggering $4.7 billion in costs, including a $2.8 billion termination fee to Netflix and penalties for failing to complete debt exchanges. These costs effectively reduce the net value to shareholders and lower the protective "break-up fee" Paramount would pay if the deal fails from $5.8 billion to a mere $1.1 billion. In contrast, the board continues to believe that a stable combination of cash and stock and no financial penalties in the Netflix offer provides significantly higher value to shareholders. Beyond the price tag, the board expressed grave concerns regarding the extraordinary financial risk and lack of certainty in Paramount’s ability to close the deal. WBD’s board claims the Paramount proposal is essentially structured as a leveraged buyout (LBO). In fact, they claim Paramount’s proposal is structured as the largest LBO in history, requiring Paramount to take on nearly $95 billion in debt. Paramount has a $14 billion market capitalization, and its offer requires nearly $95 billion of debt and equity financing, which is close to seven times its total market capitalization. The board’s position is that this debt structure makes the deal highly vulnerable to market shifts and lenders’ willingness or ability to provide funds at close. To further justify the concerns with Paramount’s financial health, WBD’s board noted Paramount currently has a “junk” credit rating and negative cash flow, which stands in stark contrast to Netflix’s $400 billion market cap, investment-grade balance sheet, and robust free cash flow. Finally, the board warned of the operational damage WBD would suffer during a potential 12-to-18-month closing period. Paramount’s offer imposes onerous restrictions that would prevent WBD from pursuing key strategic initiatives, such as the planned separation of Discovery Global. If the deal were to collapse after such a long period of restricted operations, the board believes shareholders would be left with a severely diminished business and insufficient compensation for the resulting value destruction. Stay Tuned The next step in this dramatic sale process is for WBD’s shareholders to vote on whether to reject Paramount’s offer. Then, it is to be seen whether Paramount comes back with a further amended offer to continue to apply pressure on the WBD board to further consider the point in which a Paramount offer may actually provide superior value to the Netflix transaction. As this process continues to unfold, it is likely to further test whether the Revlon framework designed to guide boards in an era of industrial conglomerates can adapt to the complexities of media consolidation in modern times, such that WBD’s justification for supporting the Netflix deal and rejecting the Paramount deal will survive the challenges that are likely to ensue from investor lawsuits. For investors, the Revlon doctrine remains a critical lens for evaluating board decisions in mega-media mergers. But as the WBD saga continues to demonstrate, there is a fine line between Revlon fiduciary duties and long-term strategic vision.

The Delaware Court of Chancery recently addressed an issue in which it stated there is no meaningful precedent that involved the role of company counsel in a books and records dispute between a two-member deadlocked board of directors. In a bench ruling on October 22 in Kundrun v. AMCI Group, involving a Delaware limited liability company (LLC) with 50/50 ownership and a two-member board of directors who were in a dispute over whether one of them could access company information, the Chancery Court held that counsel selected and engaged by the executive chairman to represent the company in the dispute is not required to be disqualified from representing the company but must remain neutral in the action. Dispute Arises Over Authority to Hire Company Counsel Fritz Kundrun and Hans Mende each directly or indirectly own 50% of the membership interests in AMCI Group LLC, a manager-managed Delaware LLC. AMCI’s sole manager is a board of directors consisting of two directors, Kundrun and Mende. The company’s operating agreement appoints Mende as AMCI’s executive chairman, which is an officer position. Since 2022, Kundrun has been in an ongoing dispute with Mende about getting access to company information. Kundrun sent multiple books and records demands to the company and filed an action for inspection of the books and records. After the litigation began, Mende exercised his authority as executive chairman to select and retain counsel for AMCI to represent the company in connection with the dispute. Kundrun moved to disqualify such company counsel on the grounds that Mende did not have the authority to hire counsel unilaterally to represent AMCI. He also sought the appointment of a receiver for the limited purposes of identifying neutral counsel to represent the company in the litigation. The magistrate who initially heard the case denied the motion and Kundrun took exceptions, which were then heard by the Chancery Court. What the Chancery Court Found The Chancery Court noted that there does not appear to be any meaningful precedent involving an LLC books and records action where two members each own 50% of the entity and each are members of a two-person board. Authority of Executive Chairman Under Operating Agreement The court found that AMCI is a series LLC that establishes a manager-managed structure in which a board of directors acts as the sole manager for the LLC and its series with a delegation of authority to conduct day-to-day matters to a senior officer. The parties disputed the proper interpretation of certain provisions of the operating agreement and the extent to which such provisions delegated authority to Mende to select counsel. In its ruling, the court focused on certain language in the operating agreement that provided authority to the executive chairman, including the following two sentences: Subject to the authority of the board, the executive chairman will have the unqualified and complete authority and responsibility over the day-to-day operation of the business of the Company and each series. Unless later rescinded by the board, the executive chairman is, by virtue of this agreement, delegated the full powers and authority of the board with respect to the Company and each Company-managed series. The court noted that the magistrate, in denying Kundrun’s motion, found that the operating agreement gives all power to the executive chairman other than certain actions that were specifically enumerated in the operating agreement that the executive chairman is prohibited from taking. In disagreeing with the magistrate, the court found the language in the operating agreement provides that the delegation to the officer is to handle the day-to-day operations of the business and that within the scope of authority, the officer can also exercise the board powers, but only within the day-to-day operation of the business. The court found that its interpretation gives effect to both of the above sentences and that the magistrate’s interpretation renders the day-to-day limitation a nullity and departs from the standard structure of a delegation. The court also found that it could not draw the inference that the specifically enumerated items were intended to be an exclusive list of day-to-day matters that the executive chairman was prohibited from taking, but that the list seems to be clarifications where the operating agreement provides that the executive chairman’s authority is generally limited to day-to-day matters. The court ruled that Mende lacked the authority under the operating agreement to select company counsel for purposes of this litigation because he only had authority to exercise the power of the board in connection with the company’s day-to-day operations, noting that a books and records action brought by what is effectively a director on a two-member board who was also one of two 50/50 investors is not a day-to-day matter. Bilateral Dispute The court noted that engagement of counsel is often within the power of a CEO or the CEO’s delegate, such as the general counsel, but the court did not think that using that counsel to defend a dispute between one of two directors and one of two 50% stockholders over information the director can obtain is an ordinary course of business matter. The court found that this is a bilateral dispute, where one of two directors is trying to exercise director-style, manager-level information rights and one of the reasons why he supposedly can’t get the information he wants is because the other director isn’t joining him in exercising the manager-level information rights. The court found that there is a deadlock over whether the board can act, including a deadlock over whether directors can get information because Mende supposedly won’t go along with his fellow director in exercising managerial information rights. In viewing the matter as a bilateral dispute, the court stated that this is a setting where the company counsel needs to be representing the company; that the board is the company, not Mende; and the board is deadlocked on an array of matters, including whether Kundrun gets information in his capacity as a director. The Chancery Court’s Order The court’s order denied Kundrun’s request for company counsel to be disqualified but granted Kundrun’s request for an order requiring company counsel to remain neutral in the action. Among other things, the order stated that company counsel cannot take direction from the board on matters on which the board is deadlocked; company counsel must carry out any orders from the court; company counsel must comply with discovery requests and provide neutral, complete and accurate responses to those requests; and company counsel must remain neutral in the action and not take a position adverse to either Kundrun or Mende. The court’s order also noted that although the action was styled as a dispute involving Kundrun and AMCI, this dispute is actually between Kundrun and Mende, and Mende and his personal counsel may intervene in this action for purposes of defending the proceeding. Role of Company Counsel In an LLC that has a two-member board of directors, company counsel likely would be required to remain neutral and not take a position adverse to either board member in matters on which the board is deadlocked.

The California Privacy Protection Agency (CPPA) is back with a new settlement, this time with the largest rural lifestyle retailer in the United States, Tractor Supply Co. In the settlement, announced September 30, Tractor Supply agreed to a $1.35 million fine — the largest in the CPPA’s history, according to the agency. Tractor Supply also agreed to implement broad remedial privacy measures and to have a corporate officer or director certify compliance with the settlement for the next four years. The CPPA noted the decision is the first to address the significance of CCPA privacy notices and job applicants’ privacy rights. A Question of Temporal Scope In its press release announcing the settlement, the CPPA indicated that it opened its investigation into the company after receiving a consumer complaint. Back in August, the CPPA went to court to enforce an investigative subpoena against Tractor Supply seeking information on the company’s compliance dating all the way back to January 1, 2020. In its subpoena enforcement action, the CPPA alleged that Tractor Supply resisted the five-year lookback as outside the scope of the CPPA’s enforcement authority (since the CPPA’s regulations implementing the California Consumer Privacy Act (CCPA) were not finalized until March 2023). The settlement between the CPPA and Tractor Supply terminated that litigation and covers only the period from January 1, 2023, through July 1, 2024. Interestingly, the settlement requires Tractor Supply to acknowledge that the CPPA’s authority to investigate potential violations of the CCPA includes the period prior to January 1, 2023. Given the parties’ agreement to a temporal limitation on the conduct that favored Tractor Supply’s interpretation of the CPPA’s authority and the CPPA’s voluntary dismissal of its subpoena enforcement action, the CPPA appears to have been willing to compromise on this point to reach a resolution. The (Alleged) Violations The settlement alleges two broad categories of violations of Californians’ privacy rights by Tractor Supply: the handling of consumer requests to opt out of the sale/sharing of their personal data and the notifications to consumers (including job applicants) of their personal privacy rights. Opt-out requests have been a regulatory priority for the CPPA in 2025. Earlier this year, the CPPA settled with American Honda Motor Co. and Todd Snyder Inc. over (among other things) those companies’ handling of consumer opt-out rights. In settling with Tractor Supply over the handling of opt-out requests, the CPPA identified three types of violations: While Tractor Supply included a form on its website to allow a consumer to opt out of the sale of his or her personal information, the submission of that form did not interact with the third-party tracking technologies used by Tractor Supply for advertising and the form had no impact upon how the company shared consumers’ personal information. Until July 2024, Tractor Supply’s website did not process opt-out preference signals and the company did not explain in its privacy policy how opt-out preference signals would be processed (for example, if the signal applied to the device, browser, consumer account and/or offline sales). Tractor Supply did not include the necessary provisions required by the CCPA to protect consumer personal data in its contracts with third parties, service providers and contractors. (These provisions must identify the limited and specified purposes for which the personal information can be used, limit the recipient’s use of the personal information to the specified purposes, and require compliance with the CCPA, including that the third party must offer the same level of privacy protection as its principal.) With respect to Tractor Supply’s privacy policy, the CPPA noted that it failed to provide the detailed disclosures required and failed to apprise consumers of their rights under the CCPA. These disclosures must include the categories of personal information the business collected in the preceding 12 months, the categories of sources from which the information was collected, and the specific business or other purpose for which the information was collected. The policy must also affirmatively state whether the business sold, shared or disclosed personal information over the preceding 12 months. The policy must identify the categories of recipients to whom personal information was sold, shared or disclosed and the specific business purpose behind that sharing. A company is required to update its privacy policy on an annual basis but allegedly Tractor Supply published its original privacy policy in September 2018, updated it in November 2021, and then had not updated it again until after it learned of the CPPA’s investigation. Tractor Supply also allegedly failed to notify job applicants of their rights under the CCPA. The company had a pop-up disclosure in place for job applicants from California, but this disclosure did not provide job applicants with any detail regarding their CCPA rights or a description of how to exercise those rights. The Settlement Terms As aforementioned, the penalty levied on Tractor Supply is the largest obtained by the CPPA to date. In a departure from its past practices in the Honda and Todd Snyder settlements, the CPPA did not tie any of the $1.35 million fine to a specific number of violations or to its statutory authority, making it difficult to ascertain how the CPPA calculated this figure. Also as noted above, Tractor Supply also agreed to detailed undertakings to bring it into compliance with the CCPA. These include modifying its existing practices, conducting a detailed inventory of its own tracking technologies, modifying the design of its website to address opt-out requests, and taking certain steps to notify affected consumers. Tractor Supply also agreed that it will provide the CPPA’s Enforcement Division with a written certification of compliance with the settlement for the next four years, along with certain additional reporting. Lessons Learned The CPPA’s latest settlement confirms that it continues to engage in granular investigations that delve into the design and operation of a company’s website and the accompanying structure of its consumer privacy program to determine if the company is actually operating in a manner that complies with the CCPA. Privacy programs must therefore be implemented in a holistic fashion where the different pieces (such as opt-out forms) handshake with other aspects of the company’s web presence (such as its analytics) and also reach into the company’s contractual relationships and information-sharing practices. This puts further emphasis on the importance of building good privacy hygiene into a company’s products and operations from their inception, rather than attempting to bolt it on later in the life cycle. This enforcement action demonstrates that the handling of the rights of an individual consumer can lead to an investigation. There is a much larger community of privacy enthusiasts out there who will take heart from the story the CPPA tells in this settlement. The investigation that led to the settlement was based on a complaint from a single consumer. This story will certainly encourage amateur (and professional) students of privacy rights to look for additional problems for the CPPA to investigate. And while the CPPA found itself facing some resistance with respect to the temporal scope of its enforcement authority, it still harvested the most significant settlement in its history from the fertile fields of Tractor Supply’s own privacy program.

Continuing recent IRS denials of tax exemptions to open-source software (OSS) organizations are drawing attention to the agency’s need to issue updated revenue rulings or other guidance about when OSS may qualify as a charitable activity, particularly where there is an educational or civic purpose. OSS contrasts with proprietary software — where the owner invests time and money in creating the software and then charges for the right to use it — by being freely available and often collaboratively developed. The owner’s rights in proprietary software are protected by copyright, and access to the software and its inner workings is strictly limited by the owner. The OSS license makes available not just the program, but also the actual code creating it, for any member of the public to download, modify and use. Continuation of OSS Tax-Exemption Denials IRS Private Letter Ruling 202530014 issued late this summer is illustrative of the problem OSS organizations continue to face. In that instance, an applicant requested exempt status in order to develop best practices for processes and governance of OSS. It had planned to do this through the collaboration of academics, nonprofits and public-sector groups to develop and license a framework of best practices to the open-source industry. The applicant anticipated creating exclusively OSS for, and making the software available primarily to, nonprofit, educational and public-sector institutions, but also freely available to anyone agreeing to the terms of the open-source license. The description of its activities included collaboration and standardization, workshops and code-a-thons, a certification registry, membership activities, and training and documentation. Nevertheless, like other denials of exemption stretching back to approximately 2012, the IRS determined that OSS development itself was a non-exempt purpose that, if substantial, destroys the exempt character of the organization. Shift in Distinction for Software Development It hasn’t always been like this. In the 1990s, when the concept of OSS was novel, the IRS approved several exempt organizations whose purpose involved developing, licensing and maintaining OSS. In 2003, the Mozilla Foundation, the global nonprofit and parent of Mozilla Corp., received 501(c)(3) status for the purposes of developing open-source free internet applications and standards-compliant content and software. And, in fact, government agencies such as NASA and the U.S. Department of Defense make liberal use of OSS in their work because it both encourages innovation and reduces the need to duplicate development efforts. OSS licenses, such as the GNU General Public Licenses, have been developed to restrict uses of the software for monetary purposes unless the developer makes the derivative products similarly open to the public. Use of these open licenses for software also does the work of ensuring that any private benefit derived from the open-source development work is merely incidental. Today’s distinction seems to be that the IRS doesn’t see software development itself as educational or charitable. However, the lack of official guidance explaining what does and does not qualify means tax practitioners can only try reading between the lines of private letter rulings and denials to determine what might qualify. Unfortunately, formal denials are often light on details due to extensive redactions and are, ultimately, not precedential except to the extent they bind the parties involved. Need for Additional IRS Guidance Until the administration is ready to take a good look at providing guidance on OSS, these organizations will continue to get short shrift. Some will go on to organize as 501(c)(6) business associations, although Private Letter Ruling 202507012, issued earlier this year, may have been among the first to deny even this less-tax-favored status for open-source development. In that denial, the IRS found an organization promoting and maintaining an open-source blockchain software failed to qualify as a business association because it was not connected to a specific line of business, but to a broad range of business interests that could benefit from the software. But, more critically, many other developers may simply choose not to create software that could solve problems or provide broad benefits to the public. Until additional guidance is issued, or one of the denied organizations brings its claim to tax court, it looks like OSS development will continue to be closed out of the tax-exempt universe.

An integration clause is a boilerplate provision that provides that a written contract contains the entire agreement of the parties. (A typical integration clause would read: “This Agreement constitutes the entire agreement between the parties with respect to its subject matter and supersedes all prior oral and written negotiations and agreements with respect to such subject matter.”) Most integration clauses refer only to one contract — the contract in which the integration clause appears — as constituting the parties’ entire agreement. In such cases, the integration clause serves to confirm the parties’ intention for the written contract to be a fully integrated statement of their agreement such that the parol evidence rule would preclude a court from considering extrinsic evidence of that meaning to resolve any dispute between the parties. But in transactions that are documented with more than one contract, the integration clause often references all of the related contracts as making up the parties’ entire agreement. For example, the integration clause in an acquisition agreement for an M&A transaction might read: “This Agreement (including the Schedules and Annexes) and the Ancillary Agreements (including any schedules and annexes to the Ancillary Agreements) constitute the complete, integrated agreement among the Parties with respect to the subject matter of this Agreement and such Ancillary Agreements.” This was the integration clause at issue in the recent Delaware Supreme Court case Thompson Street Capital Partners IV v. Sonova United States Hearing Instruments, 2025 WL 1213667 (Del. Apr. 28, 2025), which we examined in detail in a prior post. A ’Unitary Contractual Scheme’ As we previously described, the Delaware Court of Chancery held that Sonova United States Hearing Instruments LLC’s notice of a potential indemnification claim was sufficient to prevent a release of escrowed funds under the parties’ escrow agreement. (See Thompson Street Capital Partners IV v. Sonova United States Hearing Instruments, 2024 WL 1251150 (Del. Ch. Mar. 25, 2024).) The Delaware Supreme Court reversed, finding that the notice also had to satisfy the notice requirements for the bringing of an indemnification claim under the merger agreement between the parties. The court based its decision on the fact that the integration clause in the merger agreement referenced not only the merger agreement but also “Ancillary Agreements,” which included the escrow agreement. The court found that the merger agreement and the escrow agreement were to be read together as a “unitary contractual scheme” under which both the general notice requirements in the escrow agreement and the specific notice requirements in the merger agreement were to be given effect. Thus, the parties’ inclusion of the ancillary agreements in the merger agreement’s integration clause had the surprising effect of imposing on the escrow release additional notice requirements that did not appear in the escrow agreement itself. ‘Entire Agreement and Understanding’ A similar decision from last year is VEP Biotech v. Quadrant Biosciences, 5:23-CV-1428 (GTS/ML) (N.D. N.Y. Sep 19, 2024), which involved a note purchase agreement and related convertible promissory notes. Under the note purchase agreement, Quadrant Biosciences Inc. agreed to issue and sell, and VEP Biotech Ltd. agreed to purchase, three convertible notes if certain enumerated conditions were met, although only the first of the notes was ever issued. After the note’s maturity, Quadrant admitted that it had failed to repay the amount due but raised as an affirmative defense the fact that VEP had previously breached its obligation to purchase the two additional notes under the note purchase agreement. The U.S. District Court for the Northern District of New York examined several provisions in the note purchase agreement and the convertible note, including the integration clause in the note purchase agreement that stated the note purchase agreement and the convertible notes “embody the entire agreement and understanding between [VEP] and [Quadrant] and supersede all prior agreements and understandings relating to the subject matter.” VEP argued that, notwithstanding the integration clause, breach of the note purchase agreement would not excuse Quadrant from performance of its unconditional obligation under the convertible note, but the court did not agree. Rather, the court found that because the terms and conditions of the note purchase agreement included VEP’s purchase of the second and third convertible notes, the court could not say that the first note was an unconditional promise to pay notwithstanding VEP’s noncompliance with the note purchase agreement. Accordingly, the court held that Quadrant’s affirmative defense was sufficient to prevent an entry of judgment on the pleadings, and VEP’s motion for such a judgment was denied. A Note of Caution These two cases highlight unintended consequences that can result when an integration clause provides for two or more related contracts to be treated as the parties’ entire agreement. As in Thompson, requirements under one contract may be imposed on a party’s performance under a related contract. And, as in VEP Biotech, a breach of one contract may adversely affect a party’s ability to enforce its rights under a related contract. In all events, an integration clause that encompasses more than one contract can render unambiguous terms of one contract ambiguous when considered in conjunction with the terms of related contracts. Counsel must proceed with caution to draft contracts that avoid such unintended consequences.

A recent decision by the Delaware Supreme Court emphasizes the importance of clearly written notice provisions in a contract and strict compliance with them, including any timing requirements and provisions requiring the disclosure of information and documents as a condition to a valid notice. What the Chancery Court Found In Thompson Street Capital Partners IV v. Sonova United States Hearing Instruments, Sonova United States Hearing Instruments LLC acquired audiology practices operated by Alpaca Group Holdings LLC pursuant to a merger agreement entered into by, among others, Alpaca, Sonova and Thompson Street Capital Partners IV LP, the latter of which served as the representative of former members of Alpaca. One business day before the survival period for submitting certain claims for indemnification under the merger agreement expired, Sonova delivered a notice (claim notice) to Thompson, as members’ representative, in which Sonova claimed indemnification for breaches of certain representations and warranties under the merger agreement based upon alleged improper billing practices of Alpaca, its affiliates and the audiology practices. The claim notice stated that Sonova became aware of certain billing practices of Alpaca and its affiliates that Sonova believed were not in compliance with applicable laws and/or third-party payor reimbursement rules or other requirements, and as a result of such billing practices, Sonova believed Alpaca and its affiliates billed and received payment or reimbursement to which they are not entitled, which constituted the breach of certain representations and warranties under the merger agreement. The claim notice also stated that Sonova’s investigation and analysis was continuing, and that it would supplement the claim notice as it learned additional information. The claim notice alleged that, while the aggregate amount of damages was not known or estimable with certainty, such damages exceeded the funds that were deposited and held in escrow to provide a source of funds for indemnification claims, and directed the escrow agent to reserve the full amount of the escrow. Thompson filed a complaint in the Delaware Court of Chancery, seeking an order declaring that Sonova’s claim notice did not comply with contractual requirements under the merger agreement because, among other things: (1) it was not delivered within 30 days of Sonova becoming aware of the claim as required by the merger agreement; and (2) it did not include the specific information required under the merger agreement, including a description of the claim in reasonable detail and “all available material written evidence thereof.” Thompson sought a mandatory injunction requiring Sonova to execute a joint instruction letter directing the escrow agent to release the funds in escrow to Thompson in its capacity as members’ representative. Sonova moved to dismiss the action, arguing that: the merger agreement required only that it serve a written claim notice on or before the survival date in order to preserve a claim for indemnification and prevent the release of the escrowed funds and did not contemplate the level of detail that Thompson was seeking; the claim notice was timely; and Thompson did not plead any specific prejudice or harm due to the timing of claim notice. The Chancery Court granted Sonova’s motion to dismiss the action, finding that Sonova’s claim notice was valid for stopping the release of the escrowed funds. Thompson appealed to the Delaware Supreme Court. What the Supreme Court Found On appeal, the state Supreme Court reversed the Court of Chancery’s dismissal of the action and remanded the action for further development of certain points. Failure to Provide All Required Information in Notice The Supreme Court held that it is reasonably conceivable that Sonova failed to comply with the requirement in the merger agreement that Sonova include copies of all available material written evidence of its claim, noting the complaint alleged that although Sonova supposedly spent months investigating and analyzing these matters, Sonova’s claim notice failed to include any materials or evidence supporting Sonova’s claim, let alone copies of “all available material written evidence thereof” as required by the merger agreement. Failure to Comply with Timing Requirement The court also held that it is reasonably conceivable that Sonova violated the provision in the merger agreement requiring Sonova to provide notice of its claim within the specified time period. The court found that Thompson adequately pleaded that (1) Sonova failed to provide notice of its claim within the required time period and (2) the delay actually and materially prejudices the merger party, to the extent sufficient to survive a motion to dismiss. The court noted that Thompson’s complaint alleged that Sonova had been aware of the facts underlying the claim since long before the date it delivered the claim notice, as Sonova representatives confirmed in various communications with Alpaca’s former CEO and CFO before the merger agreement closed, as well as in communications with a continuing employee of Sonova following the closing. The court also noted that Thompson pleaded that by disregarding the claim deadline Sonova caused the kind of material prejudice that deadline was put in place to avoid, including by: (1) increasing the risk of excess damages by disregarding contractual and statutory refund/repayment periods; (2) negating the parties’ ability to negotiate with applicable third-party payors in good faith and in a timely manner where due credit would be given; and (3) potentially implicating a greater period of noncompliance in any final damages. Waiver/Forfeiture of Sonova’s Ability to Claim Indemnification Thompson argued that Sonova’s failure to comply with each of the requirements in the merger agreement applicable to asserting a claim for indemnification resulted in an enforceable waiver/forfeiture of Sonova’s ability to seek indemnification. In its analysis, the court reviewed a number of Delaware cases that it found distinguishable from this case and noted that if the language of a contract does not clearly provide for forfeiture, a court will construe the contract to avoid causing one. In this case, the court found that the merger agreement provides that Sonova shall have no right to recover any amounts pursuant to the agreement unless Sonova notifies the members’ representative in writing of such claim on or before the survival date. The court held that such language unambiguously expressed a condition precedent capable of triggering a forfeiture due to Sonova’s noncompliance with notice requirements. The court remanded the action for further proceedings consistent with its opinion, including whether the forfeiture from noncompliance with the condition precedent can be excused based upon questions of materiality and disproportionate forfeiture that are insufficiently developed in the record.

The recently enacted “One Big Beautiful Bill Act” (OBBBA) pumped up an already strong incentive to invest in certain startups and other small businesses, the qualified small business stock (QSBS) exclusion under Section 1202 of the Internal Revenue Code. The OBBBA — signed into law on July 4, 2025 — made the QSBS exclusion more appealing by introducing three taxpayer-favorable changes: (1) a bigger gain exclusion cap per shareholder; (2) earlier savings under a multi-tiered holding period regime; and (3) a bigger gross asset limitation for businesses. The primary benefit of the QSBS exclusion is that the shareholder holding QSBS can exclude millions of dollars of gain (or, if greater, 10 times the shareholder’s basis in the stock) when it sells QSBS. We previously discussed some of the basics of the QSBS exclusion and tax-planning opportunities. Read on for an overview of the OBBBA’s taxpayer-favorable changes to the QSBS exclusion. Bigger Gain Exclusion Cap The OBBBA increased the per-shareholder gain exclusion cap from $10 million to $15 million. For married taxpayers filing separate returns, the per-shareholder gain exclusion cap increased from $5 million to $7.5 million. The increased gain exclusion cap applies to QSBS issued after July 4, 2025. The $15 million cap is adjusted for inflation beginning in tax years after 2026. Earlier Savings Under Multi-Tiered Holding Period Under the OBBBA, a taxpayer can exclude a certain percentage of gain realized on the sale (or other disposition) of QSBS based on the number of years the taxpayer held QSBS. Before the OBBBA, the earliest opportunity to access tax savings was five years from issuance.  Upon the sale of QSBS, the taxpayer can now exclude: (1) 50% of gain realized after holding QSBS for at least three years; (2) 75% of gain realized after holding QSBS for at least four years; and (3) 100% of gain realized after holding QSBS for at least five years. The multi-tiered holding period rules apply to QSBS issued after July 4, 2025, and the excluded gain is still not treated as an alternative minimum tax preference item. Bigger Gross Asset Limitation The OBBBA increases the asset limitation on corporations considered to be qualified small businesses from $50 million to $75 million, with inflation adjustments beginning in tax years after 2026. Therefore, a corporation will be considered a qualified small business if it has less than $75 million in aggregate of (1) cash, (2) the fair market value of property contributed in the stock issuance (if any), and (3) the tax basis in the corporation’s other assets at the time of stock issuance. The increased asset limitation is effective for stock issued after July 4, 2025.  More corporations may now be eligible to issue QSBS, which can facilitate larger, later-stage financing rounds.

The U.S. patent litigation landscape is being reshaped by the burgeoning industry of litigation funding, which has grown into a multibillion-dollar market. Initially met with skepticism, litigation funding has become a mainstream tool for patent enforcement. This growth is due, in part, to the increasing legal costs and procedural challenges faced by individual inventors, startups and small patent holders in asserting their rights. The acceptance of litigation funding has been driven by its ability to provide financial access for costly patent disputes, the rise of portfolio funding models, and a growing focus by institutional investors on intellectual property as a valuable asset class. Key legal developments have influenced this trend. The U.S. Supreme Court’s decisions in Alice v. CLS Bank limited patent eligibility and in TC Heartland v. Kraft Foods Group Brands redefined proper venue, while the prevalence of inter partes review (IPR) proceedings have added complexity and risk to patent enforcement. In response, litigation funders have become more selective, focusing on high-quality patents in well-prepared cases. This has resulted in a more sophisticated and competitive funding landscape, which is expected to continue shaping U.S. patent litigation. Trends Shaping the Future of Litigation Funding Patent litigation funding offers a gateway to the potential value of patent infringement cases, which can yield significant settlements or damage awards. These returns are often outsized compared to traditional investments in fixed income or equity, and they are independent of stock market performance, interest rates and broader economic cycles. Looking ahead, trends in patent litigation funding over the next decade will be influenced by developments in innovation, finance and law. Growth and innovation are expected in high-value technology sectors such as AI, semiconductors, 5G/6G and biotech. This will create opportunities for significant business investment and the development of patents to protect high-value innovations. As the value of intellectual property assets increases, the costs to enforce patent rights are expected to follow. The Potential of High-Value Technology Sectors The future of litigation funding in the patent infringement space is poised to target those high-value technology sectors at the forefront of innovation, driving significant business investment and the development of patents to protect groundbreaking technologies. As these sectors continue to grow, the value of intellectual property assets tied to these sectors will increase, leading to more frequent assertions of patent rights. This trend presents lucrative opportunities for litigation funders, who can capitalize on the potential for substantial returns from patent enforcement in these cutting-edge fields. The Importance of Venue Selection Venue selection will continue to influence patent litigation due to the advantages and disadvantages offered by different jurisdictions. Some jurisdictions, such as the Eastern and Western districts of Texas, are known for their local rules that favor patent holders, often resulting in faster trial schedules and higher success rates for plaintiffs. Conversely, jurisdictions like the District of Delaware and the Northern District of California tend to favor defendants, offering more rigorous scrutiny of patent claims and a higher likelihood of patent invalidation. The choice of venue will significantly impact the outcome of a case, making it a critical strategic consideration for funder due diligence. The Rise of Ex Parte Reexaminations Recently, Patent Trial and Appeal Board (PTAB) discretionary denials to institute IPR have increased, so ex parte reexaminations may be used more as a preferred strategy for defendants seeking to challenge patent validity. The recent rescission of former Director Kathi Vidal’s 2022 memorandum by the U.S. Patent and Trademark Office (USPTO) in February 2025 has given PTAB panels more flexibility in applying Fintiv factors to deny IPR. While IPR will remain as a suitable aspect of a defensive litigation strategy, the outcome of IPR may become less favorable for defendants. Ex parte reexaminations, which allow third parties to request a reexamination of a patent by the USPTO without the need for a full trial, may rise in popularity for defendants as a feasible alternative to IPR. Ex parte reexaminations can be a cost-effective and faster means of contesting patent validity, providing defendants with an alternative strategy to navigate the complexities of patent litigation. Portfolio Investment and Risk Management Portfolio investment is becoming more favorable compared to traditional single-case funding. While single-case funding concentrates risk on the quality of a single case, portfolio investment spreads risk across multiple cases, involving various patent owners, technologies and defendants. This approach enhances diversification and the potential for return on investment. Portfolios can be structured to match an investor’s risk profile, including a mix of high-risk, high-reward cases and lower-risk cases to balance the overall risk of a portfolio. Funders are increasingly using insurance to protect their investments, with judgment preservation and enforcement coverage insurance helping to de-risk litigation outcomes. As litigation costs continue to rise, funders will become more selective, focusing on high-quality cases with enforceable, valid and litigation-tested patents; clear infringement; and significant damages. Advancements in AI-based predictive analytics will further enhance funders' ability to assess portfolio risk and returns, integrating data analytics to improve efficiency in case selection. An Emerging Alternative Investment Tool The institutionalization of patent litigation finance funds is emerging as an alternative investment tool, with dedicated capital pools focused on patent enforcement and monetization. Pension funds, family offices, endowments and private equity firms are increasingly allocating resources to alternative investments, including litigation finance funds. The legal landscape is evolving, particularly concerning patent subject-matter eligibility under 35 U.S.C. Section 101 and the Alice decision, which will impact the patent landscape in high-value technology areas. The IPR process has undergone a significant change since the recent rescission of Vidal’s 2022 memorandum, which has provided PTAB panels more flexibility in weighing Fintiv factors to deny IPR. This change may lead to an increase in use of ex parte reexamination as an alternative or additive strategy for challenging patents. Finally, venue considerations will continue to play a crucial role in determining the trajectory of patent cases. Since the success or failure of a patent case relies heavily on facts and applicable case law, funders should vet thoroughly the strengths and weaknesses of a case to determine if it is investment-grade and the related risk profile, especially if building an investment portfolio.

In its first major enforcement action, the California Privacy Protection Agency recently settled with American Honda Motor Co., a California corporation with its principal place of business in the state, for alleged violations of the California Consumer Privacy Act (CCPA) related to the company’s implementation of programs addressing rights granted consumers by the CCPA. Honda agreed to change its business practices and to pay a $632,500 fine. This settlement is the first time the agency has settled with a public company over alleged violations of consumer rights. The agency has previously settled with a number of data brokers for the failure to register with the agency. (See, i.e., “CPPA Settles with First Set of Data Brokers” (November 14, 2024); “CPPA's Enforcement Division Inks Settlement with Fifth Data Broker” (January 29, 2025).) Prior to the creation of the agency, the California Attorney General enforced the CCPA and settled with a number of public companies. The Settlement The California Privacy Protection Agency’s Enforcement Division alleged the following conduct by Honda violated California consumers’ privacy rights: Placing excessive burdens on the exercise of certain privacy rights. The configuration of an online privacy management tool. Obstructing consumers’ use of authorized agents to exercise privacy rights on their behalf. Entering into contracts that failed to appropriately protect consumer privacy rights. Under the CCPA, consumers in California have certain rights to direct how a business uses and/or retains their data, including the right to know, the right to delete, the right to opt out of the sale or sharing of their personal information, the right to correct, the right to limit the use of their information for certain purposes (such as targeted advertising), and the right to non-discrimination. Honda chose to use a single form to manage contact with consumers wishing to exercise their rights under the CCPA. The agency alleged that Honda’s use of a uniform process to address requests under the CCPA unduly burdened consumers. The agency argued that the right to opt out of the sale or sharing of personal information, and to limit the use or disclosure of a consumer’s personal information, should not be subject to the same verification requirements as, say, the right to delete. Honda faced a similar issue with its method for consumers to authorize an agent to make a request on their behalf. Honda’s program required the consumer to directly confirm they had authorized their agent to make any kind of request related to the exercise of their rights. The agency’s position was that Honda made it too difficult for consumers’ agents to opt out of the sale or sharing and to limit the use or disclosure of their clients’ personal information. Honda used a well-known compliance vendor for privacy solutions to provide a cookie management tool for its websites. This tool allowed consumers to manage the use of cookies (split into necessary, performance, functional and advertising cookies) on Honda’s websites. The tool required a consumer to opt out by toggling each category of cookies to “inactive” and then clicking a button to confirm the selection. However, a consumer could opt back in by clicking a single button (“Allow All”). The agency argued that by allowing the consumer to opt in through a single button press but requiring the consumer to select each individual category to opt out, the conduct violated the CCPA by making the process to opt out more burdensome than the option to opt in. The agency further opined in the settlement that a banner that provided a choice between accepting all cookies and a second screen allowing consumers to opt out would be asymmetric and that an equal or symmetrical choice would need to be between “Accept All” and “Decline All.” Because many websites require certain cookies from the user, such a choice would need to be phrased as something closer to “Decline All but Necessary Cookies” to make the appropriate disclosure. Finally, with respect to the contractual issues, Honda sold, shared and/or disclosed consumers’ personal information collected through its websites to advertising companies that used it for advertising and marketing purposes. Under the CCPA, Honda was required to have contracts with these companies that identify the limited and specified purposes for which consumers’ personal information could be used and that would require the advertising companies to afford consumers the same level of protection under the CCPA that Honda required. According to the settlement, Honda failed to make the necessary contractual arrangements with its partners. The agency is authorized to impose a fine of $2,500 for each violation (or $7,500 for each intentional violation) of the CCPA. The agency tied $382,500 of the $632,500 total fine to 153 consumers who were identified as having been impacted by the verification and/or authorization requirements. The agency did not attempt to explain how it calculated the remaining $250,000 as an appropriate penalty for the other conduct described in the settlement. Takeaways The CCPA regulates the conduct of any entity meeting at least one of three thresholds: (1) has more than $25 million gross annual revenue; (2) annually buys, sells or shares the personal information of at least 100,000 consumers or households; or (3) derives more than 50% of its annual revenues from selling or sharing consumers’ personal information. Honda met the first two thresholds of the CCPA’s test. With its principal place of business located in California (and a considerable volume of business in the state), Honda also provided the CCPA with a target comfortably inside its jurisdictional reach. The settlement demonstrates that the agency is taking a very granular approach in identifying what it believes to be violations of the CCPA. Most of the violations alleged to have taken place in this settlement stem from the configuration of privacy rights on Honda’s website. For example, a website designer may find it convenient to use a single form for the exercise of any privacy right, but the agency is taking the position that coding shortcuts violate California law and there need to be different forms for different rights. Cookie banners and configuration systems need to be scrutinized to determine if exercising a right requires more clicks than waiving it. One of Honda’s remedial undertakings is to consult a user experience (UX) designer to evaluate its methods for submitting privacy requests. Honda also agreed to certify its compliance, provide additional training to its employees, and to make changes to its contracting process. As the country’s first dedicated privacy organization, the agency is well aware of the focus and attention its enforcement actions garner. In fact, the mission statement for the agency promises to “vigorously enforce the law against businesses that violate consumers’ privacy rights.” As the agency continues to develop, we expect the number of enforcement actions to increase. The net effect of this settlement is that personnel with responsibilities for privacy compliance (whether in the form of internal specialists or outside counsel) need to not only examine whether they are providing a means through which California consumers can exercise their rights, but also must carefully evaluate how consumers utilize these methods.

Even in its relatively nascent form, artificial intelligence, or AI, is already running headlong into multiple conflicts with existing copyright law. One or the other is going to have to blink, to change and adapt, and it’s not going to be AI. One of the existing conflicts is whether AI can be an author for the purposes of copyright law. The U.S. Copyright Office and relevant court decisions have taken a clear position: Any content created solely by AI is not copyrightable; human participation is required. A person may use AI as a tool to assist in the creative process so long as the person’s contribution is substantial and sufficient to meet the requirements for copyright. While the bar for a person’s contribution is generally a very low one for most copyrightable work, the scope of contribution in connection with AI-generated works remains an unresolved issue. Some cases do discuss a standard, and most agree it is a circumstantial analysis that will vary by the specific facts. The issue, while novel in its application, is not new, but the conflict between the law and technology has never been as staggeringly important or the chasm as large as it is today. Copyright Office Clarifies Its Practices for AI-Generated Work The Copyright Office issued a statement of policy on March 16, 2023, to clarify its practices for examining and registering works that contain material generated by the use of AI technology (37 CFR Part 202). This statement was prompted by the Copyright Office receiving registration applications naming AI technology as the author or co-author or involving AI-produced or AI-assisted content. The statement clarified that only content created by a human can be the subject of a copyright. As the agency overseeing the copyright registration system, the Office has extensive experience in evaluating works submitted for registration that contain human authorship combined with uncopyrightable material, including material generated by or with the assistance of technology. It begins by asking “whether the 'work' is basically one of human authorship, with the computer [or other device] merely being an assisting instrument, or whether the traditional elements of authorship in the work (literary, artistic, or musical expression or elements of selection, arrangement, etc.) were actually conceived and executed not by man but by a machine.”  In the case of works containing AI-generated material, the Office will consider whether the AI contributions are the result of “mechanical reproduction” or instead of an author's “own original mental conception, to which [the author] gave visible form.”  The answer will depend on the circumstances, particularly how the AI tool operates and how it was used to create the final work. This is necessarily a case-by-case inquiry (37 CFR Part 202) (footnotes omitted). Supreme Court Rules Copyrightable Works Need Human Authorship As far back as 1884, the U.S. Supreme Court weighed in on the issue of the need for human authorship in copyrightable works. The issue was whether using a camera to take a photo meant that the work was not created by a person and therefore not copyrightable. In Burrow-Giles Lithographic v. Sarony, 111 U.S. 53 (1884), a defendant who had made unauthorized copies of a photograph argued that photographs were not copyrightable because the image at issue was created by a camera and not by a person. The court disagreed, finding that the Copyright Clause of the U.S. Constitution permitted photographs to be copyrightable “so far as they are representatives of original intellectual conceptions of the author.” The court defined “author” as the person “to whom anything owes its origin; originator; maker; one who completes a work of science or literature.” The decision repeatedly refers to such “authors” as humans. D.C. Circuit Affirms AI Cannot Be Sole Author for Copyright Protection Fast-forward 140 years and the holding still stands, but now the issue is whether a work created by AI can be the subject of copyright. Stephen Thaler, a computer scientist, developed a generative AI system called the Device for the Autonomous Bootstrapping of Unified Sentience (DABUS), also known as the “Creativity Machine.” He used his Creativity Machine to create a graphic image called “A Recent Entrance to Paradise,” which he then sought to register with the Copyright Office. In the registration application, he identified the Creativity Machine as the author of the work. The Copyright Office rejected the application because the image was not created by a human being. The U.S. District Court for the District of Columbia upheld the denial,  and Thaler appealed.  In Thaler v. Perlmutter, 687 F. Supp. 3d 140, 142 (D.D.C. 2023), the U.S. Court of Appeals for the D.C. Circuit on March 18 affirmed the district court’s refusal to allow registration, ruling in a unanimous decision that, consistent with Burrow-Giles, human authorship is a statutory requirement for registration. The court clarified, among other things, that: (1) while the human authorship requirement does not fully prohibit copyright protection to works made by or with AI assistance, entirely autonomous authorship in the principal case is not copyrightable; and (2) whether a work made with AI can be registered depends on the specific situation, particularly how the AI tool operates and how much it was used to create the final work. For works created with authorship by both humans and AI technology, the Copyright Office, aligned with its 2023 statement of policy, has allowed certain elements of artistic works to have copyright protection, while leaving other elements unprotected. For example, in reviewing a registration application for a graphic novel containing human-authored texts with AI-generated images, the Copyright Office determined that the combined work of both human and AI constituted copyrightable work; however, the individual AI-generated images themselves could not be protected. (“Zarya of the Dawn” (Registration # VAu001480196) (2023).) More Guidance Needed on Scope of Human Involvement Required for Copyrightable Works In general, a string of recent rulings from the Copyright Office concerning AI–human works have allowed copyright registration as to the human-created portions of such works. This makes sense for a number of policy reasons and is consistent with existing precedent. Copyright law is intended to benefit the public by incentivizing authors; it is not meant, ultimately, to benefit authors. However, as AI tools become ever more ingrained in the day-to-day world of creators, it is likely that the line between human and AI creations will become ever more blurred. While the Copyright Office has already issued guidance that prompts alone do not constitute sufficient human involvement or input to render the AI-generated output a copyrightable work, the scope of human involvement that is required remains unresolved. AI is clearly a machine that intervenes between a human and a creation, like a camera, but unlike a camera, more sophisticated and nuanced guidance is going to be required for future copyright analyses.

In the March-April edition of the Employee Benefit Plan Review’s Ask the Expert column, partner Melanie Ronen, chair of the firm’s employment practice, discusses how employers must be mindful of the often-changing and varying requirements in state and local jurisdictions. Read the full Q&A.

Season 3 of HBO’s “The White Lotus” features the Ratliff clan. The patriarch, Timothy Ratliff, and his eldest son, Saxon, attended Duke University. Timothy’s spouse and Saxon’s mother, Victoria, went to Duke’s competitor, the University of North Carolina at Chapel Hill, where their daughter, Piper, is currently enrolled. Lochlan, the youngest son, currently weighs his options between these rival institutions. However, only Timothy Ratliff knows that while the family is vacationing in Thailand, he has been implicated in a money-laundering scheme. Consequently, upon the family’s return home their existence will dramatically transform, sending Ratliff into a psychological tailspin. During his mental health crisis, Ratliff sports a shirt displaying the Duke name and trademark, including when he contemplates ending his life and repeatedly points a firearm at his head. In response, Frank Tramble, vice president of communications, marketing and public affairs at Duke, said in a emailed statement that “Duke appreciates artistic expression and creative storytelling but characters’ prominently wearing apparel bearing Duke’s federally registered trademarks creates confusion and mistakenly suggests an endorsement or affiliation where none exists.” Tramble said that the show “not only uses our brand without permission, but in our view uses it on imagery that is troubling, does not reflect our values or who we are, and simply goes too far.” Why No Legal Challenge? Enter the Rogers Test Despite its objections, Duke pursued no action against HBO. The rationale may be that “The White Lotus” employs the Duke and Duke mascot trademarks to convey details about a character’s background rather than to brand the series itself. This storytelling application likely receives First Amendment protection under the Rogers test, which seeks to distinguish between protected fair use and trademark violation. The test, which has been applied by courts across the United States, seeks to find the line between protected fair use and trademark infringement. This determination is heavily dependent on context and requires analysis of whether an unauthorized trademark use furthers artistic expression at a level that is greater than zero or is simply branding. The Rogers test emerged from the U.S. Court of Appeals for the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). In the 1989 case, Ginger Rogers sued the creators and distributors of the film “Ginger and Fred,” alleging the movie’s title infringed her trademark rights. The court dismissed the case, finding that the use of Rogers' name in the film title was an artistic work that had an expressive element, not commercial speech, and therefore was protected by the First Amendment and not subject to the Lanham Act (the federal trademark and unfair competition statute, 15 U.S.C. 101, et seq.). In short, the Rogers test establishes that when a use of a trademark is expressive, there is no trademark infringement unless (1) the use of the mark has no artistic relevance to the underlying work or (2) the use of the mark explicitly misleads as to the source of the content of the work.  The Supreme Court’s Interpretation The U.S. Supreme Court examined the Rogers test in 2023 in Jack Daniel’s Properties v. VIP Products, 143 S.Ct. 1578 (2023), an action which came out of the Ninth Circuit. In the ruling, the court restricted the scope of the Rogers test, determining it doesn’t apply when the alleged infringer uses the mark to identify its own merchandise. While a dog toy by VIP Products mimicking a Jack Daniel’s whiskey bottle was deemed expressive, its commercial application as branding invalidated the parody defense the defendant had asserted. As a result, the court vacated the Ninth Circuit's judgment and remanded for further consideration of whether consumers are likely to mistakenly believe that the dog toy is a Jack Daniel's product under the likelihood-of-confusion analysis and whether the defendant was liable for dilution by tarnishment under the Lanham Act. Conversely, the references by “The White Lotus” to Duke function within the fictional narrative and don’t imply Duke’s sponsorship or affiliation with the program. Such usage aligns with protected creative expression that courts have shielded from trademark claims. Digital Era Reputational Oversight Intellectual property conflicts involving entertainment enterprises and brands will likely continue to proliferate. In today’s environment where content rapidly spreads through social networks, organizations may need swift responses to perceived reputational damage, even with tenuous legal grounds. Remaining silent might suggest tacit approval. Going forward, brand proprietors should: Establish mechanisms to monitor unauthorized trademark appearances before viral spread. Collaborate with producers to authorize and regulate usage before release. Assess whether silence, litigation or public statements best serve brand interests. For organizations navigating this intricate terrain, emphasis should target genuinely harmful or misleading applications rather than reacting to all mentions. Occasionally, as Duke demonstrated, a calculated statement addressing concerns proves more effective than litigation with minimal chance of victory.

In the dynamic landscape of employee compensation, companies may reevaluate and adjust the vesting schedules of stock options for various reasons, such as recognizing employee commitment and adapting to shifts in the market or employee performance. For example, changes to a vesting schedule might include changes to time-based or performance-based vesting conditions. However, making changes to a vesting schedule of a stock option involves legal and tax issues that employers should consider. A “modification” under the U.S. Internal Revenue Code of 1986, as amended (Tax Code), is any change in the terms of the option, plan or governing agreement that provides the option holder with additional benefits, regardless of whether they benefit from the change. A modification of a stock option is treated as a grant of a new option. This means that if an incentive stock option (ISO) is “in the money,” it becomes a non-qualified stock option (NSO) or must be repriced at the fair market value at the time of the modification to maintain ISO status. When an ISO becomes an NSO, it loses potential favorable tax treatment — generally, deferral of any income tax on exercise until the ISO shares are sold and long-term capital gain treatment on the sale proceeds if the ISO holding periods are met. (Note that while ISOs are not subject to ordinary income tax on exercise, the spread between the exercise price and the fair market value of the stock at exercise is subject to the alternative minimum tax on exercise.) Unlike ISOs, when an optionee exercises an NSO, the optionee recognizes ordinary income at the time of exercise in an amount equal to the spread between the exercise price and fair market value on the date of exercise. In general, changes to vesting schedules are not considered modifications under the Tax Code. However, changes to the vesting schedule of an ISO may be considered a modification if the option is exercisable before fully vesting (so called “early-exercise options”). A key tax implication for ISOs is that an optionee can only hold up to $100,000 worth of ISOs that first become exercisable in a given calendar year. Any options in excess of this limit are treated as NSOs. If ISOs are not immediately exercisable, the option first becomes exercisable when it vests. Thus, changes to the vesting schedule could impact the $100,000 limit. Board approval may be required to change the vesting schedule of an ISO. Optionee consent is necessary if the change negatively affects the optionee (such as by changing an ISO to an NSO). As long as an NSO is exempt from Tax Code Section 409A, a company can change the vesting of the option. Options that are granted with an exercise price below fair market value are subject to Section 409A, meaning that they can only be exercised on the occurrence of certain permissible payment events. Because the chief purpose of a stock option is to give an optionee the ability to exercise the option whenever the optionee chooses (and when the option is in the money), it is extremely uncommon to subject a stock option to Section 409A. As with modifications to ISOs, board approval may be required to change the vesting schedule of an NSO, and optionee consent is necessary if the change negatively affects the optionee.

“Look on every exit as being an entrance somewhere else.” – Sir Tom Stoppard, playwright and screenwriter Particularly since tax rates for C corporations were decreased to 21% starting in 2018, we have seen startups begin their life as C corporations for federal income tax purposes rather than waiting to convert upon future growth. In addition to positioning the startup for an eventual venture capital funding round, C corporation status also starts the five-year holding period for the QSBS (qualified small business stock) tax break. In a prior post, we discussed some of the basics of the QSBS tax break. This post focuses on some considerations as a QSBS investment matures and a liquidity event is in sight. Moving Toward an Exit: Considerations Rollover Under Section 1045. In general, Section 1045 of the Internal Revenue Code allows some or all of the amounts received that are subject to capital gain in a QSBS investment to be invested into a second QSBS investment, thus preserving QSBS benefits via a second investment. Importantly, Section 1045 allows QSBS investments that have not been held for five years (but have been held for at least six months) to maintain their QSBS status through a rollover investment; i.e., if there is an exit event before five years, the QSBS holder can still potentially take advantage of the QSBS tax break, although via a second QSBS investment. Among other limitations, a key practical limitation to utilization of Section 1045 rollovers is that the second QSBS investment needs to be acquired within 60 days of the sale of the first QSBS investment. Oftentimes owners, particularly those busy with closing and post-closing transition issues, don’t have the time or information at hand to line up a second QSBS investment that is worthy of receiving the owners’ hard-earned deal proceeds. Just as with the original QSBS investment, the second “rollover” QSBS investment should be vetted for QSBS qualification. Ideally the second company (the one issuing “rollover” shares) would provide representations on QSBS status, covenants to report consistently therewith and provide necessary documentation, and an indemnification if representations or covenants are breached. We have fielded questions about whether a “rollover” QSBS investment meets the active business requirement for QSBS treatment. Starting in 2024, the IRS stated it will no longer issue private letter rulings on the active business requirement (see Revenue Procedures 2024-3 and 2025-3), indicating the question could be under study by the IRS, with possible guidance forthcoming. We are continuing to monitor for developments. Planning for the five-year holding period. Sometimes sellers who have owned stock for less than five years have a buyer willing to enter into an agreement to acquire the QSBS stock for legal purposes after the five-year holding period has been met. It is certainly possible to agree to a sale before the five-year holding period is met and close on the sale after that holding period is met, but meaningful planning would be needed to avoid having the sale treated as a constructive sale for tax purposes on an earlier date (thus depriving QSBS benefits). SAFEs. While not a focus of this post, there is substantial uncertainty whether a simple agreement for future equity (SAFE), even if the SAFE has language stating equity ownership is intended upon issuance of the SAFE, is equity for QSBS treatment. Gifting pre-sale. The closer to an exit, the less value there would generally be in gifting QSBS stock. However, “stacking” gifts could still be beneficial. (View this article for more.) QSBS attestation letter. Obtaining a QSBS attestation letter from the company that issued QSBS shares helps strengthen the case for the QSBS tax break upon an examination by a taxing authority. Obtaining a letter is a reasonable ask as part of any consent to a sale. Please note that while we view the request as reasonable given that the company has all the requisite information, some companies refuse to issue such a letter. Lack of state conformity. Not all states conform with federal law on QSBS, thus causing state income taxes to be occasionally due when no federal income tax is due. This can surprise unprepared taxpayers. Election on income tax return. Both the QSBS exclusion and the rollover under Section 1045 need to be affirmatively opted into on tax returns. Multiple blocks. The sale documents should specify which blocks of stock are sold — particularly if some blocks qualify for QSBS treatment and others do not. (For example, if those blocks were purchased within five years of the sale or were purchased when the company was no longer a qualified small business under IRC Section 1202.) Finishing the Exercise The QSBS tax break can be lucrative for founders and early investors and help attract investors during the early life of a startup. As the life cycle of the startup moves toward an exit (and a “somewhere else”), finishing the exercise and ensuring the tax break is able to be utilized is an important component of the exit.

Delaware has long been the domicile and jurisdiction of choice for many sophisticated corporate entities. But recent years have seen several states attempt to draw corporations away from Delaware by passing corporate-friendly amendments to state business laws, setting up business-specific courts, or otherwise promoting their own corporate governance regimes. The Delaware Supreme Court has issued a decision that will likely make it easier for controlling stockholders and boards to move their corporate domiciles out of Delaware in the future, even when such a move is opposed by many stockholders. In Maffei v. Palkon, 2025 WL 384054 (Del. Feb. 4, 2025), Delaware’s highest court reversed a Delaware Court of Chancery decision issued in favor of a group of stockholders of Tripadvisor Inc., a publicly traded company and one of the world’s largest travel sites. The stockholders had filed suit to challenge a series of actions taken by Tripadvisor’s board of directors and its controlling stockholder to convert Tripadvisor’s corporate domicile from Delaware to Nevada. Though the vast majority of Tripadvisor’s minority shareholders voted against the conversion, the company’s controlling stockholder, Gregory Maffei, supported it. Maffei’s vote was sufficient to provide majority support for the conversion. The minority stockholders alleged in their complaint that Maffei and the board had decided to move Tripadvisor to Nevada solely to take advantage of Nevada laws that effectively insulate boards, directors and officers from stockholder litigation, even if such litigation would be meritorious under Delaware law. They argued that the move would devalue Tripadvisor at the expense of its minority shareholders, solely to protect the defendants from future suit. Maffei and the board moved to dismiss and the Chancery Court denied their motion, determining that the plaintiffs had stated a cause of action under the “entire fairness” standard of review, which places the burden on the defendants to prove that the “transaction with the controlling stockholder was entirely fair to the minority stockholders.” “Entire fairness” is Delaware’s most exacting corporate law standard of review, sitting on the opposite end of the spectrum from the business judgment rule, Delaware’s most deferential standard. A court’s determination of which standard of review to apply is often determinative of the litigation’s eventual outcome. Maffei and the board defendants appealed and the Delaware Supreme Court reversed the Chancery Court’s decision in its entirety, holding that the business judgment rule was the appropriate standard to apply, and that the conversion to Nevada satisfied that deferential standard. While “entire fairness” review is presumed when a controlling stockholder receives a material personal benefit from a transaction that is not shared by other stockholders, the Supreme Court found that the alleged benefit to Maffei and the board here did not rise to the level of “materiality.” Central to the court’s decision was the fact that there were currently no pending or threatened claims or litigation against Maffei or the board from which the move to Nevada would in theory protect them. The court held that if a controlling stockholder who is the subject of a claim or threatened claim for past action takes steps to limit his liability, such action may confer a material personal benefit triggering “entire fairness” review. But where, as here, the potential impact of a move to Nevada merely presented the possibility of greater protection against speculative future liability, no material individual benefit was conferred, and “entire fairness” review was not triggered. The Delaware Supreme Court’s decision in Maffei grants greater protection to boards and controlling stockholders looking to move their corporations out of state. As more states continue their efforts to lure companies out of Delaware, boards and stockholders alike should familiarize themselves with the contours of this decision to ensure they are adequately protecting their interests in connection with any such potential move. Key Learnings: States are implementing corporate-friendly efforts to draw corporations away from being domiciled in Delaware. A recent Delaware Supreme Court decision will likely make it easier for controlling stockholders and boards to move their corporate domiciles out of Delaware. Boards and stockholders should take notice of the ruling to adequately protect themselves when faced with potential moves.

In a merger or acquisition involving a carve-out deal where the seller is selling a division of a larger business and/or a subsidiary integrated with the seller’s overall business enterprise, a transition services agreement (TSA) is often critical to consummating the transaction. A TSA allows the buyer to avoid disruptions with its new customer base, vendors, employees and other important aspects of continuing the business after the closing of the transaction. At the same time, the seller should be aware of the complexities and risk allocation touchpoints associated with negotiating and entering into a TSA with the buyer with respect to certain assets and resources that are shared by both the retained business and the business that is being sold. Operational Services When negotiating a TSA, the parties need to be very clear on various aspects of the scope of the agreement. Imprecise terms can lead to adverse impacts on both the seller and the buyer. First and foremost, the parties should pay careful attention to the schedule of services that will be provided during the transition period. Often the services to be provided will require subleasing or sublicensing of assets such as real estate or software being used by the business. The fundamental questions listed below need to be expressly addressed in the TSA to determine the scope of the arrangement: Is the seller able to provide the services under existing agreements with third parties or will providing such services create a risk that the seller is in breach of a critical contract needed for its own ongoing operations? How much will the seller charge the buyer for the services to be provided? Will the seller simply pass through its actual direct costs, or will there be an allocation of overhead charges or a profit margin added to the services fee? Are specific details on costs, fees, reimbursements and timing of payments clearly documented? Have expectations for invoicing, audit rights and dispute resolution been addressed? How long will each service need to be provided?   When negotiating the schedule of services, the term during which each service will be provided and whether a party has the right to terminate the provision of the services early in certain circumstances should be clear. For example, if a service requires the availability of certain employees, the seller may not be able to guarantee the continued employment of employees with the necessary skill sets or that these employees will have sufficient availability to continue to allocate time to the buyer’s business needs. Thought should be given as to whether there are limits on the number of hours to be devoted by the seller’s employees to transition services as, in most cases, these continuing employees have ongoing responsibilities with respect to the seller’s retained business. Can the buyer terminate a service early if it no longer requires the service from the seller? A lack of clarity as to these matters could put the seller in a position of providing buyer services for an extended period, or the provision of services could interfere with the availability of adequate resources for the seller’s own business. From the buyer’s standpoint, if it cannot terminate early, it may end up paying for services it no longer needs. However, if early termination is allowed, the parties should also consider notice periods for termination so that each party has adequate advance warning to adapt to the impending termination. Risk Allocation In addition to operational aspects, the parties will need to carefully negotiate certain risk allocation features of the TSA. For example, the buyer in a TSA often requests that the seller provide a service that is not expressly permissible under the underlying service agreement with a vendor (i.e., continue its human resources and payroll services under the seller’s existing plans for the benefit of its employees) so that the buyer can ensure a seamless transition until the buyer is able to migrate the services to its own vendor. The seller, in trying to get a deal done, may not be thinking about the overall impact such a request may have on its business and needs to protect its overall business from a situation where it is in breach of its contract with the vendor as a result of permitting the buyer to utilize these services. In this case, the seller may want to request that the buyer provide an indemnity to the seller in the event the seller is damaged due to providing these services, arguably in violation of the underlying terms and conditions of the vendor contract. At a minimum, the seller needs to disclaim all liability and responsibility to the buyer for being able to provide these services, and, if this relationship were to disrupt the seller’s other business aspects, then an ability to terminate such services under the TSA. Employee Relationships Another important tension point relates to the employees of the seller providing services under the TSA to the buyer. The parties should clearly identify in the TSA that each retained employee who is providing services under the TSA is an employee of the seller, and not the buyer, and that the seller has the sole authority, responsibility and obligation to give directions to the employees, set their compensation and handle the overall day-to-day responsibilities over such employees. It should also be clear if any of these employees will at some point transition to employment or consulting arrangements directly with the buyer. The more unclear, the more likely an outside third party may view the employer-employee relationship as a co-employment relationship, which could introduce some complexities for both parties. Performance Criteria Finally, another point of negotiation is the standard of care or performance criteria for the services to be provided. The buyer may ask for the seller to perform the services in accordance with industry standards or best practices or some other standard that could create liability for the seller in what the seller usually views as an accommodation arrangement to assist the buyer for a transitional period. The seller generally has a contrary view, which is that the services are being provided as is, where is or at the same levels and standards as provided by the seller to its own business immediately prior to the closing. The seller will want no liability associated with providing these services other than for gross negligence or willful misconduct. This position is both to limit liability as well as to encourage the buyer to transition as quickly as possible to remove the burden from the seller of continuing to provide these services for any lengthy period. Discuss TSA Terms Early Each carve-out M&A transaction requiring a TSA will involve very deal and business-specific issue relating to the level of integration of the carve-out business and the retained business as well as the nature of the buyer and its ability to timely replace the shared assets and services. This may depend on whether the buyer has an ongoing business that can quickly absorb and integrate the acquired assets or business or is trying to stand up the acquired business as a standalone entity. There may be other issues that relate to regulatory or other requirements that may drive the nature, scope and timing of the TSA. Even though the TSA is often viewed as an accommodation by the seller to the buyer, it can be critical to the success of the deal. Both the business and legal teams negotiating the deal should discuss the issues surrounding the transition as early as possible in the transaction to be able to work out all the necessary details to facilitate a smooth closing and post-closing period.

Reporting requirements established by Pennsylvania’s Act 122 of 2022 began this year, mandating that most domestic and foreign business filing associations file with the Pennsylvania Department of State an annual report detailing certain information about the association. The new reporting obligation replaces the previous decennial report and contains substantially the same information. What Entities Fall Under Act 122? Beginning in calendar year 2025, entities required to file an annual report include: Domestic filing entities, including Pennsylvania business and nonprofit corporations, limited liability companies (LLCs), limited partnerships (LPs) and business trusts. Domestic limited liability (general) partnerships (LLPs). Domestic electing partnerships. Registered foreign associations. What Information Should Be Reported? The annual report requires business entities to provide the following information to the Pennsylvania Department of State: Entity name. Jurisdiction of formation. Registered office address. Principal office address. Name of at least one governor (director, member, partner, etc., depending on the type of association). Names and titles of the principal officers, if any. Entity number issued by the Pennsylvania Department of State. When Is the Report Due? The filing deadlines are based on the type of entity: Corporations (business and nonprofit, domestic and foreign registered): June 30. LLCs (domestic and foreign registered): September 30. Other domestic filing entities or foreign registered filing associations: December 31. How Should the Report Be Filed? The current filing fee is $7 for business corporations, LLCs, LPs and LLPs and certain other entities noted above. There is no fee for nonprofit corporations and LPs or LLCs with a not-for-profit purpose. Penalties for failure to file annual reports will not be imposed on associations until the end of the 2026 calendar year. Beginning in 2027, failure to file six months after the due date of the annual report will subject associations to administrative dissolution, termination or cancellation, which could result in the loss of protection for the entity’s name. The Department of State will notify entities via email (if provided) and postcard before the deadlines. Be sure your email is up to date on the Department of State site. In addition, the department website provides user-friendly instructions and a form of the annual report. The report (DSCB:15-146) should be filed online. For a more detailed guide, visit the Commonwealth of Pennsylvania’s Annual Reports in Pennsylvania site.

Corporations, limited liability companies and other entities must be formed under the laws of a specific state, but the ability of those entities to act does not stop at the state border. An entity doing business in a state other than its state of formation must register to do business as a foreign entity in that other state. The applicable statutes, however, do not define the activities that require registration beyond the vague term “doing business”; rather, the statutes only provide a non-exhaustive list of examples that represent activities “not constituting doing business.” Thus, whether an entity must register in a foreign jurisdiction requires a fact-based examination that turns, in part, on distinguishing the entity’s intrastate activities from its activities in interstate commerce. (More detail on this analysis is available in this article.) The explosion of remote work in recent years has made this determination even more challenging, as employees increasingly work in foreign jurisdictions where the employing entity does not have an office. Because entities may be able to take advantage of the interstate/intrastate commerce distinction to structure their businesses in ways that avoid the registration requirement, it is important to not overlook two considerations that strongly favor such structuring: personal jurisdiction and state tax liability. Registration Can Subject Entities to Personal Jurisdiction in a State In a 2023 decision, the U.S. Supreme Court held that an entity can be sued in a foreign jurisdiction that has no contact with the controversy other than the defendant’s registration to do business in a state if the state has adopted a consent-by-registration statute.[1] In other words, a state may require as a condition to granting the foreign entity authority to do business in the state that the foreign entity consent to general personal jurisdiction in the state. There are only a few states that have such consent-by-registration statutes, but an entity should consider carefully whether registration could subject it to personal jurisdiction and, if so, whether steps can be taken to avoid the registration requirement through appropriate structuring of its business activities. Registration Can Subject Entities to State Taxation The concept of “doing business” is used in the law for at least three distinct purposes: (1) to determine whether a court can exercise long-arm jurisdiction over a party in a given case; (2) to determine whether a party can be taxed in a given state; and (3) to determine whether an entity can be required to register as a foreign corporation in a given state. Since long-arm jurisdiction and taxation are linked to specific contacts between the party and the state, the level of contact needed to support long-arm jurisdiction or taxation is generally less than the level of contact needed to trigger a registration requirement. U.S. Supreme Court cases have held that there is a hair trigger to being subject to taxation in a state (e.g., a salesman physically filling a customer’s store rack with a few packs of gum). So, when an entity registers to do business in a state, the state may interpret the registration as an acknowledgment that the entity should also be taxed. Every state will pass along to the taxing authorities in that state that it has registered to do business. Moreover, even though the entity may later surrender its registration to do business in the state, it may be more difficult to convince the state that the entity is no longer subject to taxes there. Also, in some states, the reverse will happen as well. If an entity files a state tax return, the state will require the entity to register to do business there regardless of the level of contacts for registration purposes. Takeaways Some entities register to do business in each state where they have employees, even if those employees work remotely and the entity has no office in the state. While this approach has the advantage of simplicity, it may expose the entity to personal jurisdiction for lawsuits brought against it and state taxes to which it might not otherwise be subject. By adopting a more thoughtful approach and arranging its business practices to avoid the registration requirement in certain states, an entity may be able to limit this exposure. [1] In the 2023 case, the state in question was Pennsylvania. Pennsylvania’s statute, 42 Pa. C. S. § 5301, includes the following provisions: “(a) General Rule — the existence of any of the following relationships between a person and this Commonwealth shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over such person ... (2) Corporations — (i) incorporation under or qualification as a foreign corporation under the laws of this Commonwealth; ... (3) Partnerships, limited partnerships, partnership associations, professional associations, unincorporated associations and similar entities — (i) formation under or qualification as a foreign entity under the laws of this Commonwealth.”

Small businesses face several challenges when it comes to growth and expansion. A common issue is securing financing to support business growth, such as funding startup costs, operating costs, real estate purchases and the myriad of expenses incurred in running a business. A loan through the U.S. Small Business Administration (SBA) is one option for overcoming this hurdle. Understanding SBA Loans The SBA, founded in 1953, is an independent agency of the federal government dedicated to supporting small businesses nationally. Among its priorities is assisting both new and established businesses by facilitating access to funding. The SBA collaborates with a network of approved lenders to increase loan availability for small businesses or, in times of need, serves as a direct lender itself. Small businesses often do not have the credit profile necessary to qualify for the loan that they require. To mitigate lender risk, the SBA partially guarantees SBA loans in certain circumstances, encouraging lenders to lend more readily to small businesses. To further manage its own risk, the SBA may mandate an unconditional personal guarantee from individuals or entities holding at least 20% ownership in the borrower, which holds these individuals or entities personally liable for repaying the loan if the business fails to meet its payment obligations. The SBA offers a variety of loan programs to support numerous kinds of small businesses and their needs: 7(a) Loan Program: The 7(a) loan program is the SBA’s most widely utilized and versatile offering. It provides loan guarantees to lenders, enabling them to extend financial assistance to businesses with diverse needs. These loans can be used for several purposes, including acquiring, refinancing or improving real estate and buildings, as well as providing both short- and long-term working capital. Typically, 7(a) loans range from $500,000 to $5 million, with terms extending up to 10 years with flexible collateral options. The 7(a) loan program is designed for longer-term financing and is appropriate for businesses with a net worth below $15 million and an average net income under $5 million. Loan amounts can go up to $5 million, and borrowers have the option of choosing between fixed or variable interest rates. The SBA offers several types of 7(a) loans tailored to different business requirements. For instance, the 7(a) small loan is a term loan, rather than a revolving loan, of $500,000 or less, while the SBA Express option allows lenders to follow their procedures in exchange for a lower SBA guaranty percentage. 504 Loan Program: The 504 loan program provides long-term, fixed-rate financing designed to support small businesses in acquiring major fixed assets such as real estate and equipment. These loans are facilitated through certified development companies (CDCs), which are nonprofit organizations certified and regulated by the SBA to promote economic development within their communities. The typical structure of a 504 loan involves three key components: a contribution from the borrower, a loan from a private sector lender, and funding from a CDC. Specifically, the borrower is required to provide at least 10% equity, while the private lender finances 50% of the project costs. The CDC covers up to 40% of the total financing through an SBA-backed debenture. This arrangement allows businesses to secure up to $5 million in funding or $5.5 million for eligible manufacturing or energy-efficient projects. 504 loans are particularly beneficial for small business owners who may not qualify for conventional financing. They offer lower repayment options and fixed interest rates, making them an attractive choice for those looking to preserve cash flow while investing in their business growth. Additionally, these loans cannot be used for working capital, ensuring that the funds are directed toward tangible assets that promote job creation and economic development. Economic Injury Disaster Loan (EIDL): SBA loan programs have also been altered to suit the needs of small businesses during periods of disaster and crisis. Through the EIDL program, small businesses, small agricultural cooperatives and private nonprofit organizations that are located in “disaster areas” as declared by the SBA and that have suffered substantial economic injury are potentially eligible for SBA relief. Eligibility for the EIDL program further requires a showing that the small business was directly impacted by the disaster, unable to meet its financial obligations and pay necessary expenses due to the disaster and/or debt payments, and unable to obtain credit elsewhere. EIDL proceeds are meant to help organizations recover from the economic impacts of the disaster. They cannot be used for expanding facilities, buying fixed assets, repairing physical damages, refinancing debt, paying out dividends or bonuses, or paying back loans to stockholders or principals. EIDL funds are to be used for working capital and other common operating expenses. These loans are not forgivable and must be repaid; however, the repayment requirements depend on the size of the loan. Benefits of SBA Loans For Borrowers: SBA loans provide numerous advantages for borrowers, accommodating a wide range of business needs. First, these loans feature broad eligibility requirements, allowing a diverse array of businesses to qualify. Businesses must be registered, legal, for-profit entities operating in the United States or its territories, possess sound credit and a reasonable ability to repay the loan, and demonstrate an inability to secure funding from other financial institutions. Some loans may impose size standards, and individual lenders may have additional requirements based on industry-specific factors such as annual revenue or employee count. However, as a general matter, small businesses can secure eligibility for SBA loans with relative ease. Another key benefit is the competitive terms offered by SBA loans, which is their ability to provide lower interest rates and flexible repayment terms, as compared to those of non-guaranteed loans. SBA loans also provide lower down payment and repayment requirements that help preserve cash flow and flexible overhead requirements that accommodate various business situations. In some instances, no collateral is needed, further reducing barriers to funding. Additionally, repayment terms are longer than those of traditional loans, extending up to 10 or even 25 years in some cases. For loans with terms under 15 years, there are no prepayment penalties, allowing businesses to retain cash for growth or other needs. For Lenders: As SBA-certified lenders, lenders will be able to issue small business loans backed by a federal guaranty. This significantly reduces the risk associated with lending, as compared to traditional loans. The SBA’s guaranty helps ensure that the loans will be repaid. This assurance also enables lenders to extend credit to businesses that might otherwise be considered too risky, thereby broadening their customer base. Realizing Potential with SBA Loans The variety of loan programs established by the SBA offer competitive terms and flexible repayment options. These loans can be crucial resources for small businesses, providing access to the financing needed to grow and allowing them to reach their full potential.

A federal judge recently granted preliminary approval to a multibillion-dollar settlement of three athlete-compensation antitrust cases against the National Collegiate Athletic Association (NCAA), Atlantic Coast Conference, Big Ten Conference, Big 12 Conference, Pac-12 Conference and Southeastern Conference. The proposed settlement, filed with the U.S. District Court for the Northern District of California, brings a closer resolution to the three class-action lawsuits. If finalized, student-athletes would be prohibited from bringing legal action against the NCAA for potential antitrust violations, and they must abandon their pending lawsuits in the following cases: House v. NCAA, Hubbard v. NCAA and Carter v. NCAA. A New Financial Model The decision moves the NCAA and the conferences closer to funding a nearly $2.8 billion damages pool (over a span of 10 years) to compensate current and former student-athletes. This would set the stage for a fundamental change in college sports. Division I schools would be allowed to start paying athletes directly for use of their name, image and likeness (NIL), subject to a per-school cap that would increase over time. If eligible, current and former student-athletes received notification starting on October 18, and those covered under the settlement agreement can opt out or reject by January 31, 2025. Certain athletes have already objected to the proposed settlement and filed an opposition to the preliminary approval. In addition, the proposed settlement would clear the way for schools to inaugurate a new financial model in which revenue is shared between schools and athletes. Future benefits include athletic compensation through revenue-sharing, which would permit colleges to spend about $22 million annually on paying athletes with no guidelines for how the money can or cannot be spent. The revenue model allows schools to provide up to 22% of the average athletic media, ticket and sponsorship revenue to student-athletes starting in the 2025-26 academic year. In addition, third parties may continue to enter into NIL agreements with student-athletes. Employment Status However, even if finalized, the pending settlement does not resolve ongoing efforts, mainly by the National Labor Relations Board (NLRB) and plaintiffs lawyers, to designate student-athletes as employees under state and federal labor and employment laws. College conferences or institutions should examine whether student-athletes might be deemed employees under the federal Fair Labor Standards Act (FLSA) such that the athletes would be entitled to a minimum wage and overtime compensation. It is important to point out, however, that the legal landscape regarding the status of student-athletes is uncertain at this point and is rapidly evolving. In a pivotal decision issued several months ago by the U.S. Court of Appeals for the Third Circuit, the court did not definitively rule whether student-athletes are employees. Instead, the court in Johnson v. NCAA indicated that student-athletes might be deemed employees depending on the economic realities of the situation. The court articulated a four-part “economic reality” test to determine whether an athlete is an employee. The test considers whether: (1) the student-athlete performs services for another party (i.e., the university); (2) such activity is for the benefit of the university; (3) the student-athlete services are performed under the university’s supervision and control; and (4) the work is being performed in return for express or implied compensation or other in-kind benefits. The FLSA requires that each athlete’s employment status be evaluated on a case-by-case basis. Title IX and Walk-Ons Another unresolved issue is how universities will comply with Title IX when creating revenue-sharing models. Title IX, among other things, prohibits discrimination based on sex in educational settings. The statute’s protections may be the sole means for guaranteeing that women would be compensated fairly. The primary concern is how universities will create an equitable distribution of payments between men’s and women’s teams when male-dominated sports generate most of the revenue. Institutions are responsible for creating their own revenue model, which will require compliance with Title IX, careful management of the NIL marketplace, understanding of market needs and providing transparency in their operations. It is also uncertain how the proposed settlement will affect “walk-on” athletes. The prospective settlement emphasizes that full scholarships should be awarded for all roster spots. However, an unintended consequence of limited roster spots may be that athletic programs are less inclined to maintain non-scholarship sports or to accept walk-ons. The federal court’s preliminary approval of the settlement agreement is a significant step forward in addressing student-athlete compensation. However, many issues remain unresolved, which will drive continued litigation and may foreshadow the need for federal legislation.