Global Regulatory Enforcement Law Blog : Global Regulatory Enforcement Lawyers & Attorneys: Reed Smith Law Firm: Government Contracts & Compliance

This post was written by Leigh Hansson and Chris Monahan.

The U.S. State Department spent a little ink in the Federal Register earlier this month in an attempt to get green in the 21st century. On August 4, 2010, the State Department, Directorate of Defense Trade Controls, or DDTC, announced a final rule requiring the electronic submission of requests for Commodity Jurisdiction Determinations, or CJs.  Companies submit a CJ if they have doubts as to whether an article or service is covered by the U.S. Munitions List, or if they want to request consideration of a redesignation of an article or service currently covered by the U.S. Munitions List.

In a stunning departure for the federal government, the State Department developed and issued a new form for CJs.  All kidding aside, this new wrinkle in State Department bureaucracy should be a welcome change for most companies interacting with the agency for a few reasons.

The new CJ form is a more environmentally responsible alternative to the old method that required companies to submit seven collated sets of their request and the supporting documentation. In addition to removing the need for all those copies, the new CJ request form must be submitted electronically as of September 2, 2010.

Applicants will not be required to use the DTRADE system and will also not be required to register with DDTC, as some had feared prior to the new rule. Instead, DDTC has created what appears to be a simple and less-burdensome alternative to the old CJ process. Applicants now download the form, scan and attach necessary supporting documents, and submit everything using an open net, web-based application system. DDTC has posted instructions as well as links here.

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This post was writen by Chris Rissetto and Joelle Laszlo.

While most people probably do not associate actions of Congress with the 1970s American pop band The Carpenters, there is a nice reminder in the duo’s music that the passage of a bill on the Hill is often only the first step in an extensive process to draw up the actual rules that will govern how American businesses are to behave. According to an analysis by the U.S. Chamber of Commerce, for example, implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or “the Act”) will require 520 rulemakings, 81 studies, and 93 reports. Ten Federal entities, including the Federal Reserve (“Fed”), the Treasury Department (“Treasury”), the Securities and Exchange Commission (“SEC”), and two agencies created by the Act – the Consumer Financial Protection Bureau and the Financial Stability Oversight Council – will be responsible for solely or jointly issuing new rules under the Act. The SEC (both on its own and with the Commodities and Futures Trading Commission), the Fed, and Treasury’s Office of the Comptroller of the Currency have already issued a variety of requests for comments and notices of proposed rulemaking pursuant to the Act.

The Administrative Procedure Act sets forth the specific steps and timeline that Federal agencies must follow when proposing regulations pursuant to Congressional action, but the proverbial devil always lurks in the details. Furthermore, citing the extensive rulemaking that will take place under Dodd-Frank, the SEC has implemented a ‘pre-rulemaking’ process for accepting public comments on a number of issues within the Act’s purview, and other agencies are undertaking similar actions to enhance public participation in the rulemaking process, beyond what is required by law. All of this means that a company with even a passing interest in how the regulations shake out will be best served by developing a comprehensive rulemaking agenda. Such an agenda should take into consideration not only the rulemaking agencies (and their three-pronged goal to promulgate practically-, legally-, and politically- sustainable regulations) but also the Congressional Committees and Members who will be responsible for overseeing agency activities under and compliance with Dodd-Frank. Companies that take this kind of proactive approach will have the best opportunity for ensuring a regulatory future that isn’t all rainy days and Mondays.

The critical litigation and enforcement risks financial institutions will face as a result of Dodd-Frank were the subject of a teleseminar presented this week by Tom Allen, Roy Arnold, Amy Greer, and Chris Rissetto. The seminar was the third in a month-long Reed Smith series on Financial Re-Regulation. The final teleseminar in the series, addressing Dodd-Frank’s expected impact on securitization and related aspects of capital markets, will take place on Tuesday, August 31 beginning at noon EDT.

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This post was written by Stephanie Giese.

The passage of the Weapon Systems Acquisition Reform Act of 2009 (“WSARA”) signed into Public Law 111-23 on May 22, 2009, and most notably the Organizational Conflict of Interest (“OCI”) provisions of the WSARA, arguably marks the start of the Congress' tear to reform Department of Defense (“DoD”) contracting.  The reforms required by the WSARA OCI provisions alone have kicked off a restructuring of the defense industry, beginning with major weapon system developers like Northrop Grumman and Lockheed Martin selling their Systems Engineering and Technical Assistance business units – even before DoD promulgates the new OCI regulations implementing the WSARA, which are expected in the fourth quarter of 2010.

Congress’ reform theme is now being carried over to other aspects of DoD contracting in the 2011 National Defense Authorization Act (“2011 NDAA”).  Given the potential dramatic effect of past reforms mandated by the WSARA, defense contractors should understand the impacts of both the House (H.R. 5136) and Senate (S. 3454) versions of the 2011 NDAA, as well as plan to participate in the DoD rulemaking process that will ultimately implement many of the 2011 NDAA reforms.
Here are some of Congress’ latest proposed reforms for defense contractors to watch in the House and Senate versions of the 2011 NDAA:

• Contractor’s beware—the government may obtain “unlimited rights” to certain contractor technical data developed a private expense.  Among other changes related to technical data, the Senate proposes granting the government unlimited rights in technical data developed “without significant contribution by a contractor or subcontractor”.  “Without significant contribution” is not defined in the bill, but this proposed change would certainly expand the government’s unlimited rights to certain data funded, in part, at the contractor’s expense.
• Reform regarding government review of contractor business systems may increase compliance costs and delay payments to contractors.  For contractors subject to the Cost Accounting Standards, the Senate proposes that a “significant defect” in a contractor’s business system, which is one that undermines the reliability of the data produced by that system, is grounds for the DoD to withhold up to 10% of payments due to a contractor.  Business systems that may be reviewed by DoD include accounting systems, estimating systems, purchasing systems, earned value management systems, material management and accounting systems, and property management systems.
• DoD evaluation of contractor proposals may be limited to “best cost” to the government rather than “best value” to the government in the future.  The House proposes modifying current law to require DoD to weight cost or price at least equal to or greater than all other evaluation criteria in a government competitive source selection.  This would severely limit the DoD’s ability to conduct a best value evaluation of contractor proposals, including for procurements where contractor innovation is required such as in research and development contracts, and would essentially require the DoD to award to the lowest priced offeror for all its procurements.
• Due process lacking for defense contractors and subcontractors that supply cybersecurity products and services, information technology, and national security systems to the DoD.  Such DoD contractors should be aware that, in the name of reducing supply chain risk, the Senate intends to grant the head of a procuring agency, on the basis of a joint recommendation by the Director of the Defense Intelligence Agency and the Assistant Secretary of Defense for Networks and Information Integration, the authority to exclude a particular source from competing for a DoD contract on grounds that the supplier presents an unacceptable supply chain risk.  The bill does not require the DoD to allow the supplier to mitigate the risk before excluding the supplier.  For additional discussion of current cybersecurity issues facing DoD, please see the Reed Smith article, “Cloud Computing—The Key Risks and Rewards for Federal Government Contractors.”
• The U.S. space industrial base may get a boost from additional federal government investment.  The Senate proposes requiring the Secretary of Defense, in consultation with the National Aeronautics and Space Administration (“NASA”), to take steps to preserve the industrial base for liquid rocket propulsion systems and solid rocket motors. I n addition, the House proposes directing the Secretary of Defense and the Director of National Intelligence to jointly establish a national security space architecture to guide and coordinate each agency’s long-term investment in the space industrial base.
• Reminder that defense contractors, with the exception of weapon system developers, may soon be required to go “green” to compete for DoD contracts.  As currently drafted, the Senate bill requires DoD to report its progress to Congress in complying with Executive Order 13514 of October 5, 2009 which requires the head of a procuring agency to “advance sustainable acquisition to ensure that 95 percent of new contract actions including task and delivery orders, for products and services with the exception of acquisition of weapon systems, are energy-efficient (Energy Star or Federal Energy Management Program (FEMP) designated), water-efficient, biobased, environmentally preferable (e.g., Electronic Product Environmental Assessment Tool (EPEAT) certified), non-ozone depleting, contain recycled content, or are non-toxic or less toxic alternatives, where such products and services meet agency performance requirements.”

Industry’s Acquisition Reform Working Group provided its recommendations and concerns regarding the 2011 NDAA to the House and Senate Armed Services Committees on July 28, 2010.

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This alert was written by Edward Miller, Eugene Tillman, Cynthia O’Donoghue, and Leon Stephenson.

The arrival of the new UK Coalition Government has brought with it proposals to reform the health care system in the UK over the next four years, detailed in its much publicized White Paper “Equity and excellence: Liberating the NHS”.

The stated objectives are ambitious and if instituted will have a far reaching effect on both the way the British public access the health system and the role of the private sector in UK health care. Although the White Paper does not go so far as to indicate that privatization of the NHS as such is being considered, the Government’s tone is bold in as much as it advocates public choice and recognizes that resultant competition must include third party private providers.

The key themes of the White Paper are based on choice for the patient, flexibility for the commissioning consortia, encouraging competition and social enterprise. This, within an ambitious four year timetable, indicates that there will be room for unprecedented private, for profit and non-profit and third sector involvement in the reform of the UK health care system.

To view the entire alert, please click here.

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This post was written by Cynthia O'Donoghue and Katalina Chin.

The European Commission DG Justice, Freedom and Security commissioned London Economics, one of Europe's leading specialist economics and policy consultancies, to undertake a study and report on the economic benefits of Privacy Enhancing Technologies ("PETs") for organisations and institutions using and holding personal data in selected European member states.

But what are PETs?  It is a term used for a set of computer tools, applications and mechanisms, including procedures and management systems, which aim to protect the privacy of personal data by eliminating, anonymising or minimising personal data in order to prevent unnecessary or unwanted processing of personal data.  Features can include, for example, allowing an individual to choose the degree of anonymity, to inspect, correct and delete any of their personal data, to track the use of their personal data and may also include a consent mechanism prior to providing personal data to online service providers.  The report emphasises that, "data minimisation and consent mechanisms are an important part of PETs, and PETs often combine these elements with data protection tools into an integrated privacy system".

The report highlights that "the rights [set out in Article 8 of the Charter of Fundamental Rights of the European Union which deals with an individual’s rights to the protection of personal data] form the basis of the legal framework in which PETs are deployed" and should have at their core the objective of transparency, proportionality and data minimisation.

The report explains how it is difficult to quantify the wider economic benefits of a data controller using PETs to protect an individual’s personal data, and how the evidence has shown that the benefits can only be assessed on a case-by-case basis.  If anything, the study found little evidence to show that the demand by individuals for greater privacy is driving PETs deployment, and suggests that this is in part due to “the uncertainties surrounding the risk of disclosure of personal data, a lack of knowledge about PETs, and behavioural biases that prevent individuals from acting in accordance with their stated preference for greater privacy”.

The fact of the matter is, as the report makes very clear, that data controllers can derive a variety of benefits from holding and using personal data (including the personalisation of goods and services, data mining, etc.) and to the extent that PETs limit the ability of data controllers to use personal data, this will clearly act as a disincentive in the exploitation of PETs. The report highlights that, “data controllers often favour mere data protection to protect themselves against the adverse consequences of data loss over data minimisation or consent mechanisms which can impede the use of personal data”.  Evidence considered in the study suggests that there is a role for the public sector in helping data controllers realise the benefits of PETs, such as “official endorsements of PETs, including through pioneering deployment and official certification schemes, and direct support for the development of PETs, through subsidies to researchers (e.g. the European Framework Programmes)".

As the heat in data privacy issues continues to rise, with increased powers of regulatory authorities, tougher sanctions being imposed and a greater emphasis in Europe’s legislation on security management, it is clear that privacy by design will be the most effective method of compliance.

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Articles in This Issue:

• A Summer of Sanctions: World Leaders Respond to Iranian Obstinacy
• New Department of Justice Guidance Seeks to Bolster Confidence in the Use of Independent Monitors
• Round 2: Encryption Controls Streamlining
• The British Are Coming! The British Are Coming! - Preparing for the Launch of the Bribery Act of 2010
• Government Procurement in China
• Enforcement Highlights

Click here to download the full newsletter.

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This post was written by Chris Cwalina, Judy Harris and Amy Mushahwar.

Securing information technology infrastructure has become a prominent focus of the Obama administration and the subject of several bills percolating on Capitol Hill. In step with these efforts, on Monday, August 9, 2010, the Federal Communications Commission ("FCC") requested public comment on its proposal to expand its role in protecting private networks from cybersecurity attacks through creation of a cybersecurity roadmap.

The concept of establishing a cybersecurity roadmap was initially laid out in the National Broadband Plan, which the FCC presented to Congress in March of this year. The proposed roadmap would identify the five most critical cybersecurity threats to the communications infrastructure and to end users. It would also establish a two-year plan (with milestones) for the FCC to address these threats. 

By means of this roadmap, the FCC would like to demonstrate leadership and provide a clear vision on cybersecurity priorities.  Presently, various parts of the federal government -- from the Justice Department to the Defense Department -- share responsibility for thwarting private cyberattacks.  The Government Accountability Office ("GAO") has intimated that the present structure of federal cybersecurity coordination leaves much to be desired.  In a recent report, the GAO stated, “[f]ederal agencies have not demonstrated an ability to coordinate their activities and project clear policies on a consistent basis[.]”

The FCC is using its Section 706 deployment authority as a basis for acting to fill the perceived leadership void, stating that if cyberattacks create a lack of consumer confidence on the Internet, there may be a decreased demand for broadband services. The FCC's concern is buttressed by the fact that online hackers are showing increasing sophistication. For example, in Malware (a program containing sequences of steps to carry out attacks) alone, there have been three generations of common hacks, each upping the ante in terms of network damages.

• Generation 1: consisted of viruses that were spread across the network through e-mail and file sharing methods that required human "touch" to trigger replication (examples of this generation include LoveLetter, Fizzer, and Melissa).
• Generation 2: consisted of worms that exploited operating systems or application vulnerabilities using an automated script (an example of this generation includes the now infamous Anna Kournikova virus).
• Generation 3: has been the most detrimental to networks and has consisted of a combination of elements (for example, viruses, Trojan horses, and automation) to uniquely exploit networks (examples of this generation include Blaster, SQL Slammer, Slapper, Sasser, and Witty worms).

Comments are encouraged from all relevant stakeholders (applications developers, ISPs, e-commerce site owners, device manufacturers). Because this is a newer foray of the FCC, comments are encouraged even by those who are not usual suspects before the Commission. Those companies interested in this proceeding should act quickly as comments are due to the FCC on September 23, 2010.

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This post was written by Lorraine Campos and Steve Tibbets.

“Major systems” are the lifeblood of large defense contractors.  The long-term development and implementation of big and expensive programs – think fighter jets – are the foundation of many contractors’ business plans.  Generally, contractors that design systems, buildings, or vehicles for the Government are not supposed to compete for follow-on contracts to build those items because they could skew specifications to favor themselves.  Current regulations permit OCI “mitigation” plans where the building or implementing parts of the company are isolated from the design parts.

On July 20, 2010, the American Bar Association (“ABA”) Section of Public Contract Law (“Section”) submitted its comments on a major proposed rule on Organizational Conflicts of Interest (“OCIs”) published by the U.S. Department of Defense (“DOD”) in April 2010.  The proposed rule would significantly curtail the ability of large defense contractors to handle procurements of major defense systems in a “cradle to grave” manner.  The proposed rule would, if finalized, place stricter limits on contractors’ ability to work on both the design or development phases of a large procurements and the implementation or manufacturing phases of the same procurement.

The proposed rule would reduce the extent to which contractors can rely on mitigation plans.  The Section argues that this will reduce competition because contractors will avoid certain portions of procurements so they are not “conflicted out of” other parts of those procurements.  As a practical matter, contractors for the DOD will have to plan their business strategies with greater care and make difficult decisions regarding which contracts to chase, considering when to trade off the prospect of current work for future contracts on which they may be dependent and cannot risk a conflict.

Ultimately, the reason OCIs strike policy-makers as worthy of further regulation is the conventional wisdom in the defense contracting space that any successful contractor will be bought by the “big boys” with deleterious effects on competition.  The Section seems to indicate that certain larger defense contractors are averse to “tough choices” regarding which parts of major procurements to pursue and prefer the existing rules, which permit them to pursue entire procurements as long as OCI mitigation is in place.  Whether this aversion will lead to any large-scale balkanization of the design and implementation parts of major contractors remains to be seen.  What is clear from the comments is that the community has “sat up and taken notice” that the proposed rule is a departure from business as usual on OCIs.
 

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This post was written by Michael Grant.

The U.S. State Department’s DDTC (Directorate of Defense Trade Controls) has finally joined the green revolution. Whether this move should be construed as the State Department’s support of a healthier planet, an attempt to limit the potential for loss of sensitive documents, or an effort to deprive the legal community of its paper obsession, we may never know. What we can be sure of is that beginning September 1, 2010, DDTC’s licensing division will no longer accept certain unclassified paper agreements. See DDTC’s announcement here.

Technical Assistance Agreements, Manufacturing License Agreements, Warehouse Distribution Agreements, and major amendments thereto, as of September 1, 2010, must be submitted through use of the form DSP-5 via D-Trade 2. For those of you unfamiliar with the requirements for electronically submitted TAAs, MLAs, and WDAs, rest assured your government has an answer for you: stop by the DDTC Agreement Guidelines Section and check out the third PDF. It will provide you with a little light reading (165 pages) covering everything you need to know about electronically filing these agreements.

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This post was written by Frederick Lah.

Wal-Mart's decision to put radio-frequency identification (RFID) tags on individual clothing has bothered some privacy advocates. Previously only used by the company in its warehouses, Wal-Mart is expanding its use of the tags with the aim of reducing loss and ensuring shelves are optimally stocked. Further down the road, a full implementation of RFID could potentially do away with checkout lines as the sale of RFID-enabled products can be completed with one quick scan of all items in the cart.

The privacy concerns with RFID technology are nothing new but have been elevated with the technology now entering into customer households. RFID tags store unique numerical identification codes that can be scanned and potentially tracked from a distance. Though the tags can be removed, they cannot be turned off. Privacy advocates are worried that the expanded use of the technology would allow retailers to track movements throughout the store of customers carrying driver's licenses that contain RFID technology (e.g., Michigan, New York, and Washington). The concern is that retailers could scan data from such licenses and their purchases, and combine the information with other personal data, and then be able to know the person's identity the next time they enter the store. There are also worries that unscrupulous marketers would be able to drive by customers' homes and scan their garbage to learn about their buying habits. Wal-Mart insists that the tag doesn't collect customer information and that they are using the technology strictly to manage their inventory. Wal-Mart also plans to educate consumers with the new implementation through in-store videos and signs posted in their stores.

According to the Wall Street Journal, Wal-Mart's broad adoption of the tags is the largest in the world. With Wal-Mart being one of the most influential retailers in the world, a successful implementation of the technology could lead to other merchants following its lead. Several other retailers including J.C. Penney and Bloomingdale's have already begun experimenting with electronic tags and numerous European retailers have embraced the technology as well. Those clients interested in using RFID tags should consider both the benefits and privacy risks before implementing the technology.

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This post was written by Lorraine Campos and Steve Tibbets.

Federal contractors can add yet another item to their lists of databases in which they register and disclose information. As of July 8, 2010, contracting officers are to modify certain federal contracts to include a Federal Acquisition Regulation (“FAR”) clause that requires certain contractors to register in two locations and potentially provide two new types of information: (1) information regarding subcontracts must be disclosed via the Federal Funding Accountability and Transparency Act Subaward Reporting System at www.fsrs.gov; and (2) information regarding executive compensation must be reported via the Central Contractor Registration database at www.ccr.gov. 75 F.R. 39414 (July 8, 2010).

The subcontract reporting requirement applies to all prime contracts worth $25,000 or more. The prime contractor must report a number of items for any first-tier subcontract worth $25,000 or more, including the name and address of the subcontractor, the amount of the subcontract, and the nature of the items or services being acquired. The requirement is being “phased in” so that, until September 30, 2010, the reporting requirement only applies to prime contracts worth at least $20 million and, until March 1, 2011, the reporting requirement only applies to prime contracts worth at least $550,000. After March 1, 2011, the subcontract reporting requirement applies to all contracts over $25,000 in value.

The compensation reporting requirement requires contractors to identify the five most highly-compensated executives and report the amount of their compensation. This requirement only applies to contractors that have both annual revenue of at least $25 million from federal contracts, grants, and/or loans and derive at least 80% of their annual revenue from federal contracts, grants, and/or loans.

These reporting requirements have had the force of law since their promulgation on July 8, 2010. The regulatory body that issued the requirements, the FAR Council, is accepting comments on this interim rule until September 7, 2010. Therefore, companies that wish to persuade the FAR Council to abandon or modify the rule have a little over a month to do so.

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This post was written by Kirsty O'Connor and Rosanne Kay.

Quelle surprise! The Ministry of Justice has recently announced that the UK Bribery Act will not come into force until April 2011 (six months later than previously suggested). The legislation that was rushed through before the recent general election needs some fine tuning, or at least a little elaboration about how it will work in practice.

The reason for the delay is so that the Government can engage in a consultation with businesses about the "adequate procedures" guidance to be published, as well as to give commercial organisations time to ensure their systems and controls are in line with the new Act. Certainly, this is sensible given that evidence of adequate procedures in place will serve as a defence to the corporate offence of failing to prevent bribery.

However, the new timetable has been met with cynicism from groups that campaigned for the legislation. It is feared that the extra time will allow the Government to water down the Act and make it easy for corporate bodies to wriggle off the anti-corruption hook. We shall have to wait until the Government's guidance is published in early 2011 to see whether the strict liability corporate offence retains its teeth.

For further information on the Bribery Act and recent developments, please click here.

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This post was written by Anne Borkovic.

Who knew that gecko was mixed up with such unsavory characters? On June 3, 2010, the U.S. Treasury, Office of Foreign Assets Control (“OFAC”) announced that GEICO General Insurance Company paid $11,000 to settle allegations that, from approximately September 2006 to June 2007, it provided a car insurance policy to an individual listed on the Specially Designated Nationals (“SDN”) List as a narcotics kingpin. The alleged violations involved premium payments totaling $2,265. OFAC’s brief announcement specifies that the settlement amount reflects OFAC’s consideration that GEICO screens its customers against a version of the SDN List updated only annually, but is taking measures to improve its procedures.

The announcement also specifies that the base penalty for the alleged violations was $11,000. This combined with the penalty calculation procedures in OFAC’s penalty guidelines indirectly confirms that the case was likely not voluntarily disclosed. The imposition of a base penalty also indirectly confirms that OFAC did not pursue egregious or “willful” violation penalties in this case. However, it also indicates that OFAC considered the case significant enough to pursue a monetary penalty rather than only issue a cautionary letter or formal finding of a violation.

Many companies struggle with the need to screen customers against the continually-updated SDN List, as well as the Denied Parties, Unverified, Entity, and Debarred Lists. Companies with more standard business models – order placement, shipment, -- can take advantage of screening software, including automatic updates of the lists and friendly interfaces, to screen each order for shipment. However, many companies have such a high volume of customers, international locations, and non-traditional structures, that even implementing a procedure to use the software would require significant changes to the business process.

Unfortunately, even with robust processes, there are no safe harbors available for screening transactions to ensure that the customer is not included on a list. The GEICO enforcement action demonstrates that even one slip in the screening can result in an administrative investigation and civil money penalty. It also shows that OFAC is willing to undertake enforcement actions in industries with less traditional distribution models.

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This post was written by Gavin Eastgate.

Taking on the issue for the first time, the Court of Appeals for the Third Circuit rejected a district court's certification of a nationwide class of indirect purchasers under various state antitrust laws. Over the objections of some class members, the district court had certified the class as part of a settlement.

While state antitrust statutes generally mirror the federal antitrust laws, many have more lenient standing requirements. In 1977, in Illinois Brick v. Illinois, the United States Supreme Court held that only direct purchasers of a product or service may sue for an antitrust injury.  In the years that followed, twenty-five states and the District of Columbia extended antitrust standing to indirect purchasers via "Illinois Brick repealer" statutes or judicial decisions.  The remaining states follow the federal rule and do not grant standing to indirect purchasers.

In Sullivan v. DB Investments, Inc., the Third Circuit considered the novel issue of "whether variations among state antitrust statutes are so far-reaching that those differences overshadow commonalities when a class of indirect purchasers seeks certification on a nationwide basis."  In concluding that it would be improper to permit a nationwide class of indirect purchasers, the court reasoned: "[T]here can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact. It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisidictions, but only some of those jurisdictions extend standing to class members to enforce that right."  The appeals court noted that "when the parties propose to use class certification mechanisms in a manner that materially changes substantive rights, the district court has a duty to ensure that such use does not create a right of recovery where none existed before."  By certifying the nationwide class, the district court created standing for plaintiffs who otherwise lacked standing and ran afoul of the Rules Enabling Act in the process. The Rules Enabling Act prohibits a court from interpreting procedural rules in a manner that creates new substantive rights.

The Third Circuit rejected the idea that a nationwide class could be certified using various state antitrust laws and remanded the case to the district court. On remand, the distict court would be permitted to entertain certification motions for a class that, at least as to the state antitrust law claims, is not nationwide in scope.

Ultimately, this decision deals a significant blow to indirect purchaser plaintiffs who would seek to circumvent certain states' Illinois Brick standing requirements by filing a nationwide class action.

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