The Supreme Court may soon address a recent, pivotal case involving the use of “skinny labels” to avoid inducing infringement in pharmaceutical patent infringement cases. The outcome could clarify whether and how generic drug manufacturers can use skinny labels, alone or in conjunction with other advertising or marketing activities, to avoid inducing patent infringement. Skinny labeling is the practice of including only non-patented indications on a drug label (or package insert), while carving out patented indications, in an attempt to avoid inducing infringement on patents covering the carved-out indications.

To date, court rulings have varied. Should the Court elect to hear the issue, its decision could redefine labeling and marketing practices for generic manufacturers and set the legal standard for how a brand manufacturer can claim induced infringement in the presence of a skinny label.

Understanding Skinny Labels

Skinny labeling allows generic manufacturers to make use of the statutorily allowed practice to exclude indications from their drug labels that are covered by method-of-treatment patents listed in the FDA’s Orange Book. Because generic companies themselves do not treat patients, the infringement question on method-of-treatment patents typically revolves around whether the generic manufacturer is inducing infringement.

Generics often use skinny labeling to facilitate market entry and mitigate risk of inducing patent infringement claims, arguing that they are not inducing infringement on a patented method of treatment because their labels do not contain the patented indication. However, there is ongoing debate in the courts about the extent to which other communications, statements, or promotions of generic products might lead to induced infringement.

Some of these communications or statements at issue revolve around a generic company’s statements that their product is “bioequivalent” or “A/B rated” (which means that a prescription for the brand product can be freely substituted with the generic unless the prescriber writes “Dispense as Written” or “DAW”). But questions remain whether that alone can lead to inducement.

The Case at Hand

In Amarin Pharma, Inc. v. Hikma Pharm. USA Inc., a manufacturer alleged induced infringement related to use of a skinny label for a generic version of its drug, Vascepa®. Vascepa® was originally approved only for treating severe hypertriglyceridemia. Both the Vascepa® and generic labels also originally included a limitation stating that use for treating cardiovascular mortality and morbidity had not been determined (“the CV limitation”).

When the branded manufacturer subsequently obtained approval for Vascepa® to treat cardiovascular risk, both the brand and the generic removed the CV limitation from the label, and the branded manufacturer listed new patents covering the new indication in the Orange Book. The generic carved out the new indication from its label, but the branded manufacturer filed suit.

The branded manufacturer claimed that the generic’s labeling, combined with its marketing and press release statements, including those highlighting bioequivalence of the products, constituted induced infringement. In particular, the branded manufacturer pointed out the following alleged statements as potentially supporting the generic manufacturer’s intent to induce infringement:

• Label statement regarding risk factors for people with cardiovascular disease;
• Patient information leaflet stating that medicines may be prescribed for other purposes;
• Removal of the CV limitation from the label;
• Press release that the product was a “generic version” of Vascepa®;
• Press release calling the product “generic Vascepa®”;
• Press release quoting total sales of Vascepa,® including sales for the cardiovascular indication;
• Press release describing Vascepa® as “indicated, in part,” for treating severe hypertriglyceridemia; and
• Website statement that its product was “AB” rated with a disclaimer that it “is indicated for fewer than all approved indications of the Reference Listed Drug.”

The generic manufacturer also issued a final press release upon its official product launch stating that its product was indicated for treating severe hypertriglyceridemia — but that it “is not approved for any other indication for the reference listed drug VASCEPA®.”

The district court originally dismissed the induced infringement allegations. However, the U.S. Court of Appeals for the Federal Circuit reversed the ruling, suggesting that at the motion to dismiss stage, the generic’s labeling taken in combination with the public statements at least plausibly supported the branded manufacturer’s claim.

Potential Industry Impact

The generic manufacturer has petitioned the Court for a writ of certiorari, and the Court has requested input from the solicitor general. As the industry awaits the decision on whether the Court will hear the case, the potential implications for labeling practices, advertising, and the use of skinny labels are significant:

1.  Label Statements: The decision could influence how generic products are labeled, and what types of label statements either support or detract from a showing of the intent element of inducing infringement. If the Court’s ruling establishes that certain risk-related statements on labels (or in leaflets) can be construed as evidence of intent to induce infringement, generic manufacturers may need to adopt more restrictive labeling and risk-related statement practices in the future.

2.  Marketing and Promotion: The decision could also influence whether a generic company can market its product as AB rated, or as “generic to the brand.” If the ruling establishes that such marketing claims, even with disclaimers, imply intent to induce patent infringement, generic companies may need to reassess their promotional language. This may also lead to stricter guidelines on the size and prominence of disclaimers to mitigate legal risks. Generic manufacturers may also need to explicitly state non-equivalence for indications not on the label and take steps to discourage carved-out indications.

3.  Communication Practices: The decision could influence how sales data are utilized in communications. If using total sales data of a branded product in press releases is deemed indicative of intent to induce, generic manufacturers may need to adopt more nuanced approaches in their public communications. This could involve a greater emphasis on transparency and specificity regarding which indications are covered by their products.

If the Court decides not to hear the case on skinny labeling, the Federal Circuit reversal could signal to the industry that these practices will be subject to increased scrutiny. Generic manufacturers may need to exercise more vigilance in their statements and advertisements, while branded patent holders will be incentivized to scrutinize those same statements and advertisements for evidence of intent. Additionally, since the case is at the motion to dismiss stage, the case bears watching for a final determination on the inducement issue.

Conclusion

The Court’s potential decision on induced infringement could significantly alter generic pharmaceutical labeling and marketing practices in the face of method-of-treatment type patents. If the Court takes up the case, significant light may be shed on what marketing practices do or do not provide evidence of intent sufficient to find induced infringement, despite a generic company carving out a method-of-use patent claiming a label indication.

The White House has issued a new executive order titled “Restriction on Entry of Certain Nonimmigrant Workers.” This order is directed at foreign nationals seeking entry into the U.S. in H-1B status, suspending entry of such travelers unless a fee of $100,000 has been paid.

Who Is Affected by This Executive Order?

Since issuing the executive order titled “Restriction on Entry of Certain Nonimmigrant Workers,” requiring H-1B travelers to pay a fee of $100,000 to enter the U.S., the U.S. Department of Homeland Security has issued additional guidance through its component agencies, U.S. Citizenship and Immigration Services (USCIS) and U.S. Customs and Border Protection (CBP).

The updated guidance, in the form of memoranda from the USCIS director and the executive director, Admissibility and Passenger Programs at the CBP Office of Field Operations, now confirms that the restrictions regarding the $100,000 fee payment only apply to petitions filed during the 12 months beginning September 21, 2025. H-1B nonimmigrants who are the beneficiaries of petitions filed prior to the effective date, who are the beneficiaries of currently approved petitions, or who hold validly issued H-1B nonimmigrant visas will not be affected by this order.

USCIS memorandum. The subsequent memorandum from the USCIS advises that the $100,000 fee requirement “only applies prospectively to petitions that have not yet been filed.” The memorandum states:

• The proclamation does not apply to aliens who: are the beneficiaries of petitions that were filed prior to the effective date of the proclamation, are the beneficiaries of currently approved petitions, or are in possession of validly issued H-1B non-immigrant visas. All officers of United States Citizenship and Immigration Services shall ensure that their decisions are consistent with this guidance. The proclamation does not impact the ability of any current visa holder to travel to or from the United States.

CBP memorandum. Similarly, the memorandum from the CBP (released to the public through a post on X.com, formerly Twitter) advises that the proclamation regarding the $100,000 fee “only applies prospectively to petitions that have not yet been filed.” The memorandum further states:

• It does not impact aliens who are the beneficiaries of currently approved petitions, any petitions filed prior to 12:01 a.m. ET on September 21, 2025, or aliens in possession of validly issued H-1B non-immigrant visas…The Proclamation does not impact the ability of any current visa holder to travel to or from the United States. CBP will continue to process current H-1B visa holders in accordance with all existing policies and procedures.

Remaining Questions

Guidance from the White House, issued in the form of FAQs, provides further modifications to the applicability of the order, stating that “This Proclamation…does not change any payments or fees required to be submitted in connection with any H-1B renewals. The fee is a one-time fee on submission of a new H-1B petition.” This guidance strongly suggests that petitions filed to extend current H-1B status (whether a continuation without change, an amendment, or a change of employer) would not be affected by this new fee requirement. However, the government has not yet defined what would be considered a “new H-1B petition,” so we continue to anticipate further guidance to clarify for which petitions the $100,000 fee is required.

The One Big Beautiful Bill Act (OBBB) was signed into law on July 4, 2025. With far-ranging impacts on taxation and spending, the OBBB will have significant effects on many benefit and compensation plans. Below is a high-level summary of the OBBB’s provisions that impact executive compensation and employee benefit programs. These provisions take effect in taxable years beginning after December 31, 2025, unless otherwise noted:

Executive Compensation and Tax Deductibility

• Section 162(m) Cap Changes: Internal Revenue Code Section 162(m) is amended to require publicly held corporations to identify the covered employees and remuneration subject to the $1 million annual deduction limit across all entities in the corporation’s “controlled group,” as determined under Code Section 414. This is a broader group than under the current Section 162(m) regulations, which consider only the corporation’s “affiliated group.”
• Nonprofit 4960 Excise Tax: Code Section 4960 is modified to provide that applicable tax-exempt organizations will be subject to an excise tax (currently 21%) on (1) remuneration in excess of $1 million, and (2) certain excess parachute payments paid to any current or former employee employed after December 31, 2016 (not just the five most highly compensated employees of the organization in the current or prior year).

Health and Welfare Benefit Enhancements – HDHPs and HSAs

• Telehealth Coverage and Health Savings Accounts (HSAs): The COVID-19 pandemic safe harbor permitting high deductible health plans (HDHPs) to provide first-dollar coverage of telehealth and other remote health care services without jeopardizing participants’ HSA eligibility is permanently extended. The pandemic-era relief expired at the end of 2024; this provision is effective retroactively for plan years beginning on or after January 1, 2025.
• Marketplace Plan Eligibility: The types of plans that qualify as HDHPs are expanded to include Bronze and Catastrophic level plans available through the individual Health Marketplace Exchange. This change now permits individuals enrolled in Bronze and Catastrophic Marketplace plans to contribute to an HSA.
• Direct Primary Care: Direct primary care service arrangements will not be considered “health plans” and will not preclude individuals from participating in an HSA. A direct primary care service arrangement is medical care consisting solely of primary care services by primary care practitioners in exchange for a fixed periodic fee that does not exceed $150 per month per employee ($300 per month for families). In addition, the OBBB expands medical expenses eligible for coverage under an HSA to include direct primary care service fees.

Flexible Spending Accounts and Dependent Care

• Dependent Care Flexible Spending Accounts (FSAs): The annual dependent care FSA limit is increased to $7,500 ($3,750 if married filing separately), with no future adjustment for inflation.

Educational Assistance and Student Loan Repayment

• Student Loan Repayment: The ability of employers to offer tax-free student loan repayment assistance under Code Section 127 qualified educational assistance programs, up to $5,250 per year per employee, is made permanent.

Fringe Benefits

• Bicycle Commuting and Moving Expenses: Both (1) the qualified bicycle commuting reimbursement exclusion, and (2) deductions for moving expenses, and the corollary exclusion for employer-provided qualified moving expense reimbursements (with exceptions for members of the armed forces), are permanently eliminated.

“Trump Accounts”

• New Child Savings Accounts: The OBBB creates a new form of tax-preferred savings accounts for children under age 18, called “Trump Accounts,” which will operate similarly to individual retirement accounts (IRAs). Annual contributions are capped at $5,000 per child. Employers can make nontaxable contributions up to $2,500 per employee. The federal government will provide a $1,000 one-time seed contribution for children born between 2025 and 2028.

Paid Family and Medical Leave Credit

• Paid Family Leave: The paid family and medical leave tax credit under Section 45S is permanently extended. Employers that provide paid family and medical leave may claim the tax credit, which is equal to the percentage of wages paid to qualifying employees while on family and medical leave.

The OBBB delivers significant benefit enhancements — especially to HSAs, FSAs, student loan assistance, and child accounts — while tightening executive compensation tax rules and eliminating certain fringe benefits. Proactive action by employers can turn these changes into tools for talent attraction and retention, while avoiding compliance pitfalls and maximizing tax savings.

Please contact a member of the Troutman Pepper Locke Employee Benefits + Executive Compensation team with questions related to the OBBB and how this new legislation may impact your company’s benefit programs or compensation packages.

In Leeper v. Shipt, the California Supreme Court will revisit the ongoing question of whether, and to what extent, employees can pursue litigation in court for violation of the California Private Attorneys General Act (PAGA), Labor Code § 2698, et seq. despite signing valid and binding arbitration agreements.

Background of PAGA Actions and Arbitration

PAGA permits an employee who experienced a Labor Code violation to sue an employer for civil penalties on behalf of themselves individually, other “aggrieved” employees, and the state of California.

In Viking River Cruises, Inc. v. Moriana, the U.S. Supreme Court ruled that employers are “entitled to enforce [arbitration] agreement[s] insofar as [they] mandate[] arbitration of [the employee’s] individual PAGA claim.” In doing so, the Supreme Court reversed California’s precedent prohibiting courts from compelling arbitration of the employee’s individual claims in PAGA lawsuits, as discussed in greater detail in Troutman Pepper Locke’s prior article on the matter.

In a 2023 decision, and in a direct response to Viking River Cruises — the California Supreme Court determined that an employee could still pursue claims in court on behalf of other employees under PAGA, even when that employee’s individual PAGA claim is subject to arbitration. In other words, the Court permitted the representative portion of PAGA claims to continue in court, even if the employee’s individual PAGA claim was arbitrable.

Based on this framework, trial courts tend to compel employees subject to binding arbitration agreements to arbitrate their individual PAGA claims, while staying the remainder of the case constituting the representative PAGA claims until the arbitration has concluded.

Employees Attempt to Avoid Arbitration by Asserting “Representative-Only” PAGA Actions, With Mixed Results

Some employees have attempted to avoid arbitration by bringing “representative only” PAGA claims. They argue they are only bringing the lawsuit on behalf of the state and other aggrieved employees, not themselves, thereby circumventing mandatory arbitration.

As explained by the Court of Appeal in CRST Expedited, Inc. v. Superior Court, employees seek to avoid arbitration in PAGA cases for at least two reasons: (1) to avoid trial courts staying the representative portion of the claim while the arbitration proceeds, which can significantly delay the litigation; and (2) to avoid adverse decisions by an arbitrator that would jeopardize their standing to pursue the remaining representative PAGA claims in court.

Courts Are Split on Whether Employees Can Allege Representative-Only PAGA Claims

Some courts have held that individual PAGA claims are “necessarily” included in every PAGA lawsuit. In Leeper v. Shipt and Williams v. Alacrity Solutions Group, LLC, the Court of Appeal of California concluded that individual PAGA claims are inherently part of every PAGA action.

Under these cases, employees cannot avoid arbitration of their individual PAGA claims by ostensibly “waiving them” to pursue a representative-only action.

Other courts disagree. In Balderas v. Fresh Start Harvesting, Inc., Rodriguez v. Packers Sanitation Services Ltd., LLC, and CRST Expedited, Inc., the Court of Appeal of California concluded employees can bring representative-only PAGA lawsuits without seeking penalties for themselves.

California Supreme Court Will Determine Whether Employees Can Avoid Arbitration by Pleading “Representative-Only” PAGA Actions

To resolve this conflict, the California Supreme Court has agreed to review the Leeper and Williams decisions. The court is expected to decide whether PAGA actions necessarily have both an individual component and a representative component, and whether employees can file a representative-only PAGA lawsuit, which could allow them to avoid arbitration.

The California Supreme Court’s decision may significantly affect PAGA litigation. If employees can bring “representative-only” PAGA lawsuits, employers may be unable to enforce arbitration agreements in most PAGA cases because many employees will waive their individual PAGA claim to avoid arbitration. This could effectively neutralize Viking River Cruises by creating an avenue for employees to avoid arbitration in PAGA lawsuits.

If, by contrast, employees must pursue their individual claims, employees may be compelled to arbitrate their individual PAGA claim before litigating the representative PAGA claims in court. If the employee is unsuccessful in arbitration, meaning they cannot prove to the arbitrator that they experienced a Labor Code violation, they will be unable to proceed with the representative PAGA claim. Employers may therefore avoid costly and time-consuming representative PAGA litigation, including discovery about other employees, until after the employee prevails in arbitration.

Employers should continue to evaluate whether arbitration agreements are appropriate for their business, particularly as they pertain to non-PAGA lawsuits.

Since its election in July 2024, the left-leaning UK government has taken steps toward implementing its flagship “New Deal for Working People” billed as the biggest strengthening of employment rights in a generation.

While still within the latter stages of the legislative process, and many finer points of detail still to be decided, the overall framework and timing are taking shape. Below is a guide to some of the forthcoming changes, the anticipated implementation timing and suggested steps employers may wish to consider. Part 2 of this update will be released in the next newsletter, and it will address pieces of the legislation expected to go into effect in October 2026 and the beginning of 2027, including: Protection from Harassment by Third Parties; Immediate Protection Against Termination; Enhanced Flexible Work Rights; Regulation of Zero-Hours and Low-Hours Contracts; Restrictions on “Fire and Rehire”; Employment Tribunal Time Limits, Trade Unions; and Tips.

What’s happening?	When is it happening and what should employers do ?
Changes to Family Leave Rights, Sick Pay and Menopause Action   Service eligibility requirements for paternity leave (26 weeks’ employment) and parental leave (52 weeks’ employment) will be eliminated, making these benefits available from the first day of employment.  Paternity leave entitlement will remain as two blocks of one week or one block of two weeks, paid at £187 per week or 90% of average weekly earnings, whichever is lower.  Parental leave remains unpaid for 18 weeks, with a maximum of four weeks each year, up to the child’s 18th birthday. Statutory sick pay (currently 80% of an employee’s earnings or the current flat rate (£118.75 from April 2025), whichever is lower) will also become available from the first day of absence rather than involving the three-day waiting period that currently applies. In addition, the lower earnings limit of £125 per week below which is not payable is being abolished.  Employers with 250 or more employees will be required to publish menopause action plans aimed at promoting womens’ health and wellbeing at work as part of an Equality (equity) Action Plan (where there was no such obligation before). While the content of the plan will be a matter for individual employers, suggested steps could include paid time off when experiencing menopause symptoms, working environments with temperature-controlled areas and uniforms alterations. These measures are set to be introduced on a voluntary basis in April 2026, later coming into mandatory force in 2027.	The current implementation timeline expects the changes to occur in April 2026.  Given the scope for abuse from the revised sick pay rules, employers may wish to consider absence reporting procedures, enforcing absence reporting methods, and implementing return to work interviews even for short absence periods to discourage misuse.   The required information to be published in menopause action plans is still to be determined in secondary legislation.
Creation of the Fair Work Agency  In a significant and controversial ramping-up of enforcement powers, a Fair Work Agency will be created, which will have the ability to pursue claims against employers on an employee’s behalf regardless of the employee’s consent or wishes. Its key powers will include:  Holiday Pay Enforcement: The Agency will now oversee compliance with holiday pay requirements, including record-keeping. This is the first instance of state enforcement in this area, potentially impacting employers considerably.  Statutory Payment Compliance: The Agency can issue underpayment notices for statutory payments like holiday and sick pay, with a penalty equal to 200% of the amount owed to employees.  Employment Tribunal Actions: The Agency can initiate tribunal proceedings on behalf of employees who have actionable claims but are not yet pursuing them.  Legal Support: The Agency will offer legal assistance for employment-related cases, such as holiday pay disputes.  Cost Recovery: The Agency’s ability to recover enforcement costs from non-compliant employers is a new measure that may deter violations and support agency funding.  Expanded Entry Powers: The Agency can enter homes and business premises with a warrant to obtain documents, inspect computers, and exercise its investigative reach.	The current implementation timeline expects the Agency to be created in April 2026 but a longer period could be expected before the Agency seeks to exercise its considerable powers. And, even then, it is likely that the Agency will concentrate on employers engaging in egregious or repeated violations.
Collective Layoff/RIF Consultation   Currently, if an employer proposes a layoff or RIF involving 20 or more employees in a 90-day period, it must consult collectively with affected employees and for mandated minimum time periods: 30 days for 20 or more employees, and 45 days for 99 or more employees.   The current thresholds are met based on the number of employees proposed to be terminated at an “establishment,” which is typically a physical location such as an office or other facility, but the proposals will widen this definition to include all of an employer’s sites (including remote workers).   In addition, the current financial penalty for breaching the requirements will double to 180 days’ pay per affected employee.	The current implementation timeline expects the changes to establishment to occur in 2027 but the changes to the financial penalty will apply from April 2026.  Employers of any size may wish in advance of the implementation to consider setting up a standing body for consultation to avoid the need to conduct ballots to elect employee representatives for each layoff/RIF exercise.  In addition, enhanced record-keeping is advisable to ensure the thresholds are not inadvertently breached given the large financial penalty that applies.

A detailed list of the measures and the full implementation timetable may be accessed at:

https://assets.publishing.service.gov.uk/media/686507a33b77477f9da0726e/implementing-the-employment-rights-bill-roadmap.pdf

Reprinted with permission from the May 1, 2023 issue of Tax Notes State. ©2023 Tax Analysts. Further duplication without permission is prohibited. All rights reserved.

In this report, Aresh Homayoun argues that in light of securities laws and other safeguards to protect the rights of shareholders, there is no justifiable policy reason to subject private real estate investment trusts to the preferential dividend rule, which Congress first enacted in 1936 and continues to be a significant obstacle in the REIT industry.

Click here to read the full article in Tax Notes State.

Reprinted with permission from the August 27, 2018 issue of Tax Notes Federal. ©2018 Tax Analysts. Further duplication without permission is prohibited. All rights reserved.

In this article, Aresh Homayoun discusses the tax risks implicated when a real estate investment trust enters into a dispositional joint venture. He focuses on the prohibited transactions rules under section 857(b)(6) and suggests how to manage and mitigate the tax risks prospectively.

Click here to read the full article in Tax Notes Federal.

Reprinted with permission from the November 20, 2017 issue of Tax Notes Federal. ©2017 Tax Analysts. Further duplication without permission is prohibited. All rights reserved.

With the recovery of the real estate sector from the carnage of the Great Recession, the desire to avoid tax on gain realized in dispositions of appreciated real estate has brought renewed vigor to the 1031 exchange market. In addition to traditional direct exchanges, interests in a tenancy in common (TIC) and a Delaware Statutory Trust (DST) can also be used as like-kind property for purposes of section 1031. A lesser-known strategy, but one that has been available for many decades, allows a taxpayer to defer taxes on the sale of property by first contributing the property to a deferred sales trust. Finally, a “swap and drop” permits reinvestment into a fractional interest in a diversified real estate portfolio.

Click here to read the full article in Tax Notes Federal.

The Report authored by the Presidential Working Group on Digital Assets Markets (PWG), titled “Strengthening American Leadership in Digital Financial Technology,” along with the accompanying fact sheet, outlines several key objectives aimed at positioning the U.S. as a leader in digital asset markets. Among its objectives are reinforcing the role of the U.S. dollar, modernizing Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) rules for the digital assets ecosystem, and ensuring fairness and predictability by establishing clear regulatory oversight.

On January 23, President Donald Trump signed Executive Order 14178, “Strengthening American Leadership in Digital Financial Technology,” establishing the PWG. The PWG, comprised of cabinet members and federal agency officials, was tasked with producing a report highlighting regulatory and legislative proposals to advance digital assets.

Below, our team highlights key themes from the PWG’s Report with a focus on digital asset market structure, banking, privacy and cybersecurity, tax classification, and financial crimes compliance.

Digital Asset Market Structure and Regulatory Clarity

The Report acknowledges that the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are the main federal agencies overseeing secondary digital asset markets, while criticizing how these regulators have mostly relied on enforcement actions to regulate digital assets instead of creating a proper regulatory framework. The Report urges these agencies to use their current powers to quickly allow digital asset trading at the federal level.

The Report suggests a new way to categorize digital assets, splitting them into three groups:

• Security Tokens: Digital assets that qualify as securities because they represent things like equity, bonds, or investment contracts. Security tokens also include tokenized securities.
• Commodity Tokens: Digital assets that aren’t securities, like network tokens tied to decentralized networks or protocols. Examples include bitcoin and ether.
• Tokens for Commercial and Consumer Use: Digital assets used to access goods, services, or privileges and are subject to commercial transaction laws. This group includes non-fungible tokens for things like identity credentials or event tickets.

The Report emphasizes that the existing rules from the Securities Act of 1933 apply to security tokens, including those considered “investment contracts” under the Howey test. It also notes that intermediaries functioning as brokers or dealers in digital assets that qualify as securities must register with the SEC and follow its regulations.

The Report suggests the SEC and CFTC should use their rulemaking powers to clarify regulations around digital assets, covering areas like registration, custody, trading, and recordkeeping. It also recommends that these agencies work together on any new rules. Specific suggestions include creating exemptions for digital asset offerings, setting up registration systems for trading platforms and other market players, and tailoring disclosure requirements to fit digital assets. The Report also calls for changes to allow registrants to combine trading and custody or exchange and broker services, paving the way for “super apps.” Lastly, it urges Congress to give the SEC and CFTC more regulatory power where needed.

Subsequent to the publication of the Report, SEC Chairman Paul Atkins launched “Project Crypto” to modernize securities rules and help financial markets move on-chain, while CFTC Acting Chairman Caroline Pham announced a “crypto sprint” to start implementing the Report’s ideas.

Banking

The Report highlights a distinct divergence in the approach of the federal banking regulators toward digital asset activities under the Biden administration, which predominantly involved advising caution to banks regarding engagement in such activities, as opposed to the approach under the Trump administration. Under the latter, federal banking regulators have rescinded prior guidance issued during the Biden administration, promulgated new guidance, and issued public statements acknowledging the permissibility of certain digital asset activities.

The Report advocates for enhanced clarity from regulators concerning the permissible scope of digital asset activities and the supervisory expectations associated with such activities for both federally chartered and state-chartered banks and credit unions. This includes, but is not limited to, the following areas:

• Custody of digital assets, specifically guidance on technical best practices;
• Utilization of third parties as infrastructure providers or for other digital asset services;
• Holding stablecoin reserves as deposits;
• Permissibility of depository institutions to hold digital assets on balance sheets and any associated safety and soundness concerns;
• Capacity for depository institutions to engage in pilots and experiments related to digital assets;
• Tokenization activities by banks, particularly concerning deposits; and
• Utilization of permissionless blockchains.

The Report underscores the significance of adopting a technology-neutral approach in adapting the current banking regulatory framework. It posits that technological advancements do not inherently alter the risk profile of an activity, and thus, identical business risks should be governed by identical regulations.

The Report also discusses the need for improving the process for eligible institutions to obtain a bank charter or a Federal Reserve master account, thereby enabling access to payment services. This includes the federal banking agencies promulgating regulations to address the expected timelines for decisioning completed applications for charter licensing requests for a Reserve Bank master account. Among other recommendations, the banking regulators should “confirm that otherwise eligible entities are not prohibited from obtaining bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master accounts or services solely because they engage in digital asset-related activities.”

Privacy and Cybersecurity

While the Report asserts an urgency for the U.S. to revolutionize and lead the digital assets and blockchain technologies space, it also admits there are difficulties in balancing privacy, easy access to open public blockchain networks, and national security. The Report stresses concerns in the digital asset sector related to a lack of regulatory transparency and potential cyber threats from hackers, fraudsters, and other bad actors. The Report also identifies several risks inherent in the digital asset ecosystem: intermediaries or custodians that manage digital wallets lack effective cybersecurity protocols; self-custody of digital assets heightens illicit activity; smart contracts are vulnerable to coding risks; and metadata from digital asset transactions is not truly pseudonymous and may be traced back to personally identifying information. The Report warns that an increase in information sharing between the private and public sector will be necessary to flag illicit activity in the digital asset markets.

In addressing these privacy and security concerns, the Report urges the Treasury, SEC, CFTC, and other federal agencies to accept emerging digital asset technologies and provide clearer guidance on how digital assets will fit into existing frameworks, including setting forth standards for cybersecurity practices. In particular, the Report recommends that the Treasury coordinate with the National Institute of Standards and Technology (NIST) to develop NIST-recommended security requirements for digital identity solutions for customer verification that are both privacy-centric and promote the growth of digital assets. The Report also recommends modernizing existing statutes such as the Bank Secrecy Act (BSA), Anti-Money Laundering Act (AML), and Countering the Financing of Terrorism Act (CFT) to cover participants in the digital asset ecosystem (e.g., stablecoin issuers) as “financial institutions.” These pre-existing statutes already require institutions to implement cybersecurity measures aimed at protecting the privacy of consumers.

Despite an extensive analysis of the digital asset sector, the Report leaves to regulators much of the detail on how privacy and data security ultimately will be protected. Nevertheless, holders and users of digital assets should find relief in the administration actively determining how to incorporate digital financial technology into existing regulatory frameworks with built-in privacy protections. The Report also indicates which agencies the digital asset ecosystem should look to for upcoming changes, including the Treasury, SEC, and CFTC. In fact, on August 18, in accordance with the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), the Treasury issued a request for comment on methods and technologies that would protect data privacy while also ensuring traceability in certain contexts to combat cyber threats. Likewise, individuals and institutions should expect that NIST frameworks will influence cybersecurity practices ultimately required in the digital asset arena. Change is incoming, and the Report confirms that privacy and cybersecurity will play a pivotal role in regulations.

Tax Classification of Digital Assets

While privacy and cybersecurity form a foundation for safer adoption of digital assets, the PWG also turned to another unsettled issue with equally broad implications: how these assets should be treated under the tax laws of the U.S.

Commodity vs. Security

Currently, the IRS characterizes digital assets as property, not currency. However, it is unclear whether digital assets are properly classified as a commodity (which is not defined uniformly under the tax law) or alternatively as a security (which also is not defined uniformly under the tax law, and which differs from the meaning of security as the term is used in securities law) for U.S. federal income tax purposes. Classification as a commodity or security is important because it could significantly affect the digital asset’s tax treatment. 

Rather than classifying digital assets as either a commodity or a security, the Report recommends treating digital assets as a new and distinct asset class, subject to modified versions of the tax law applicable to securities or commodities. This distinction would allow tax legislation related to digital assets to “consider characteristics of digital assets that are different from those of traditional securities or commodities.” The PWG then recommends that certain provisions should apply to this new digital asset class, including (i) the mark-to-market election of Section 475; (ii) the securities trading safe harbor of Section 864; (iii) treatment as a security for securities loan transactions under Section 1058; (iv) the wash sale rules under Section 1091; and (v) the constructive sale rules of Section 1259. 

Stablecoins

The classification of stablecoins as debt (generally, an unconditional obligation to pay a sum certain) or currency under tax law is uncertain and is a separate inquiry from characterization as a security or commodity. The Report recommends classifying stablecoins as debt, given stablecoins (i) are often collateralized with high-quality liquid assets, and (ii) have the potential for gain or loss on disposition. In addition to tax considerations, the report addresses the challenges of financial crimes compliance in the evolving digital asset landscape.

Financial Crimes Compliance

The discussion of tax rules underscores the government’s effort to give digital assets a place in established legal frameworks. But defining asset classes is only one step; ensuring that these markets operate safely also requires a robust compliance regime, particularly with respect to illicit finance.

In Secretary Scott Bessent’s remarks at the Report’s release, “countering illicit finance” was the first regulatory focus area he listed, coming before tax, “dollar dominance,” and modernizing banking regulation. While this suggests the administration is aware that the long-term success of this industry depends on a strong compliance framework, scratching the surface of the Report reveals a lack of any detailed vision for what this should mean in practice. Many institutions will steer clear of higher-risk initiatives until the government is able to define the rules of the road.

Where the Report provides hints about the future direction of BSA/AML regulation for digital assets, it does not appear entirely coherent. On one hand, the Report calls for “technology-neutral” regulation. On the other, the PWG acknowledges the greater challenges of compliance in this emerging area, including anonymity, speed, and irreversible transactions, and increasingly popular software tools that are immutable or “otherwise technologically incapable of collecting customer information or reporting suspicious activities.” With this in mind, the Report recommends more legislative action by Congress to “define with greater certainty the actors in the digital asset ecosystem that are subject to BSA obligations,” including potentially “bespoke digital asset-specific financial institution” types, so the obligations can be “more carefully tailor[ed]”. In short, these still nonexistent regulations may be technology-neutral, highly tailored to particular types of technology, or something in between. 

These tensions come into focus in particular for DeFi and anonymity-enhancing tools. The PWG makes clear that the government wants to support self-custody, peer-to-peer, privacy, etc. But at the same time, the PWG acknowledges the significant prevalence of illicit finance among users of these tools and offers few answers as to how to balance these goals. One suggestion in the Report is to focus regulation on intermediaries, rather than open-source software or users themselves. But there is recognition that this may mean exchanges, banks, and other regulated entities may need to decline to support users or transactions that aren’t adequately verified. The PWG even suggests that smart contracts and other protocols may need such features to be built in, with this burden possibly falling on governance token holders, for example, in the decentralized autonomous organization (DAO) context. The call for user transaction histories to be incorporated into digital credentials could lead to a much-feared scenario of permanent exclusion for some users. The PWG wants Congress to codify the existing standard of whether a money transmission business exercises “total independent control over the value,” but the Report does not address the most challenging issues, such as ongoing criminal prosecutions of developers of DeFi protocols even under this administration. 

In short, the Report may be interpreted as a sign that the government still has a long way to go before participants in the digital asset sector will have the much-vaunted “clarity” that will be needed to venture outside of the lowest-risk areas.

Conclusion

The PWG’s Report is ambitious in scope, signaling that digital assets will play a central role in the U.S. financial system. Yet it also highlights the difficult tradeoffs regulators must navigate: innovation versus security, privacy versus compliance, and technology neutrality versus tailored oversight.

For market participants, the message is clear, change is coming. Congress, along with federal agencies such as the SEC, the CFTC, and the Treasury, will continue to be active in shaping new frameworks in privacy, taxation, and financial crimes compliance. While the path forward remains uncertain, the Report marks the beginning of a significant regulatory shift that will define how the digital asset ecosystem develops in the years ahead.

On August 29, the Trump administration’s executive order suspended duty-free de minimis treatment for U.S. imports under $800. The move has already had ripple effects on global brands and retailers across industries, as well as their counterfeiting counterparts. Now, counterfeiters are expected to pivot and customs inspection times are expected to increase, meaning brand owners need to update their counterfeiting detection practices to stay one step ahead.

Counterfeiters have long utilized the de minimis rule to evade brand owners and U.S. Customs and Border Protection (CBP) officials by shipping infringing products in single shipments. Not only does this tactic decrease the risk of detection, but it also protects operations from major disruption, as only individual items are subject to potential seizure (versus an entire bulk shipment).

In 2024 alone, it’s estimated that 1.36 billion de minimis packages were subject to CBP’s expedited processing procedures. Now, with the de minimis rule suspended and even more packages subject to greater CBP scrutiny annually, customs officials will be spread thin — making it easier for counterfeits to fall through the cracks. But counterfeiters will need to adapt now that multiple, single shipments will be less economically feasible due to formal entry requirements.

As brand owners and counterfeiters adjust to the new normal, here are three steps brand owners can take to detect and combat counterfeit shipments:

1. Leverage the Intellectual Property Rights Recordation System (IPRR). IPRR is a database that includes details on brand logos and products to help customs officials identify suspected counterfeit goods and detain infringing shipments. Providing detailed information about distinguishing features of branded products can increase the likelihood of Customs officials detecting counterfeit goods, including in bulk shipments — which are likely to become more prevalent due to the suspension of the de minimis rule.
2. Engage With Customs: With millions more packages per day subject to formal entry requirements, it will be impossible for CBP to check them all. But brand owners can be proactive by engaging with customs to enhance detection capabilities. CBP permits brands to offer guidance and training to customs personnel on how to detect infringing shipments. However, any interaction with customs officials should be consistent with federal ethics rules and legal requirements.
3. Protect Your Sales Roadmap: Organizations implementing plans to optimize shipping routes and methods to combat tariff challenges should treat such information as confidential trade secret information and ensure that it does not fall into the hands of a competitor or become emulated by a counterfeiter.