January 16, 2014
2014 Legislative & Regulatory Outlook
Practice Groups:
By: Tim L. Peckinpaugh, Darrell L. Conner and Sean P. McGlynn
Public Policy and
Law;
Introduction
Global Government
Solutions
The K&L Gates Public Policy and Law Group (“Policy Group”) has prepared a legislative and
regulatory outlook for 2014 with the purpose of identifying potential risks and opportunities
for stakeholders. Conventional wisdom would seem to say that an election year is not likely
to produce much legislative or regulatory action. However, we believe that 2014 may
actually defy conventional wisdom and produce a good deal of activity.
We base our assessment on the recent budget deal brokered by Senate Budget Committee
Chairwoman Patty Murray (D-WA) and House Budget Committee Chairman Paul Ryan (RWI), the recent Senate rules changes for executive branch nominees, and the recent
appointment of John Podesta as counselor to President Barack Obama. In essence, we
believe that these developments will make it easier for Congress to complete the FY 15
appropriations process through regular order, the Senate rules changes will make it easier to
confirm executive branch nominees who will subsequently go on to promulgate regulations at
the federal agency level, and the appointment of John Podesta will lead to increased
executive action by President Obama-- specifically in the areas of energy, environment, and
climate change.
FY 14, FY 15, and the Debt Limit
As has been widely reported, the Bipartisan Budget Act of 2013 was signed into law by
President Obama shortly before the end of 2013, which puts the Congressional
appropriations process on a more stable and predictable path. The bill restructures some of
the scheduled spending cuts under the process known as sequestration and establishes topline budget numbers for both the FY 14 and FY 15 appropriations bills.
FY 14 Omnibus
House and Senate Appropriations Committee members completed negotiations on an FY 14
omnibus appropriations measure (H.R. 3547) on January 13, which provides $1.012 trillion in
total funding for the federal government through the remainder of the fiscal year. The
measure, unlike omnibus packages of recent years, provides new funding for all twelve
appropriations bills. More specifically, it provides $492 billion in non-defense discretionary
spending and $520 billion for defense discretionary spending. The House passed the
measure on January 15 by a vote of 359-67 and the Senate is expected to pass it by the end
of this week.
2014 Legislative & Regulatory Outlook
FY 15 Appropriations
It is obviously too late to influence the FY 14 appropriations process. However, with the
establishment of a top-line budget number for FY 15 appropriations through the Bipartisan
Budget Act of 2013, stakeholders should anticipate that Congress will move very quickly to
begin the FY 15 appropriations process.
President Obama is expected to release his FY 15 budget request in February after he
delivers his State of the Union address on January 28. However, recent reports indicate that
the date for its release may slip into March, since the White House Office of Management &
Budget (OMB) is behind schedule in crafting the request, due to the recent focus on the
Bipartisan Budget Act deal. Regardless, Congress will likely begin holding FY 15
appropriations hearings in February and March. If recent history is any indication, then the
House may begin marking up their FY 15 appropriations bills by mid-April. It is, therefore,
very important to engage Congressional staff early in 2014 to influence the FY 15 process.
Debt Limit
Additionally, the Treasury Department has recently indicated that it may need Congress to
raise the federal debt limit as early as mid-February. On the other hand, the non-partisan
Congressional Budget Office (CBO) has indicated that Congress may not need to raise the
debt limit until later in the spring. Either way, however, it is important to remain mindful of
how Congress may use the debt limit to further cut or restructure federal spending.
Water Resources Development Act and Farm Bill
Congress may also act early this year on either the Water Resources Development Act
(WRDA) (H.R. 3080, S. 601) or the Farm Bill (H.R. 2642, S. 954) depending on how the
respective conference negotiations proceed.
Water Resources Development Act
Conference negotiators for WRDA originally intended to finish their measure and pass it out
of Congress before the end of 2013. However, negotiations have reportedly dragged on due
to disagreements over certain projects for the Army Corps of Engineers. It’s possible that
Congress may vote on a conference report for the bill sometime in late January.
Farm Bill
Conference negotiations for the Farm Bill also continue, due to disagreements mainly
concerning the Supplemental Nutrition Assistance Program (SNAP) and the dairy title in the
bill. According to some reports, Congress may need to pass some extension of the current
Farm Bill by mid-January, in order to provide more time for conference negotiations. This
notion has gained traction as conference negotiations continue over the aforementioned
issues.
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2014 Legislative & Regulatory Outlook
Immigration Reform
There are conflicting reports on the prospects for immigration reform in 2014. Some House
Republican members and their staff say that the issue is all but dead, due to its controversial
nature among House Republicans. On the other hand, some House Republican members
and their staff express greater optimism for potential action in 2014, especially later in the
year. Indeed, Speaker Boehner convened a closed-door meeting with his caucus on
January 7, where he reportedly told them that he plans to release a caucus position paper on
immigration reform in the coming weeks.
House Action
The Senate passed a comprehensive immigration reform bill, The Border Security, Economic
Opportunity and Immigration Modernization Act (S. 744), on June 27, 2013. House
Republican leadership, however, have said that they have no intention of bringing the
Senate-passed bill to the House floor for a vote, since the issue of immigration reform is very
contentious within their caucus and a piecemeal legislative approach to reform is the only
method likely to yield any progress. To that end, both the House Judiciary Committee and
the House Homeland Security Committee have reported out five different bills dealing with
issues of border security, high-skilled worker visa issues, agricultural guest worker issues,
employment verification, and state and local immigration enforcement. It’s not clear which, if
any, of these bills House Speaker John Boehner (R-OH) will bring to the House floor for a
vote.
Citizenship Issue is Key
In addition to the aforementioned bills, reports indicate that House Majority Leader Eric
Cantor (R-VA) and House Judiciary Committee Chairman Bob Goodlatte (R-VA) continue to
work on legislation that would provide a pathway to citizenship for some children of illegal
immigrants. Other members of the Republican caucus, such as Rep. Joe Heck (R-NV), are
reportedly also working on legislation to address the citizenship issue for illegal immigrants.
The focus on citizenship is a tacit recognition that House Republicans will need to address
the issue of citizenship for at least some illegal immigrants in some form, if they are ever to
reach a final immigration deal with Senate Democrats.
Boehner Immigration Director
It is also important to note that Speaker Boehner recently hired Rebecca Tallent as his new
director of immigration policy. Some Republican staffers have interpreted this as a sign that
Boehner still intends to push the issue of immigration reform in 2014, since Tallent once
worked for Senator John McCain (R-AZ), who was extensively involved in his efforts to pass
comprehensive immigration reform in 2007.
As certain House Republican members continue to craft immigration reform legislation, there
are opportunities for stakeholders to engage on the issue.
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2014 Legislative & Regulatory Outlook
Defense Authorization and the Highway Bill
Defense Authorization
In modern history, one bill always passes each year – the Defense Authorization bill. It is a
must pass bill and 2014 will be no different. The House and Senate Armed Service
Committees are expected to begin hearings on the FY 15 budget for the Defense
Authorization bill as early as mid-to-late March. The House Armed Service Committee may
begin its markups by early May, while the Senate Armed Service Committee may begin its
markups by late May to early June. Early engagement with House and Senate Armed
Service Committee members and staff will be critical to getting issues on the committees’
priority lists for the bills.
Highway Bill
The current surface transportation reauthorization expires on September 30, 2014. The
House Transportation & Infrastructure Committee and the Senate Environment & Public
Works Committee, which have jurisdiction, have already begun the legislative process with
the House committee holding its first hearing on January 14.
The solvency of the Highway Trust Fund, and the ability to find acceptable revenue streams
to fund the bill, will have a significant impact on Congressional negotiations over the bill, with
potential tax implications. The issue of raising truck size and weight limits on interstate
highways also may resurface. Large trucking companies and their customers have
supported raising the limits, but freight railroads and consumer safety groups have opposed
it. The bill could also serve as a vehicle to delay implementation of Positive Train Control,
which the Rail Safety Improvement Act of 2008 mandated for implementation by the end of
2015, and for other new rail safety and economic regulatory requirements. Some House
staffers say that, depending on how negotiations and markups for the surface transportation
reauthorization bill develop, the House may bring a bill to the House floor for a vote
sometime during the late spring.
Tax Reform
Over the past several years, the congressional tax-writing committees have been working on
comprehensive tax reform legislation that would simplify and streamline the tax code in an
effort to improve the fiscal health of the country and provide a solid foundation for economic
growth. As part of this effort, the House Ways and Means Committee and Senate Finance
Committee have been developing proposals that address all aspects of the tax system,
including marginal tax rates, taxation of income, tax expenditures, deductions, credits, as
well as its overall structure. Consequently, the tax reform debate could have a significant
impact on individuals, as well as businesses of all types and sizes.
Opinions still differ on many of the substantive issues associated with tax reform. Despite
these differences, the committees continue to move forward. Both the House Ways and
Means Committee and Senate Finance Committee have released international tax reform
proposals that would fundamentally change the taxation of foreign income. The Ways and
Means Committee has also released proposals on the taxation of financial products, as well
as a draft on the taxation of small businesses and pass-through entities. In addition, the
Finance Committee has released a proposal that would completely revamp the depreciation
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2014 Legislative & Regulatory Outlook
system, changing how taxpayers capitalize and recover the cost of their assets, as well as a
proposal to restructure energy tax incentives.
What the committees have not yet released could be even more significant. House Ways
and Means Committee Chairman Dave Camp (R-MI) has said that in 2014 he plans to
release and mark up a comprehensive tax reform bill that substantially lowers marginal tax
rates and repeals dozens of tax credits, deductions, and other provisions to pay for it. The
Senate Finance Committee may also release more drafts, and likely incoming Chairman Ron
Wyden (D-OR) has shown a deep commitment to comprehensive tax reform during his time
in office. Chairman Wyden may also revisit some issues on which the Committee released
drafts under Chairman Max Baucus (D-MT).
Although comprehensive tax reform legislation may not be enacted into law in 2014, the tax
reform effort is expected to continue into 2015 and beyond. Proposals released in the 113th
Congress will influence tax reform going forward. Moreover, lawmakers will also look to the
tax reform proposals in search of federal revenue to pay for other priorities. In addition, there
is a good possibility that Congress will act this year on legislation to extend various tax
provisions that expired at the end of 2013, providing another opportunity to include proposals
- including revenue pay-fors - that have arisen as part of tax reform.
Trade Promotion
The next year should feature a very busy trade agenda, including the possibility of major
agreements that would open up markets for U.S. goods in Europe and Asia, as well as
renewed “fast-track” authority for trade agreements in Congress.
Trade Promotion Authority
The Obama Administration and Congress are currently working on Trade Promotion
Authority (TPA) legislation that would make it significantly easier for the U.S. to form trade
deals with other nations. TPA legislation would allow for “fast-track” consideration of trade
agreements by preventing lawmakers from amending or filibustering these deals. Instead,
Congress would hold simple up-or-down votes on trade agreements. This legislative
mechanism has existed previously but expired in 2007. The Administration has stressed the
importance of TPA legislation in order to complete trade agreements such as the TransPacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP)
(both discussed below).
In Congress, action in both the House and Senate could come in early 2014. On January 9,
2014, Senate Finance Committee Chairman Max Baucus (D-MT), Senate Finance
Committee Ranking Member Orrin Hatch (R-UT), and House Ways and Means Committee
Chairman Dave Camp (R-MI) released a TPA bill with the intent of moving the legislation
early this year. Chairman Baucus has stated his desire to move the TPA bill before his
potential confirmation as the next U.S. Ambassador to China.
Trans-Pacific Partnership
The trade deal most likely to reach its conclusion this year is the Trans-Pacific Partnership
(TPP) agreement, which may be finalized as early as the spring of 2014. The U.S.-led
negotiations, which feature a dozen countries spanning North America, South America, and
Asia, would cover an area comprising about 40 percent of the global economy. The major
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2014 Legislative & Regulatory Outlook
remaining topics in the talks include intellectual property, agricultural tariffs, and competitive
issues associated with state-owned enterprises. The negotiations were initially scheduled to
wrap up last year but have spilled into 2014. Despite this setback, the Obama Administration
is confident that negotiators will be able to reach a deal that would increase market access
across the Pacific.
Transatlantic Trade and Investment Partnership
In addition, the U.S. and European Union (EU) may complete their Transatlantic Trade and
Investment Partnership (TTIP) negotiations by the end of this year. The proposed TTIP is
aimed at making it easier to buy and sell goods and services between the U.S. and EU in a
variety of economic sectors by removing trade barriers, including tariffs as well as non-tariff
barriers such as regulations and restrictions on investment. Studies have shown that a TTIP
deal could result in hundreds of billions of dollars in economic benefits to the U.S. and EU.
In 2014, the TTIP negotiations will likely focus on financial services, agriculture (with an
emphasis on the treatment of genetically modified organisms), and cultural sectors of the EU
economy. Five rounds of talks are planned this year, and both sides hope to wrap up the
talks by the end of 2014. Stakeholders should be aware that the talks present significant
risks and opportunities -- particularly in highly-regulated sectors of the economy like financial
services.
Trade in Services Agreement
The Trade in Services Agreement (TISA) negotiations will also continue throughout the
year. The talks, which are aimed at improving and expanding trade in services, were
initiated by the U.S. and Australia and feature dozens of parties representing about 70
percent of the world’s trade in services. The talks seek to update and revise the General
Agreement on Trade in Services (GATS), which the World Trade Organization established in
1995, to account for major changes in the global economy and technological advancements
in the last two decades. In particular, the parties hope to improve international data across,
address competitive issues associated with state-owned enterprises, increase transparency
and due process across the globe, and cut down on discriminatory rules in obtaining
business licenses and permits.
Negotiators concluded the latest round of TISA talks late last year in Geneva, Switzerland,
and the parties are optimistic that an agreement will be reached. With the growing
importance of services sector to the U.S. economy, businesses should keep close watch on
how the talks progress.
Energy
Congress is not likely to pass major energy legislation in 2014; however, energy issues will
still attract substantial interest from the Congress and the Obama Administration.
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2014 Legislative & Regulatory Outlook
Energy Exports
Pervasive deployment of hydraulic fracturing has revolutionized the energy market, resulting
in record US oil and gas production and new public policy priorities. For instance, exports of
liquefied natural gas (LNG) and crude oil are now salient policy issues. For LNG exports,
most of the focus will center on regulatory approvals required to develop LNG export
terminals and authorizations to export LNG to non-free trade agreement nations. Key
members of Congress, such as Senator Lisa Murkowski (R-AK), the ranking member of the
Energy & Natural Resources Committee, will actively explore lifting the crude oil export
ban. Oil export legislation, however, is not likely to pass this year, given lingering concerns
over security and higher prices; but the debate will be joined, perhaps allowing for its
passage in the next Congress.
Climate Change
Concerns about climate change will also drive energy policy. Since legislative mandates on
reducing greenhouse gases are not expected to pass both Houses of Congress anytime
soon, the focus has shifted to regulatory action. The President’s Climate Action Plan will
serve as the catalyst for Environmental Protection Agency (EPA) rulemakings to limit
greenhouse gas emissions from power plants, especially those fired by coal. Congressional
Republicans and some Democrats from coal producing areas will aggressively contest EPA’s
proposed rules; but they will likely be unable to stop them -- probably only delay
them. Another regulatory decision driven by climate change politics is whether to proceed
with the Keystone XL pipeline to ship oil from the Canadian tar sands to gulf refineries.
Renewable Energy
Renewable energy will continue to generate interest from Congress. House Republicans will
probably launch new investigations of ill-fated green energy projects. Market-based
conservatives and the oil industry will also likely step up efforts to repeal or modify the
Renewable Fuel Standard. Production tax credits to promote wind and other renewable
energy resources have expired, and pressure will build during 2014 for another extension
made retroactive to the end of 2013. The Obama Administration will likely also accelerate
efforts to require federal agencies to lead by example by obtaining larger percentages of
energy from renewable sources.
Nuclear Energy
Nuclear energy legislation will center on nuclear waste. A bipartisan Senate bill to move
forward with the recommendations of a Blue Ribbon Commission on interim storage and a
consent-based process may be approved by the Senate Energy & Natural Resources
Committee, but is not likely to progress much further. The House will insist that any nuclear
waste legislation continue with the licensing of the Yucca Mountain repository, especially
now that the Nuclear Regulatory Commission (NRC) has started to revive the Yucca license
review as directed by the D.C. Circuit Court of Appeals. Much of the additional interest in
nuclear energy will focus on federal funding and support for small modular reactor
technologies.
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2014 Legislative & Regulatory Outlook
New Senate Committee Chair
Finally, all of these energy policy issues will be impacted by a significant change in
congressional leadership. With Senator Max Baucus (D-MT) being nominated to serve as
ambassador to China, Senator Ron Wyden (D-OR) is expected to move up as the new chair
of the Senate Finance Committee, creating a vacancy in the chairmanship of the Senate
Energy & Naturel Resources Committee. All indications are that Senator Mary Landrieu (DLA) will likely assume this chairmanship. Given the strong oil and gas constituency in her
home state (and that she faces a difficult re-election this year), she is expected to focus the
committee’s agenda more on LNG and crude oil exports, as well as offshore drilling and
higher state royalties.
Healthcare
Almost without exception, over the last two years, Congressional Republicans ignored most
health care issues with the exception of repealing the Affordable Care Act (ACA). As a
result, the normal congressional checks and balances on regulatory action have been
virtually non-existent. The Administration was quick to fill this gap through a number of
significant regulatory changes related to both the implementation of the Affordable Care Act,
as well as changes in Medicare payment policies.
Congressional Action
However, by the end of 2013, a change in Republican internal politics brought the Congress
back into the debate about regulatory policy changes. For example, a large bipartisan group
moved to include a provision delaying the implementation of the two (2) midnight rule until
October 1, 2014—the two midnight rule would have dramatically altered the definition of an
inpatient and an outpatient. This issue will continue to receive congressional attention over
the next year. In addition, Congress will turn to a host of other administrative problems
plaguing the Medicare program, such as Medicare Recovery Audit Contractor (RAC) reform.
Although Republicans continue to give lip-service to repealing the Affordable Care Act,
House Republicans will emphasize smaller bills aimed at making the implementation of the
Act more difficult. Several Republican Senators have publicly acknowledged that repealing
the ACA is not possible, but amendments to the Act are possible. Several key Republican
Senators have been working with Democrats to draft substantive amendments to the
Act. Some of the issues this bi-partisan group hopes to address are the medical device tax,
taxation of health plans, medical loss ratios, continuation of existing “non-conforming” health
policies beyond 2015, and the establishment of non-governmental exchanges.
Regulatory Action
After the disastrous rollout of the Affordable Care Act and continued problems with the
implementation of the Act, such as matching online enrollment with health plans and
subscribers, the Administration will continue to use its regulatory authority to delay or soften
many of the provisions of the Act. This may include continuing to allow individuals to keep
existing policies beyond 2014, delaying the employer mandate for at least one more year,
and flexibility in enforcing benefits, reporting, and other requirements.
The Administration will not show similar flexibility with regard to provider payments. In all
likelihood, through regulation and policy guidance, the Administration will continue to “ratchet
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2014 Legislative & Regulatory Outlook
down” provider payments. The Center for Medicare and Medicaid Services (CMS) will
continue to instruct the RACS to “rigidly” judge the appropriateness of payments, such as the
need for rehabilitation or long term care hospital services, payments for observation days,
and payments for short-term stays. In addition, CMS will continue to expand the use of siteneutral payments.
Financial Services
Although regulators have done a significant amount of rulemaking to implement the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the effort is far from
complete. In fact, of the 315 rulemaking and 145 study and reporting provisions required
under Dodd-Frank, only forty percent have been finalized. Consequently, we expect 2014 to
be a significant year for regulatory activity. Congress will continue its oversight of these
efforts, while also considering new financial services legislation.
Regulatory Action
The Financial Stability Oversight Council (FSOC) is expected to designate additional entities
as systemically important financial institutions (SIFIs) in 2014. Based on a recent report from
Treasury’s Office of Financial Research on the perceived structural weaknesses of the asset
management industry, the FSOC may soon consider whether to apply the SIFI label to
individual asset managers. However, the industry has strongly contested the report’s
findings, and the Securities and Exchange Commission (SEC) asked for public comment on
the matter in October 2013.
The SEC is moving forward with Dodd-Frank implementation but is also juggling other
rulemaking priorities. For example, the SEC has proposed rules to reform money market
mutual funds (MMMFs). The proposed rule would require that prime MMMFs either adopt a
floating net asset value or adopt liquidity fees and redemption gates in order to reduce
perceived vulnerabilities to heavy redemptions during times of market stress. MMMF reform
will remain an area of strong disagreement in 2014.
Meanwhile, federal banking regulators continue to focus on ensuring the high quality and
quantity of capital for insured depository institutions. The liquidity coverage ratio is expected
to be finalized and a net stable funding ratio may be proposed in 2014. The two ratios will
require large banks and their holding companies to maintain a minimum amount of liquid
assets to withstand a 30-day and one year liquidity stress scenarios. This work is being
conducted while the Basel Committee on Banking Supervision is in the midst of negotiating
additional changes to bank capital ratios with a focus on the asset component of capital. In
addition, the federal banking regulators and the SEC are expected to finalize the credit risk
retention rule, which was reproposed late last year in response to concerns about the rule’s
potential effect on the securitization markets.
The Consumer Financial Protection Bureau (CFPB) has finalized the controversial qualified
mortgage rule, released simplified mortgage disclosure forms, and significantly increased
enforcement actions against nonbank market participants, such as student loan servicers
and payday lenders. We expect the CFPB to continue its aggressive enforcement agenda in
fields such as debt collection and prepaid cards.
Additionally, the Department of Labor (DOL) is expected to release its fiduciary definition
reproposal in the second half of 2014, after much delay. The initial 2010 proposal, which
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2014 Legislative & Regulatory Outlook
would have dramatically changed the regulatory definition that has been in place since 1975,
was retracted after intense criticism.
Finally, 2014 will be a significant year marked by a number of high-level agency personnel
changes now that confirmations have been unlocked. Congressman Mel Watt (D-NC) will be
sworn in as the next director of the Federal Housing Finance Agency (FHFA) in January and
early indications suggest that his tenure will be markedly different from his predecessor. In
addition, new leadership at the Commodities Futures Trading Commission (CFTC), the
Federal Reserve, and recent changes at the SEC and Treasury mean that new perspectives
on financial reform may soon emerge. New leadership presents opportunities for
stakeholder engagement.
Congressional Action
Congress will also continue its traditional oversight over the federal financial regulators in
2014, presenting opportunities for engagement on all of these issues. Oversight committees
will focus their efforts on reviewing the implementation of final rules, such as the Volcker
Rule and the qualified mortgage rule, and will also heavily scrutinize controversial entities
such as the CFPB and FSOC. With the 2014 elections looming, oversight hearings and
Congressional inquiries may also lay the groundwork for the future direction of financial
regulatory reform.
Momentum on housing reform will continue in 2014. First, significant changes are expected
to the bipartisan GSE reform bill, S. 1217 (Corker-Warner), which would wind down Fannie
Mae and Freddie Mac and replace those entities with a new government guarantor, modeled
after the Federal Deposit Insurance Corporation (FDIC). After significant vetting last year,
Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) are expected to
introduce a revised version for mark up in late January. A lively mark-up is expected. In the
House, the Protecting American Taxpayers and Homeowners Act (the PATH Act), which was
reported out of Committee in 2013, has an uncertain future unless significant changes are
introduced to include some form of a government guarantee on mortgage-backed securities.
In the meantime, we are closely watching Ranking Member Maxine Waters’ office for a
competing proposal that will use the Corker-Warner bill as an approximate roadmap.
As work continues on tax reform, Congress could consider proposals narrowing or
eliminating retirement security preferences, such as capping tax-preferred contributions to
such accounts to the lower of $20,000 or 20% of income or limiting the total that can be
amassed in tax-favored retirement plans. House Ways and Means Committee Chairman
Camp (R-MI) has also released a discussion draft on the taxation of financial products that
has been endorsed by various Democrats, calling for mark-to-market tax treatment of
derivatives and changing the cost basis of securities.
Patent Reform
The prospect for legislation to help curb abusive patent troll litigation looks promising in
2014.
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2014 Legislative & Regulatory Outlook
House Legislation
On December 5th, the House passed H.R. 3309, the “Innovation Act of 2013” by an
impressive bipartisan vote of 325 to 91. The bill was introduced by House Judiciary
Committee Chairman Bob Goodlatte (R-VA) and would, among other things, require plaintiffs
to provide more information in their pleadings about the infringed patents and ownership of
the patents; limit discovery costs; allow manufacturers to intervene in suits against their
customers and stay the suits against the customers; and clarify the current patent law
allowing prevailing parties to recover their legal costs.
Senate Legislation
On the Senate side, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) and
Senator Mike Lee (R-UT) have introduced S. 1720, the “Patent Transparency and
Improvements Act of 2013”. The bill is not as far-reaching as the Goodlatte bill, but includes
a number of similar provisions, including ones to increase transparency in patent ownership
and allow stays of suits against customers. Senators John Cornyn (R-TX) and Orrin Hatch
(R-UT) have introduced separate bills that deal with fee-shifting and other issues. Senator
Charles Schumer (D-NY) also has introduced a bill that would expand the current “covered
business method” program to include all CBM patents.
On December 17th, the Senate Judiciary Committee held a hearing on patent troll litigation
abuses. During the hearing, Chairman Leahy said that he believes legislation is necessary
and touted his bill as one that provides for a “balanced and targeted” approach that
addresses abuses while preserving the rights of legitimate patent holders, and urged his
fellow committee members “to stay focused on that balance, so that we achieve meaningful,
but targeted reform.” A large majority of the Committee members made it clear that they too
agreed that abusive patent troll litigation is a problem that Congress needs to address. A
majority also appeared to support S. 1730.
However, several Democrats expressed concerns that it went too far, while Senator
Schumer and Republicans said it did not go far enough. These Senators called for changes
in the bill. In response, Senator Sheldon Whitehouse (D-RI), who is a co-sponsor of S. 1730,
observed that the House passed a strong bill, but legislation still needs to get through the
Senate, and so urged both Committee members and witnesses “to be as flexible as you can
be to get a bill through the Senate” and to conference with the House. Assuming his
colleagues heed his advice, the chances of a bill passing the Senate and House and Senate
conferees resolving the differences between their respective bills looks good. The
Administration also supports legislation.
Regulatory and Executive Action
The recent Senate rules changes and the recent hiring of John Podesta as counselor to
President Obama will likely result in increased regulatory activity by the executive branch.
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2014 Legislative & Regulatory Outlook
Senate Rule Changes
As a point of background, Senate Majority Leader Harry Reid (D-NV) recently changed the
Senate rules to lower the threshold for confirming executive branch nominees from 60 votes
to a simple majority. The change will make it far easier to confirm nominees and
subsequently should allow the Obama Administration to implement federal regulations at a
faster pace.
John Podesta
Additionally, the hiring of John Podesta is reportedly intended to help Obama expand his
policy agenda through executive action. More specifically, Podesta is expected to focus his
attention on environmental and climate change issues through regulatory coordination with
the Environmental Protection Agency (EPA). The expectation is that Podesta will push hard
to further Obama’s goals of curbing U.S. carbon emissions, especially since Congress
appears unwilling to act on climate change legislation.
Podesta’s approach is illustrated in the opening letter of a 2010 report from the Center for
American Progress, where he served as President and CEO. His letter in the report, which
is titled, “The Power of the President: Recommendations to Advance Progressive Change,”
lists executive orders, rulemaking, agency management, and public-private partnerships (P3)
as some of the means by which a President can exercise his authority and pursue his
agenda. Podesta further illustrates his perspective on executive action when he writes,
“Congressional gridlock does not mean the federal government stands still. This [Obama]
administration has [an] opportunity to use available executive authorities while also working
with Congress where possible.”
The report provides an indication of where the Administration might direct their focus in the
energy and environmental areas. For example, it calls for potential fees on imported oil, an
executive order to require the General Services Administration (GSA) to increase the
percentage of federal vehicles using non-oil based fuel, an EPA ruling to require metropolitan
bus fleets to increase their use of low-polluting fuel, continued EPA emphasis on retiring
coal-fired power plants and cutting toxic mercury emissions, and an increased focus on the
incorporation of alternative fuels and clean energy within U.S. military operations.
While the report provides an indication of where the Administration may focus their efforts,
we know that some major regulatory rulings are already scheduled for this year. For
example, the Interior Department is scheduled to issue a ruling on hydraulic fracturing in
May, the Federal Aviation Administration (FAA) is scheduled to issue a ruling on the use of
civilian aircraft drones in May, and the Environmental Protection Agency (EPA) is scheduled
to issue a ruling on power plant emissions this June.
As federal agencies and regulators address these issues, there are opportunities for
stakeholders to engage.
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2014 Legislative & Regulatory Outlook
Conclusion
As this memo makes clear, the combined factors of the 2013 budget deal, the recent Senate
rules changes, and the appointment of John Podesta would seem to increase the likelihood
for both legislative and regulatory action even during an election year. While it’s certainly
reasonable to expect that legislative and regulatory action may begin to slow as Congress
gets closer to the election in November, it’s important to engage lawmakers and regulators
early in 2014 to ensure that you are influencing the policymaking process when it matters
most and before it is too far developed. And remember, there is always the possibility – if
not an almost certainty – that a lame duck session will occur to complete Congressional work
in 2014.
Authors:
Tim L. Peckinpaugh
Partner
tim.peckinpaugh@klgates.com
+1.202.661.6265
Darrell L. Conner
Government Affairs Counselor
darrell.conner@klgates.com
+1.202.661.6220
Sean P. McGlynn
Government Affairs Analyst
sean.mcglynn@klgates.com
+1.202.778.9190
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©2013 K&L Gates LLP. All Rights Reserved.
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