CARES Act Update: Application for Paycheck Protection Program Loans And Guidelines Available Here

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We recently blogged about the Paycheck Protection Program (“PPP”), and the tax free gifts it can provide to careful employers. On March 31, 2020, the U.S. Treasury Department published the Application Form for PPP loans, available here. The Application is short – just two pages.

The Application requires some basic information about the business applying for the PPP loan, including certifications that the loan is necessary to address economic uncertainty in the current circumstances, and that the loan proceeds will be used for payroll, rent and utility payments. The Application invites the borrower to insert its own calculation of its average monthly payroll, which should be calculated pursuant to the limitations noted in our prior blog post, including: (1) for most businesses, calculating payroll for the one-year period prior to the date on which the loan is made; and (2) excluding costs over $100,000 on an annualized basis for each employee. Borrowers should calculate payroll cost to include salaries, tips, payment for vacation or sick leave, health insurance premiums, retirement benefits and state and local payroll taxes. The Application notes that documentation of payroll costs will be required, but is not specific about what kind of documentation will be required or when it must be submitted.

The Treasury Department has also just published an Information Sheet for PPP Borrowers with important information, available here. The guidelines indicate that only 25 percent of the amount forgiven may consist of costs other than payroll costs (e.g., rent, utilities, etc.), which is a limitation not expressly stated in the CARES Act. Other notable points from the Treasury Department’s Information Sheet are:
• Loan applications for businesses and sole proprietorships will be available beginning April 3, 2020
• Loan applications for independent contractors and self-employed individuals will be available beginning April 10, 2020
• All payments will be deferred for 6 months
• The interest rate for PPP loans will be a fixed rate of 0.50%, and will accrue during the deferral period of the loan
• The loan term is two years.

[Despite the Treasury’s published Information Sheet, on April 2, 2020 U.S. Treasury Secretary Steven Mnuchin announced that the interest rate would be changed to 1% to help small banks. Further changes may arise, so check all loan terms carefully.]

We expect that more specific guidance about the PPP loan application process will be forthcoming over the next few days. Conkle, Kremer & Engel attorneys stay updated on legal events affecting businesses trying to manage the impact of the Coronavirus pandemic. We will update our blog as more developments occur.

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U.S. CARES Act: PPP Loans Provide Gifts for Careful Employers

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The U.S. Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed on March 27, 2020, and signed into law by President Trump on March 28, 2020, aims to address some of the economic impact of the COVID-19 crisis. The entire act is a $2 Trillion economic stimulus package – the largest ever. Aside from the well-publicized $1,200 per person payments, the CARES Act provides hundreds of billions of dollars for large and small businesses, state and local governments and public health.

Rather than try to summarize the entire CARES Act, we’d like to focus on what many of our clients should pay attention to first: The $349 billion loan fund for small businesses called the “Paycheck Protection Program” (“PPP”) administered by the Small Business Administration. The PPP is designed to be a huge tax-free gift to employers, provided that the employers are careful about how they use it.

The basic points for PPP loans under the CARES Act are:

  1. PPP loans are available to businesses with fewer than 500 employees, as well as 501(c)(3) non-profits, sole-proprietors, independent contractors and other self-employed individuals, so long as the business was operational and had paid employees on February 15, 2020. Some businesses with multiple locations, each having less than 500 employees, may also qualify (but generally, this is limited to hospitality businesses with a primary NAICS code starting with “72” – Accommodation and Food Service).
  2. Borrowers must make a good faith certification that the PPP loan is necessary due to the uncertainty of the current economic conditions caused by COVID-19.
  3. PPP loans will be issued through regular lenders who already handle SBA loans, in addition to new lenders electing to provide PPP loans. Your regular bank is likely to offer PPP loans.
  4. The amount of the PPP loan is at the borrower’s choice, but the maximum amount of a PPP loan is 2.5 times the business’ average monthly payroll expenses for the past year, up to $10 million.
  5. Most of the usual “red tape” for SBA loans has been waived, including determinations of borrower eligibility and creditworthiness. PPP loans are non-recourse, and require no personal guarantees. There are no fees, a maximum interest rate of 4%, and all payments are deferred for 6-12 months.
  6. PPP loans can be used for:
    a. “Payroll Costs” including salaries, vacation and sick leave, health insurance, retirement benefits, and state and local payroll taxes. But “Payroll Costs” does not include compensation for an employee’s annual salary in excess of $100,000. There is some uncertainty about this limitation, but indications are that for highly compensated individuals the first $100,000 in salary can be paid with PPP loan funds.
    b. Rent.
    c. Utilities.
    d. Interest on any debt obligations incurred before February 15, 2020.
  7. The total amount of the PPP loan funds that are used for these approved categories within the eight-week period following loan origination would be forgiven, and the forgiven amount is not taxable. In effect, the PPP loan turns into a tax free grant to the extent that it was used for the approved purposes.
  8. Businesses may elect to use PPP loan funds for other purposes not within the approved categories, but funds spent for “non-approved” uses will not be forgiven and the loan must be repaid with interest.
  9. There is an additional important condition that the PPP borrower must maintain the same number of full time employees, and cannot reduce salaries more than 25%, through June 2020. Otherwise portions of the PPP loan may not be forgiven. If the borrower terminated employees or made salary reductions greater than 25% between February 15, 2020 and April 26, 2020, as long as the employer hires back the same number of employees and restores salaries to sufficient levels by June 30, 2020, the PPP loan funds used for approved purposes will still be forgiven.
  10. One further cautionary note is that borrowers receiving a PPP loan are not be eligible for several of the other tax credits, refunds or deferrals available under the CARES Act, so consulting a tax professional about the value of those benefits to particular businesses would be advisable.

The PPP loan portion of the CARES Act is plainly designed to stem the layoffs and furloughs that have been rampant in the wake of the economic seizure that has been imposed by federal, state and local governments’ “stay at home” guidelines and orders intended to stem the COVID-19 outbreak. This can benefit both employees and employers who need to adapt their businesses to the unsettled conditions in which we find ourselves.

Business owners – from sole proprietors to employers of 499 employees (and some with more) should explore very seriously, very quickly, the virtual giveaway that the PPP loan program represents. If taken, PPP loans demand some care in documenting use of funds to assure compliance with the terms required to be granted forgiveness of the loan and receive the tax-free gift from the U.S. government.

Conkle, Kremer & Engel attorneys stay attuned to legal developments and the opportunities they create for our business clients. The CARES Act is a big opportunity that should be carefully considered and acted upon promptly.

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More “Essential” Changes for Personal Care Products Businesses

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On March 18, Conkle, Kremer & Engel first published an alert about the first California city and county stay-at-home orders and their “essential” business exceptions. And on March 20, CK&E updated that blog post to assess the effects of California’s March 19, 2020 statewide “stay at home” Order. But that “California State Order” was vague as to what particular businesses qualify as “essential” to be able to remain in operation at their facilities, and how its terms interacted with the city and county orders also in effect. On March 22, 2020, the California State Public Health Officer responded to the confusion by releasing a “Guidance” list of particular types of businesses that are considered “Essential Workforce” and are permitted to continue to operate at their facilities during the Coronavirus pandemic. Despite the head-spinning changes in the past several days, the California’s State Guidance list at least provides some measure of certainty – and hope – for the personal care products industry.

There are several provisions in the Guidance that appear to permit personal care products manufacturers and sellers to continue to operate, at least in particular ways: There are express exceptions for:

  • “personal care/hygiene products”
  • “cleaning [and] sanitizing supplies”
  • “services that are necessary to maintain the safety, sanitation, and essential operation of residences”
  • “support required for cleaning personnel”
  • “manufacturing [and] distribution facilities [for] consumer goods, including hand sanitizers”
  • “workers supporting the production of protective cleaning solutions”
  • as well as other general references to “sanitation” and “consumer products”

Taken together, these exceptions in the California State Order Guidance make reasonably clear that personal care products that are functional for hygiene should be among the types of products that are essential during a period when cleanliness is potentially life-saving.

While the California State Order Guidance does not include specific reference to “non-hygienic” cosmetic products, the California State Order itself refers to the Department of Homeland Security’s materials on the nation’s “Critical Infrastructure Workforce.” Among those materials, there are specific references to “soap, detergents, toothpaste, hair and skin care products, cosmetics, and perfume” in the Chemical Sector-Specific Plan (see Section A3.5) and the Chemical Sector Profile). For now, based on these materials and barring further developments, businesses appear to be permitted to continue making all personal care products, whether “hygienic” or not.

However, some caution is advisable because enforcement officials could nonetheless decide to distinguish between “hygiene”-related products (such as soaps, shampoos, cleansers and washes, body lotions, and skin creams) and products that are not as “hygiene”-oriented (like hair coloring products, nail polishes, fragrances, and cosmetics). It appears those businesses that can plan to potentially pivot to producing a larger proportion of “hygienic” products may have greater success in remaining open as the situation evolves. Having readily available concise documentation summarizing the “hygiene” products that your company is manufacturing could be helpful if you or your employees receive government inquiries. Of course, if ordered by a government agency to stop production, it is advisable to stop immediately and seek legal guidance – it is not advisable to disregard a direct government order of any kind.

As a final point, the Los Angeles County Order was also updated, and there is now a clear mandate closing barber shops and salons in Los Angeles County, which under previous versions of the order were permitted to operate as essential businesses. We know that this will create tremendous personal hardships for stylists and salon owners, and we are sorry to have to report this development. But however unfortunate this is for the stylists and salon owners (as well as customers, distributors and manufacturers), this development in itself does not alter our broader view that California currently allows continued production and sale of personal care products.

CK&E will continue to monitor developments important to our clients, in the personal care products industry and otherwise, during these uncertain and fast-changing circumstances. Our goal is to help clients continue their business in safe and socially responsible ways, within the bounds of the law as it evolves to meet the challenges of this coronavirus crisis.

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Can Coronavirus be a Force Majeure to Excuse Contract Performance?

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Businesses dealing with Coronavirus developments are suddenly faced with many pressing concerns, from whether they will be allowed to continue to operate, to employee relations and supply and delivery issues. One question that may become urgent is: What are the effects of Coronavirus and COVID-19 events on your business’ existing contracts? Can you cancel that big product order you placed, when government closure orders or other disruptions will make it difficult for you to sell it? Can you be forced to deliver products when you can no longer get the ingredients due to supply chain disruptions? Who bears those risks?

First, Does Your Contract Have a Force Majeure Clause?

All contracts are in some ways a method of allocating risks between the parties. Many (but not all) contracts contain what is commonly called a force majeure clause. These clauses explain what will happen when an unexpected and uncontrollable event disrupts performance of contractual obligations. Such a force majeure event is sometimes loosely referred to as an “Act of God,” but it is more accurately an unanticipated event that the parties could not have controlled. A key element is that the parties could not have reasonably anticipated the event at the time of contracting. As a result, the contract date becomes an important consideration: In a force majeure analysis, a contract entered into during March 2020 may well be treated differently than one entered into in March 2019.

Next, Read and Comply with the Requirements of the Force Majeure Clause

The primary purpose of a force majeure clause is to allocate the risk of such unanticipated events – effectively excusing one party’s failure to perform a contractual obligation due to such an event. It is regarded as a term that is negotiable between the parties, like price or delivery time. Whether the parties have any force majeure clause, and its specific terms, will vary from contract to contract. So it is essential to read your contracts carefully and be sure to comply with their terms.

If a contract has a force majeure clause, the first question that will arise is what kind of event can trigger it? Common events identified may be floods, earthquakes, wars and terrorism. Relatively few force majeure clauses refer to “pandemic,” “epidemic” or “state of emergency,” which seem most applicable here. But some may, and others may include events that result from such occurrences, such as “government action or order.” Others may refer to inability to obtain supplies, which could also be triggered by worldwide Coronavirus effects. And some may just generally refer to “force majeure” without identifying any specific event, or include a “catch all” term of some kind. Courts tend to apply such non-specific force majeure terms narrowly, so it is important to read and understand your specific contract and how its terms are likely to be applied.

Many force majeure terms include written notice requirements. Strict compliance with such notice requirements is often required, including giving written notice of inability to perform the contract within a specified time after the unanticipated event. Here, the Coronavirus pandemic and its effects, such as new government orders, may be viewed as a series of events that have varying effects – whether any one or more triggers the required notice will depend heavily on the contract terms and the specific circumstances.

The decision about whether and when to give the required notice can be daunting: Giving notice too early may itself be a breach of the contract – an anticipatory repudiation in legal terminology – but giving notice too late may waive the force majeure excuse. In many instances, it may be advisable to have communications with the other side about the issues, without formally giving notice.

Then, Give Consideration to the Controlling Law

Another important consideration is what jurisdiction’s laws control the contract. Many contracts include an agreement on which state or country’s law will control. But when the contract does not include such an agreement, it may become a fact question driven largely by where the parties were located, where the contract was made and where the performance was required.

The law of the controlling jurisdiction can be very important because states differ in what they require to apply a force majeure excuse for non-performance. California, for example, invokes a standard of “commercially impracticability,” which is more flexible than the standards of many other states. Some states require that actual impossibility be shown. All states require some showing of causation – meaning that the alleged disruption in fact was a cause of the inability to perform. But some states require that the force majeure be shown to be the sole cause of the inability to perform, and not just one among many causes.

Some states, including California, require substantial effort to mitigate the disruption (meaning, taking all reasonable alternative measures to eliminate or limit the effects of the force majeure), but other states are less demanding of mitigation efforts. For example, if the seller has unanticipated problems getting expected supplies of required ingredients, a court may require that the seller seek other more expensive supplies, or may even require that the seller take legal action against its suppliers. Courts may also require partial performance, if the unanticipated disruption does not preclude all performance.

Be Judicious in Your Use of the Force Majeure Clause

In all instances, the focus will be on the event that caused the disruption, not on the disruption itself. Just showing that performance has become more costly, difficult or inconvenient will not usually suffice to establish a force majeure. Courts may assume that the parties allocated ordinary risks of post-contract changes in costs and profitability, although contract terms can set different standards that could control this assessment.

Business managers should readily see that a contract’s force majeure clause can be a powerful tool in this Coronavirus emergency, but it can be double-edged if not wielded carefully. Managers may also have to face the difficult position of being on both sides of this issue – on the one hand, dealing with a business partner that is unable to perform a contractual obligation, and on the other hand, being unable to perform yourself. Conkle, Kremer & Engel attorneys routinely help clients with complex business matters, including contract terminations and force majeure disputes. In our next blog post on this subject, we will turn to what happens when your contract did not include any force majeure clause. In California, as in many states, the Uniform Commercial Code or other doctrines of Impossibility of Performance and Frustration of Purpose can come into play.

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The Personal Care Product Industry as “Essential Activity” in the Coronavirus Pandemic

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March 20, 2020 Update to Post:

Very Fast-Moving Developments on the Subject of Essential Business Activity

Since Conkle, Kremer & Engel’s first publication of this blog post on March 18, 2020, there have already been significant additional developments, including more government orders. In the early evening of March 19, Los Angeles County and the State of California each issued “stay-at-home” orders that have noteworthy differences from the March 16 San Francisco Bay Area orders. All of these orders appear to be operating in parallel effect, so different requirements may apply depending on your business locations.

With respect to the Los Angeles County order, both establishments selling “personal care products” and “businesses that supply other essential businesses [like grocery stores and pharmacies]” are categorized as “Essential Business” and exempt from the closure effects in Los Angeles County. This “personal care products” exemption is like the Bay Area orders. The Los Angeles County order additionally includes establishments providing “personal grooming services,” like salons and barber shops, emphasizing the importance of personal hygiene to combat the Coronavirus and indicating that, top to bottom, the supply chain of personal care products should continue to operate in Los Angeles County. At least, for now.

The State of California’s order, which applies statewide, appears to be much broader in general application than many county orders, but is quite vague as to what activities are “Essential” and therefore permitted. Instead of listing the specific exempt businesses like the county orders, the California state order refers to the federal Cybersecurity and Infrastructure Security Agency’s (“CISA”) list of 16 “Critical Infrastructure Sectors,” which are somewhat malleable business categories that may cause confusion as to which businesses might be exempt. On March 19, CISA released a guidance memorandum that appears to contemplate the manufacture of personal hygiene and cleaning products as being “critical,” but again is not nearly as specific to personal care products as are the various California county orders. Even though it is possible that the California state order supersedes county, city or other local orders, the state order is somewhat unclear as to what business activity is prohibited or remains permitted. For that reason in particular we have, for now, continued to look to the various more specific county orders to provide advice to clients.

CK&E’s personal care product industry sources inform us that there will likely be additional official guidance on the California state order sometime next week, and it is anticipated that such guidance should include specific permission for personal care products manufacturers and sellers to continue at least some scope of business activity. Underlying the various orders there continues to be a strong policy argument to keep personal care products businesses running – they make products that can help reduce the risk of spreading and being infected by Coronavirus.

CK&E will continue to monitor events as they develop and provide up-to-date information to its clients in personal care and other industries in order to assist in navigating through these uncertain and fast-changing circumstances.

Original March 18, 2020 Post:

With states and counties temporarily shuttering certain categories of businesses to combat the Coronavirus pandemic, many manufacturers, distributors, and retailers of personal care products and cosmetics may wonder whether their businesses fall under such executive orders and are required to close. If the March 16, 2020 “stay-at-home” orders issued by six of California’s San Francisco Bay Area counties are any indication, it appears that at least some categories of personal care products, and the businesses that deal in them, may be considered “Essential Activities,” allowing such businesses to remain in operation.

Those Bay Area executive orders (used as a model by Orange County, California for a similar March 17 order, subsequently amended and narrowed March 18) have two pertinent “Essential Activities” sections. The first includes “personal care products” and “products necessary to maintain the sanitation of residences,” and the second includes “businesses that supply other essential businesses [like grocery stores and pharmacies] with the supplies necessary to operate.” These two categories certainly should include personal cleaning and protective items like shampoos, soaps, washes, lotions, balms, and creams, as these products are essential elements of the personal hygiene deemed necessary to combat the Coronavirus. The California Health and Safety Code has long required workers to maintain standards of personal cleanliness with respect to hair, hands, and skin, and in the wake of government directives to wash hands frequently, news outlets like the Washington Post and the Boston Globe have recently quoted medical experts for the importance of moisturizing skin to keep a strong barrier against disease.

With respect to “elective” or “non-hygienic” personal case products such as hair treatments, coloring products, makeup, and nail polish, while the Bay Area orders do refer to the continued sale of all “personal care products” without limitation, it is unclear whether manufacturers or sellers of non-hygienic personal care products will be considered “Essential Activities” in practice. Many hair and nail salons have been closed, and governments have already begun issuing warnings and citations to non-essential companies who have remained open in the face of lockdown orders.

For comparison, the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) issued a national emergency declaration to provide “hours-of-service regulatory relief to commercial vehicle drivers transporting emergency relief in response to the nationwide coronavirus (COVID-19) outbreak.”  Among the transported products that are within emergency FMCSA regulatory exemptions are: “Supplies and equipment, including masks, gloves, hand sanitizer, soap and disinfectants, necessary for healthcare worker, patient and community safety, sanitation, and prevention of COVID-19 spread in communities.” US DOT’s FMCSA reportedly considers its regulatory exemptions applicable to mixed shipments of general consumer goods and some of these types of products that are important to healthcare worker, patient and community safety.

Based on these developments, and to the extent possible, businesses dealing in a variety of personal care or cosmetics products may want to consider pivoting to a larger share of production of hygiene-centric products to remain “essential” until issuance of further guidance.

Conkle, Kremer & Engel has decades of advising clients in the personal care, cosmetics, and beauty industry, including with respect to a wide range of regulatory and employment-related matters. CK&E is working with the Personal Care Products Council and closely monitoring the fast-developing Coronavirus legal landscape in order to assist clients with their immediate business, workplace, and workforce needs in this uncertain time.

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California Air Resources Board Moves to Update Consumer Product VOC Limits

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If you are a manufacturer of Hair Finishing Spray, No Rinse Shampoo, Personal Fragrance Products, Hair Shine or Temporary Hair Color (as well as a number of other consumer products) who sells in California, you might want to start thinking about product reformulation options.

Over the past few months, California’s Air Resources Board (“CARB”), the state agency responsible for investigating, regulating, and enforcing air pollution and emissions standards, has been developing revisions to the regulations relating to volatile organic compounds (“VOCs”) in various consumer products. VOCs are potentially harmful chemical compounds released into the indoor and outdoor environment, including through the manufacture and use of everyday products like cleaning sprays, air fresheners, hair care products, waxes and polishes, insect repellant, and laundry products. CARB consumer product regulations provide definitions for various categories of products and establish limits on the percentages of VOCs for many of the various categories.

From time to time, CARB revisits certain categories and schedules reductions in the permissible VOC limits. The latest round of proposals for VOC limit reductions include the Hair Finishing Spray, No Rinse Shampoo, Personal Fragrance Products, Manual Aerosol Air Freshener, Aerosol Crawling Bug Insecticide, and Charcoal Lighter Material product categories, including substantial reductions of up to 25% of VOCs by product weight. CARB is also considering adding the Hair Shine and Temporary Hair Color product categories to the list of planned reductions. The reductions are proposed to be phased in incrementally, effective 2023 and 2027, to permit manufacturers the time necessary to phase out current product lines and replace them with compliant products.

Final rules have not yet been set, but manufacturers who make and sell such consumer products would be wise to begin preparing to reformulate products to meet the requirements on the anticipated timetable. CARB will be conducting workshops and meetings throughout 2020 to continue to discuss VOC limits and definitions for these categories and others, including working with manufacturers and other industry experts to determine the feasibility of the proposed changes. Conkle, Kremer & Engel will monitor the results of CARB’s work in reducing VOCs and continue to report on the developments.

CK&E routinely assists manufacturers who sell products in California to ensure that their products meet CARB VOC standards and that their product labeling is appropriate, per CARB regulations, for the types of product being sold. CK&E works directly with CARB regarding VOCs and labeling, including representing manufacturers in CARB enforcement actions, in which CARB has the power to levy substantial fines against manufacturers whose products do not comport with VOC limits. With CK&E’s knowledge and assistance, manufacturers can avoid or reduce liability and business disruptions from such potential issues. If your business is facing CARB-related or other regulatory issues, please contact CK&E for a free consultation.

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US Takes New Steps to Combat Counterfeit Products

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On January 31, 2020, the White House issued an executive order outlining several new steps to address the ongoing and growing issue of the sale of counterfeit goods through e-commerce platforms over the internet, which harms both manufacturers and sellers of authentic products and the consumers who purchase the fake (and sometimes physically harmful) products. Estimates show that the annual value of counterfeit goods traded internationally rose from $200 billion in 2005 to $509 billion in 2016. U.S. Customs and Border Protection reports 27,599 shipment seizures stemming from intellectual property violations in fiscal year 2019. Those most commonly affected by the sale of counterfeit goods include the personal care, apparel, electronics, luxury goods, software, entertainment and media, and automotive industries.

Several agencies, including CBP, the Department of Homeland Security, Immigration and Customs Enforcement, and the U.S. Postal Service are involved in the anti-counterfeiting efforts. New steps include (1) the revocation or suspension of Importer of Record numbers for those caught importing counterfeit goods; (2) requirements for consigners, carriers, hub facilities, and customs brokers to notify CBP of any importers known to be dealing in counterfeit goods and to cease transacting with such parties, with increased scrutiny and penalties for noncompliance; (3) the creation of a task force between the CBP, DHS, and USPS in order to determine permissible ways to prevent and deter the transport of counterfeit goods through the postal system, including the targeting of particular international posts (for example, the Chinese postal system) for repeated violations; (4) the periodic publishing by DHS of information relating to seizures and violations; (5) DHS and CBP recommendations of best practices for e-commerce platforms and third-party marketplaces; and (6) the prioritization by Federal prosecutors of offenses involving counterfeiting or piracy.

Importantly, per DHS reports, CBP will “treat domestic warehouses and fulfillment centers,” like ones operated by e-commerce giant Amazon, “as the ultimate consignee for any good that has not been sold to a specific consumer at the time of its importation.” As such, e-commerce platforms that store violative products, even if those products are technically in the possession of third-party sellers while they are being stored, will have a “greater responsibility” to cooperate in the identification and removal of such products, and “greater liability” for failure to cooperate. This could potentially benefit private litigants as well – if e-commerce stores have a greater responsibility to inspect, identify, and address counterfeit products, the threshold for a finding of willful or knowing infringement, which can lead to damage multipliers and attorney fee awards, could be reduced. Even the prospect of such increased penalties can create powerful leverage for settlements beneficial to infringement plaintiffs.

Conkle, Kremer & Engel has extensive experience helping product manufacturers and distributors investigate and enforce their rights to stop and remedy counterfeiting, parallel importation, gray market and other trademark- and intellectual property-infringement claims. CK&E attorneys are well-versed in the careful initial steps that should be taken promptly when sales of illicit products are suspected. CK&E keeps abreast of the latest laws and techniques that permit manufacturers and distributors to identify, prevent, and report counterfeiters and other IP violators. Stay tuned for additional CK&E blog posts as we monitor important developments relating to e-commerce counterfeiting.

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The Conkle Firm Presents at Personal Care Product Council’s Emerging Issues Conference in Marina del Rey

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Zachary Page and Eric Engel being introduced for PCPC Emerging Issues Panel on Product Counterfeiting and Brand Protection

Conkle, Kremer & Engel attorneys Eric S. Engel and Zachary Page presented to beauty industry professionals on hot and developing legal issues in brand protection, grey market and product counterfeiting at the Personal Care Products Council’s November 20, 2019 Emerging Issues Conference. The Conference was held on the 10th Floor of the Marina del Rey Marriott, with a spectacular view over the nearby marina and beach.

Among the topics covered by Zach were issues of registering U.S. trademarks for CBD products, and other previously unregisterable brands. The 2019 U.S. Supreme Court decision in Fourth Estate Public Benefit Corp. v. Wall-Street.com put new importance on registering important copyrights well in advance of their need for infringement claims, and Zach discussed the close relationship with the Digital Millennium Copyright Act’s “DMCA Clock” to takedown infringing online publications. Trends toward false advertising claims based on “natural” and “organic” labeling were also discussed, as were the dramatic increase in medical claim class action and other lawsuits. Zach also briefed the gathered industry experts on the various issues that affect uses of models and others without adequate documentation of consent, which can raise serious right of publicity as well as copyright concerns.

Eric addressed grey market and counterfeiting case development, including the importance of creating “materially different” packaging for U.S. and foreign products. Simple and low-cost ways to help DHS/CBP protect brands against importation of foreign-labeled versions of their own products, as well as counterfeits, was outlined. Also outlined were cost-effective techniques such as recording trademarks online with CBP’s IPR e-Recordation system, Lever Rule Protection, providing CBP with effective Product Identification Training Guides (PITG), conducting IPR Webinars for CBP distribution, and posting e-Allegations online. On combating counterfeiting, Eric addressed Amazon.com specifically because it now accounts for more than half of U.S. online consumer sales, and more than half of Amazon’s online sales are on behalf of third parties in its “marketplace.” Amazon acknowledges no responsibility for sales in its marketplace, beyond closing seller accounts and refunding its customers’ money when they can show that they were sold counterfeit and defective products. Eric discussed the developments in Amazon’s selling and fulfillment practices and in the law of counterfeiting and products liability that suggest that Amazon’s currently-strong denials of responsibility for third party’s products and sales practices may be less compelling in coming years.

CK&E attorneys regularly give presentations to personal care product industry professionals to help them understand and proactively address the latest legal concerns that affect and can inhibit growth of their businesses.

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The Conkle Firm is at Cosmoprof Asia, Hong Kong

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Conkle, Kremer & Engel attorneys John Conkle and Sherron Wiggins are busy at Cosmoprof Asia in Hong Kong. CK&E is again the proud sponsor of California Trade Alliance’s California Pavilion, providing the meeting lounge so California businesses can be in the room where it happens.

The first day for CK&E at Cosmoprof Asia was largely devoted to catching up with old friends of the firm and meeting new ones. Many of the attendees have been CK&E clients or employees of clients for years. One such person is Greg Starkman who, as an executive of Joico in the early 90’s, worked with CK&E on numerous matters. Greg and his wife Joanne now head up Innersense Organic Beauty, which manufactures and sells a line of natural and organic hair care products “dedicated to purity, peace of mind, and the practice of self-care.”

We also viewed outstanding and innovative products that are finalists for the annual Cosmoprof Asia Awards. Several caught our attention, including two products selected due to their packaging. One uses a container made of recycled coffee grounds and polylactic acid (aka polylactide or PLA), which is a thermoplastic aliphatic polyester derived from renewable resources that gives the package a small carbon footprint. The other notable package is manufactured from industrial waste. Other innovative products of interest include a hair dryer weighing only .6 lbs, and a patented plastic makeup container that features a magnetic closure.

So far, attendance at this year’s Cosmoprof Asia appears to be reduced from last year. Many of the attendees believe that the reduced attendance may be affected by the citizen protests that have taken place in Hong Kong over the past few months. Some attribute the attendance drop-off more specifically to the reluctance of Chinese citizens from the “Mainland” to come to Hong Kong during the protests. But there’s a bright side to the smaller crowds – CK&E attorneys have more time available to meet with clients and prospective clients, and to learn about the new products and trends in the beauty industry.

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FTC Warns Manufacturers About CBD Claims

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The Federal Trade Commission (FTC) announced today that it had sent warning letters to three companies over their advertising of products containing cannabidiol or CBD, one of the many active compounds of the cannabis plant. The letters reinforce the FTC’s position that advertisers may not make health-related representations for CBD products without satisfying FTC substantiation standards.

According to the FTC’s press release, the companies – which have not been identified publicly – advertised oils, tinctures, capsules, “gummies” and creams containing CBD as treating or curing serious diseases and health conditions. Disease claims require scientific proof, making it illegal for companies to advertise that a product can prevent, treat or cure human disease without competent and reliable scientific evidence to support such claims.

The FTC took issue with the following:
• A claim that CBD “works like magic” to relieve “even the most agonizing pain” better than prescription opioid painkillers
• A claim that the company has participated in “thousands of hours of research” with Harvard researchers, to bolster its claims that CBD has been “clinically proven” to treat cancer, Alzheimer’s disease, multiple sclerosis (MS), fibromyalgia, cigarette addiction, and colitis
• A claim that CBD products are proven to treat autism, anorexia, bipolar disorder, post-traumatic stress disorder, schizophrenia, anxiety, depression, Alzheimer’s disease, Lou Gehrig’s Disease (ALS), stroke, Parkinson’s disease, epilepsy, traumatic brain injuries, diabetes, Crohn’s disease, psoriasis, MS, fibromyalgia, cancer, and AIDS
• A claim that CBD is a “miracle pain remedy” for both acute and chronic pain, including pain from cancer treatment and arthritis
• A claim that CBD gummies are highly effective at treating “the root cause of most major degenerative diseases, including arthritis, heart disease, fibromyalgia, cancer, asthma, and a wide spectrum of autoimmune disorders”
• A claim that CBD cream relieves arthritis pain
• A claim that CBD oil may effectively treat depression, PTSD, epilepsy, heart disease, arthritis, fibromyalgia, and asthma

According to the FTC, the letters urge the recipient companies to review all claims made for their products, including consumer testimonials, to ensure they are supported by competent and reliable scientific evidence, and also include a warning that selling CBD products without such substantiation could violate the FTC Act and may result in legal action that could result in an injunction and an order to return money to consumers.

The recent warning letters follow similar joint warning letters issued by the FTC and the U.S. Food and Drug Administration (FDA) in March 2019 to three sellers of CBD supplements – Nutra Pure LLC, PotNetwork Holdings, Inc., and Advanced Spine and Pain LLC d/b/a Relievus. The letters alleged that the companies made false or unsubstantiated health claims in violation of the FTC Act as well as sold unapproved drugs in violation of the Federal Food, Drug & Cosmetic Act (FD&C Act).

As the market for CBD goods – including cosmetics and supplements – continues to explode, companies vying for market position must be aware of action taken by the FTC and FDA and stay away from making health or drug claims that could subject them to enforcement by these agencies. Conkle, Kremer & Engel attorneys stay current on the latest developments to help those how manufacture, distribute and sell products containing CBD avoid regulatory trouble.

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