On February 27, 2025, FinCEN announced that it would not issue fines or penalties or take any other enforcement action against any companies based on any failure to file or update beneficial ownership information (BOI) reports under the Corporate Transparency Act (CTA) by the current deadlines.

Subsequently, the U.S. Department of the Treasury, of which FinCEN is a bureau, issued a press release on March 2, 2025 stating that, with respect to the CTA, not only will it not enforce any penalties or fines associated with the BOI reporting rule under the existing deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. The Treasury Department will issue proposed rulemaking to narrow the scope of the BOI reporting rule so that only certain foreign companies registered to do business in the U.S. would be required to submit BOI information.

Accordingly, penalties are not presently being issued for domestic entities that opt not to report.

If you have questions, please contact us at CTA@coblentzlaw.com.

Please note that unless the CTA itself is amended or repealed, there is some speculation that the administration’s failure to fully implement the reporting requirements set forth in the statute could be challenged in court. We will continue to monitor this situation.

Key Takeaways

• A plaintiff prevailing in a trademark infringement suit is often entitled to an award of the “defendant’s profits.” 15 U.S.C. §1117(a).
• Last week, in Dewberry Group, Inc. v. Dewberry Engineers Inc., the Supreme Court held that a court may only award profits ascribable to the named defendant itself, and not the profits of a defendant’s affiliates.
• Plaintiffs suing for trademark infringement should consider (i) which entities among the infringer’s affiliates hold the profits and (ii) what facts plaintiffs can allege to bring an affiliated entity’s profits into play.
• The Dewberry decision may cause plaintiffs to include multiple defendants when it is unclear who holds the profits from the infringement.

On February 26, 2025, the Supreme Court issued a unanimous decision in the trademark infringement case Dewberry Group, Inc. v. Dewberry Engineers Inc., No. 23–900, 604 U. S. __. The Court vacated a nearly $43 million award on the grounds that under Section 35 of the Lanham Act, which provides that a plaintiff can recover a “defendant’s profits,” a plaintiff may only recover profits of the defendant itself, not of its unrelated corporate affiliates.

Dewberry Engineers sued Dewberry Group for trademark infringement. It prevailed on the merits of its claim, and a Virginia federal court ordered Dewberry Group and its affiliates to pay $42.9 million in profits plus $3.7 million in legal fees. The Fourth Circuit affirmed. The lower courts awarded Dewberry Engineers the profits of Dewberry Group’s affiliates after finding that Dewberry Group itself, the only named defendant, had no money.1

Dewberry Group—a corporate entity that provides financial, legal, operational, and marketing services to affiliated leasing companies—argued that it was not profitable and should not have to pay the award as it did not own or lease commercial properties itself. Its affiliates are separately incorporated companies which own the rent-producing properties. All the companies are owned by the founder John Dewberry. The lower courts awarded the profits of those affiliates to reflect the “economic reality” and thereby treated the named defendant and its affiliates as a single corporate entity. The Supreme Court held that the lower courts were wrong to do so.

In its petition to the Supreme Court, Dewberry Engineers argued that the “just sum” provision of the Lanham Act supported the award. The “just sum” provision can apply when recovery of a defendant’s profits is either inadequate or excessive.2 In those cases, the court can arrive at an award that better reflects a defendant’s true financial gain. The Supreme Court, however, did not address this provision because the lower courts had not invoked it in awarding the profits. Thus, the Court expressed “no view” on the just sum provision.

The Supreme Court rejected the lower courts’ treatment of Dewberry Group and its affiliates as a “single corporate entity.” This approach disregarded “corporate formalities” and the principal of corporate separateness.3 Doing so caused the lower courts to approve an award “including non-defendants’ profits—and thus went further than the Lanham Act permits.” The Court concluded: “Dewberry Group is the sole defendant here, and under that language only its own profits are recoverable.”

The Court remanded the case after vacating the profits award, noting that it was leaving “a number of questions unaddressed,” including whether Dewberry Engineers could seek to pierce the corporate veil of the defendant and whether it could pursue the “just sum” theory on remand.

While the Court’s decision leaves many questions unanswered, it leaves room to argue various theories for seeking an award of an infringer’s profits.4 The ruling may also lead to more defendants being named in trademark infringement suits.

Please contact the Coblentz Intellectual Property team with any questions.

 

[1] As the Court writes after a sentence explaining the background facts: “If that sentence is confusing—too darn many Dewberrys—it is also a good illustration of why trademarks exist: to prevent consumers from being confused about which company is providing a product or service.”

[2] “If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” 15 U.S.C. §1117(a).

[3] As the Court noted, the entities in this case were affiliated “by virtue of having a common owner” but nonetheless were separately incorporated organizations and therefore separate legal units. While a court may in some circumstances “pierce the corporate veil,” especially to prevent corporate formalities from shielding fraudulent conduct, Dewberry Engineers in this case did not attempt to do so.

[4] Justice Sotomayor’s concurrence provides more of a roadmap for seeking profits of affiliates. She writes, “principles of corporate separateness do not blind courts to economic realities. Nor do they force courts to accept clever accounting, including efforts to obscure a defendant’s true financial gain through arrangements with affiliates.” She provides scenarios in which courts may consider accounting arrangements between a defendant and its affiliates in calculating the “defendant’s profits.”

In our last client alert about the Corporate Transparency Act (CTA), an injunction against enforcement of the CTA remained in effect. On February 17, 2025, the injunction was stayed, and there are currently no impediments to enforcement of the CTA. As a result, Beneficial Ownership Information (BOI) reporting requirements are once again mandatory. FinCEN has generally extended the filing deadline for reporting companies as follows: For most reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025. Reporting companies formed or registered on or after February 18, 2025 must file within 30 days from the date of creation or registration. Reporting companies previously provided with extended deadlines due to disaster relief should follow the later deadlines. Unless and until there are further developments, companies must file within these timeframes. FinCEN has provided in a statement that it will “assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks,” but it is unclear what changes, if any, will result from this assessment. On February 10, 2025, the House of Representatives unanimously passed the Protect Small Businesses from Excessive Paperwork Act (H.R. 736) that would extend the filing deadline for reporting companies that were in existence before January 1, 2024, to January 1, 2026. To our knowledge, the Senate has not yet taken action on that bill. As BOI filings are once again mandatory and the potential penalties for non-compliance remain harsh, we encourage you to either file directly through FinCEN’s website, or reach out to us if you need assistance. If you have already filed and have had no changes to your beneficial ownership and/or your executive officers, you are compliant and there is no further action at this time.  If you have questions about the new changes or would like us to assist with your BOI submission, please contact us at CTA@coblentzlaw.com.

On January 21, 2025, Coblentz litigation partner Skye Langs presented for the Bar Association of San Francisco’s Real Property section on the following real estate and land use cases from 2024:

Working Families of Monterey County v. King City Planning Commission (2024) 106 Cal.App.5th 833. A Class 32 categorical exemption (also known as the “infill exemption”) under the California Environmental Quality Act (CEQA) allows for streamlined approval of certain projects that the legislature has predetermined will not have a significant impact on the environment. Among the conditions required for this exemption to apply, the project must be “substantially surrounded by urban uses.” The project opponents argued that this requires a certain population density and type of development, based on different defined terms located elsewhere in the CEQA statute and regulations. The Court disagreed. It interpreted the terms according to their ordinary meaning and concluded that the project qualified for the exemption.

Make UC a Good Neighbor v. Regents of University of California (2024) 16 Cal.5th 43. In 2023, the Court of Appeal reversed the approvals for a student housing project planned for People’s Park in Berkeley, finding that the EIR did not adequately evaluate noise from future residents or alterative locations for the project. The California Supreme Court accepted review, and while the case was pending, the legislature enacted AB 1307, which provides that (1) for residential projects, the effects of noise from project occupants and their guests on human beings are not a significant environmental impact for purposes of CEQA, and (2) public universities are not required to consider alternatives to the location of a residential or mixed-use housing project if the project meets certain criteria. In light of AB 1307, the California Supreme Court reversed, holding that occupant noise is not a CEQA impact for “residential projects,” regardless of whether the environmental review was done on a project-specific or programmatic level.

West Adams Heritage Association v. City of Los Angeles (2024) 106 Cal.App.5th 395. In another case involving residential housing near a university campus, the Court of Appeal originally held that the project did not qualify for the CEQA infill exemption because residents using the project’s rooftop decks would cause a significant noise impact. However, after the Make UC a Good Neighbor decision, the California Supreme Court instructed the Court of Appeal to vacate and reconsider its earlier decision. Upon reconsideration, the Court once again reversed the project approvals, this time on the grounds that the City had failed to make required findings about the project’s consistency with an applicable redevelopment plan. It did so even though the project opponent had failed to identify any element of the project that was, in fact, inconsistent with any applicable land use plan or policy.

Gooden v. County of Los Angeles (2024) 106 Cal.App.5th 1. The Los Angeles County Board of Supervisors sponsored environmental review in connection with a comprehensive update to its land use plan and zoning ordinances for the Santa Monica Mountains North Area.  The update aimed to protect the biological, scenic, and rural character of the region, and to align its land use plans with those of the adjacent lands regulated by the Coastal Commission.  While the plan initially contemplated heavy regulation of new vineyards in the area, the Board ultimately approved a complete ban on any new vineyards in the area.  The Court of Appeal upheld the ban, holding that it was within the scope of the project evaluated in the EIR, and it did not create any new or increased environmental impacts that were not already considered.  The project description was not unstable, and recirculation of the EIR was not required.

Holguin Family Ventures, LLC v. County of Ventura (2024) 104 Cal.App.5th 157. A winery operating on land zoned exclusively for agricultural use obtained zoning clearances in the 1980s, which allowed for a very small winery production facility and tasting room. When the County updated its zoning ordinance, the winery’s existing use was grandfathered in as a legal non-conforming use that could not expand or change without a permit. After a new owner purchased the property, it obtained permits to expand its agricultural facilities. The County later discovered that the new facilities were actually being used for wine tasting, events, and a gift store. The County issued notices of violation, which the owner appealed, arguing that it had a vested right to expand its operations. The Court disagreed, finding that its vested rights were limited to the legal nonconforming uses for the property based on its historic operations, as documented by the County and the prior owners in 2008.

Romero v. Shih (2024) 15 Cal.5th 680. This California Supreme Court case holds that an implied easement can be exclusive, and effectively exclude the servient tenement owner from most practical uses of the easement. The relatively high standards for finding an implied easement, and the fact that they require an intent to convey a portion of property to another, are sufficient to alleviate any fears such easements will be used to bypass the strict statutory requirements for adverse possession.

In light of the ongoing wildfires in Los Angeles, we want to take a moment to express our deep concern for all those affected by this devastating disaster. Our thoughts are with everyone impacted by the fires.

We wanted to share that the IRS has announced important tax relief measures in response to the recent presidential declaration related to the devastating wildfires in Southern California.

Overview of Relief Measures

The IRS has announced that residents and businesses in the affected areas (currently Los Angeles County) will be granted additional tax relief to help alleviate the financial impact of the wildfires. The current list of eligible localities is available on the tax relief in disaster situations page on IRS.gov.

This relief includes:

Extended Deadlines: Tax filing and payment deadlines for individuals and businesses affected by the wildfires have been automatically extended. This includes various tax returns and payments due on or after the declaration date. This means, for example, that the Oct. 15, 2025, deadline will now apply to:

• Individual income tax returns and payments normally due on April 15, 2025.
• 2024 contributions to IRAs and health savings accounts for eligible taxpayers.
• 2024 quarterly estimated income tax payments normally due on Jan. 15, 2025, and estimated tax payments normally due on April 15, June 16 and Sept. 15, 2025.
• Quarterly payroll and excise tax returns normally due on Jan. 31, April 30 and July 31, 2025.
• Calendar-year partnership and S corporation returns normally due on March 17, 2025.
• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2025.
• Calendar-year tax-exempt organization returns normally due on May 15, 2025.

Penalty Waivers: For individuals and businesses unable to file or pay their taxes on time due to the disaster, the IRS will waive penalties. This relief applies to various forms and schedules.

Deductible Casualty Losses: Taxpayers may be able to claim losses incurred due to the wildfires as a deduction on their federal tax returns. A key aspect of this relief is the ability to carry back casualty losses to the prior tax year.

Carrying Back Casualty Losses: If you experienced casualty losses due to the wildfires, you may elect to apply these losses to the prior tax year, potentially resulting in a tax refund. This is particularly beneficial if your taxable income in the prior year was higher, as it can maximize your refund.

Access to Additional Resources: The IRS may provide additional relief and/or resources to assist taxpayers in understanding their eligibility for various forms of relief, ensuring that those affected can access the support they need.

What You Should Do

• Assess Your Situation: If you or your business has been affected by the wildfires, evaluate your eligibility for the aforementioned relief measures, particularly the option to carry back casualty losses.
• Consult Your Tax Advisor: We recommend discussing your specific circumstances with your tax advisor to maximize your potential benefits and ensure compliance with new deadlines.
• Stay Informed: Keep an eye on IRS updates and announcements, as the Service may continue to provide guidance on navigating these changes.

For additional details, you can view the official IRS bulletin linked here regarding this tax relief.

Please feel free to reach out if you have any questions or need assistance in understanding how these measures may impact your tax obligations. Our team is here to support you through this challenging time.

On December 26, 2024, a Fifth Circuit Federal Court of Appeals panel officially reversed the decision from just three days ago and reinstated an injunction blocking the reporting deadline for Beneficial Ownership Information (“BOI”) report under the Corporate Transparency Act (“CTA”). We realize that this news is a bit of whiplash after the emails this week explaining that the courts had lifted the injunction. This latest development means that the government cannot enforce the CTA and BOI reporting requirements, and you are under no obligation to file these BOI reports again while the Fifth Circuit Court of Appeals decides the case. Due to continuing uncertainty around the enforcement of the CTA, reporting companies that have not yet filed BOI reports should be prepared to file on short notice if the preliminary injunction is once again stayed or overturned since a new filing deadline could be imposed on short notice. Please note, however, that you are able to file voluntarily if you would prefer to do so. If you have questions about the ruling or would like us to proceed with assisting with your BOI submission, please contact us at CTA@coblentzlaw.com.

The US Court of Appeals has lifted the injunction that previously blocked enforcement of and compliance with the Corporate Transparency Act. Accordingly, companies are now required to file a Beneficial Ownership Information Report with FinCEN, unless they are otherwise exempt.

If you are required to file for any existing companies, you may file the beneficial ownership information (“BOI”) report with FinCEN directly on the FinCEN website, https://fincen.gov/boi, or alternatively, we will do our best to assist you.

Currently the Department of the Treasury has extended the reporting deadlines as follows:

1. Pre-2024 Entities: Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial BOI reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
2. Entities Registered Between September 4, 2024, and December 2, 2024: Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial BOI reports with FinCEN.
3. Entities Registered Between December 3, 2024, and December 23, 2024: Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial BOI reports with FinCEN, an extension to the original requirement to file within 90 calendar days.
4. Disaster Relief: Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.

If you have already filed, please note that you do not need to re-file. You will only be required to file an amendment if there have been changes to the information contained in your report.

Please note that any reporting companies created on or after January 1, 2025 will only have 30 days to file their initial BOI reports with FinCEN after receiving actual or public notice that their creation or registration is effective.

If you have questions about the ruling or would like us to assist with your BOI submission, please contact us at CTA@coblentzlaw.com.

On Tuesday, December 3, 2024, a Texas federal judge granted a preliminary injunction halting the continuing implementation of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements.

The court stated that (1) companies are not required to comply with the CTA’s January 1, 2025, BOI reporting deadline, and (2) the CTA and its implementing rules may not be enforced.

The court’s order is a preliminary injunction and not a final order. We expect the government may appeal the ruling and request a stay of the order. The court’s order temporarily pauses enforcement of the CTA on a nationwide basis, but enforcement may resume if the court’s order is overturned on appeal or the United States ultimately prevails on the merits.

Because it is uncertain at this time whether the order will be upheld, it would be prudent for reporting companies that have not filed to date to continue preparing to file in anticipation of a successful challenge by the government. In the event of a successful challenge, filing agents may be overwhelmed with filing requests and clients should be prepared to submit the BOI report to FinCEN directly.

If you have questions about the ruling or would like us to assist with your BOI submission, please contact us at CTA@coblentzlaw.com.

By Sabrina Larson and Katherine Gianelli

The United States Patent and Trademark Office (PTO) has issued its Final Rule with adjusted filing fees at all stages of trademark application and maintenance filings. The fee increases, which take effect on January 18, 2025, aim to provide sufficient financial resources to facilitate the effective administration of the trademark systems, while a new framework for application filing fees with surcharges aims to incentivize standard applications, decrease office actions during the examination of applications, and meet a long-term goal of shortening the prosecution timeline—but may require some adjustments to the preparation of applications and make budgeting for new applications more complex.

Background and Summary

Since 2021, the PTO has conducted a biennial review of fees, costs, and revenues. This latest review has concluded that fee adjustments are necessary to provide the agency with sufficient financial resources to facilitate the effective administration of the U.S. trademark system. The PTO has forecasted higher-than-expected inflation in the broader U.S. economy, coupled with an increased need for trademark services. As a result, the PTO’s goal with this change is to set a fee schedule that generates sufficient multiyear revenue to recover the aggregate costs of maintaining the PTO trademark services.

The fee changes align with the PTO’s four key fee setting policy factors to (1) promote innovation strategies, (2) align fees with the full cost of trademark services, (3) set fees to facilitate the effective administration of the trademark system, and (4) offer application processing options.

Below is a summary of the changes, followed by a chart of key fee increases for electronic filings.

Key Changes to Application Fees

The PTO is changing its initial filing fee framework with the goal of incentivizing more complete and timely filings and improving the prosecution of applications. To that end, it has introduced a standard base fee per class, with three types of surcharges for applications that may require more in-depth examination and likely office actions:

• Single base, per class application fee: The new fees include a single base of $350 per class for all applications (replacing the current system of $250 for standard descriptions and $350 for all other applications).
• Surcharge for non-standard description: This new fee of $200 per class will apply where an applicant enters a description of goods or services using the free-form text box instead of using pre-approved descriptions from the USPTO’s Acceptable Goods and Services Manual (ID Manual).[1]
• Surcharge for incomplete information: There will be a new fee of $100 per class for applications that do not include all of the information required for the specific filing.[2]
• Surcharge for long descriptions: Non-standard, free-form descriptions of goods or services in a single class that exceed 1,000 characters, including punctuation and spaces, will incur a fee of $200 for each additional 1,000 characters. This surcharge will not apply if all descriptions are selected from the ID Manual.

Madrid Protocol Applications and Registration Maintenance

Applications filed via the Madrid Protocol under section 66(a) will not be subject to the above new surcharges.[3] Instead, the existing flat application fee for Madrid applications, including subsequent designations, will increase from $500 to $600 per class, as paid in Swiss francs to the World Intellectual Property Organization (WIPO). The renewal fee filed with WIPO will increase from $300 to $350. These fee increases go into effect on February 18, 2025.

The Section 71 declaration fee, applicable to owners of registered extension of protection under the Madrid Protocol, is increasing from $225 to $325.

Statement of Use Increases

The PTO is increasing the fee to file evidence of use, both as a Statement of Use and Amendment to Allege Use, for the first time since 2022. The Final Rule states that the examination time for evidence of use has increased due to “increased submission of questionable specimens.” The fee for both filings is increasing from $100 per class to $150 per class.

Maintenance Filing Increases

Post-registration maintenance fees are increasing across the board. While the percentage of trademark registrants choosing to maintain their registrations has declined, costs to process maintenance filings have increased due to factors including post-registration audits and new review procedures to address potential fraud.

Shortening Prosecution Timeline

The PTO also notes it is committed to improving trademark application pendency. As recent filers know, the current time from filing to a first office action is 7-8 months. This is 1-2 months after the priority foreign filing deadline, causing uncertainty at that deadline as to the status of the pending base U.S. application. The PTO describes the current timeline as a “trademark pendency challenge,” as a result of several years of surges in applications culminating in an “unprecedented, year-long influx” during the 2021 fiscal year that has resulted in a significant increase in unexamined applications. The PTO’s projected goal for application pendency to first office action for fiscal year 2025 remains the same as 2024 at 7.5 months, dropping to 6.3 months in 2026, 5.9 months in 2027, 5.5 months in 2028, and 4.9 months in 2029.

Key Takeaways

• The new application fee framework, with a base charge and surcharges, may require applicants to make adjustments in their approach and budgeting for applications.
• Going forward, trademark applicants will want to work with their trademark counsel to ensure complete applications and use standard descriptions to avoid surcharges, if possible.
• Advance budgeting for new applications will be more complex, as applicants may not know if their application will be suitable for standard descriptions from the ID Manual—particularly clients in emerging technology fields where the standard descriptions may not suffice.
• Trademark owners who intend to file new applications may wish to file their applications before the fee increases take effect.
• Trademark owners whose renewal windows open before January 18, 2025 may wish to consider filing early in that window, to avoid the increased fees.

The PTO’s Final Rule with all fee changes and increases can be found here. Please contact Sabrina Larson or Katherine Gianelli with any questions.

Key Filing Fee Changes (all for electronic filings)

	Current Fee	New Fee	Dollar Change	% Change
Application (TEAS Plus), per class	$250	Discontinued
Application (TEAS Standard), per class	$350	Discontinued
Base application per class	N/A	$350	N/A	N/A
Fee for insufficient information per class	N/A	$100	N/A	N/A
Fee for using the free-form text box to enter the identification of goods/services per class	N/A	$200	N/A	N/A
For each additional group of 1,000 characters beyond the first 1,000 per class	N/A	$200	N/A	N/A
Amendment to Allege Use or Statement of Use per class	$100	$150	$50	50%
Section 9 registration renewal application, per class	$300	$325	$25	8%
Section 8 declaration, per class	$225	$325	$100	44%
Section 15 declaration, per class	$200	$250	$50	25%
Section 71 declaration, per class	$225	$325	$100	44%
Letter of protest	$50	$150	$100	200%

 

[1] The PTO has clarified that this surcharge will not apply where an applicant adds exclusionary language (to differentiate from goods or services of third parties) to standard descriptions from the ID Manual.

[2] During the notice and comment period, commenters expressed concern that some of the requirements for sufficient information are subjective to the examining attorney’s opinions and discretion, rather than factual objective standards—such as whether a description of a mark is detailed enough and whether a translation is required. The PTO acknowledged these concerns and notes that applicants may request review of situations where it believes the surcharge should not have been applied.

[3] Madrid filers should note that these surcharges may apply to them in the future. The PTO initially proposed applying the surcharges to section 66(a) Madrid Protocol filings but dropped that due to WIPO’s inability to administer those charges at this time. WIPO therefore requested delayed implementation of any surcharges for Madrid filers.

By Sabrina Larson and Amber Leong

In a significant move that has drawn both praise and criticism, California Governor Gavin Newsom recently vetoed Senate Bill 1047, the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act (SB 1047), a highly publicized and debated AI bill, and Assembly Bill 1949 (AB 1949), a bill expanding data privacy rights for California minors. Both bills aimed to enhance data privacy protections for consumers, highlighting the ongoing efforts to balance technological advancement with individual privacy rights in an increasingly digital world.

At the same time, Governor Newsom signed into law nearly a dozen targeted bills concerning AI, including a law governing transparency when consumer data is used for training AI models (AB 2013), and a law requiring AI-generated content to contain a “manifest disclosure” in its metadata to signal that such material is AI generated (SB 942). Governor Newsom also signed into law stricter requirements aimed at prohibiting social media companies from directing addictive feeds toward minors (SB 976).

These noteworthy vetoes, paired with legislation signed into law by Governor Newsom, signal how California strives to be both at the helm of technological innovations and the leader in consumer data privacy protections in America.

Generative AI

Governor Newsom vetoed SB 1047, the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act, which many commentators viewed as the country’s first state-level comprehensive law regulating generative AI. SB 1047 was divisive and polarizing—with the tech industry and AI advocates championing for or against the bill. Absent a national law, states, and municipalities have been stepping in to fill the void and address growing concerns about the use of AI as it develops at an exponential rate. To date, enacted laws have been targeted toward specific uses of AI, including deep fakes and other specific scenarios.

SB 1047 would have regulated and imposed various safety restrictions on AI systems, which would have had significant implications on the AI industry given that the majority of the world’s leading AI companies are headquartered in California. SB 1047 had passed the Legislature with overwhelming support and was seen as the blueprint for the nation. SB 1047 included a required “kill switch” for AI technology and required safety tests to be conducted by AI companies.

Opponents of SB 1047, including Andreessen Horowitz, OpenAI, Google, and Meta, expressed concern that over-regulation would overburden and stifle a nascent and developing industry.

Ultimately, in his veto statement for SB 1047, Governor Newsom expressed a “critical” need for “adaptability” as states race to “regulate a technology in its infancy.” This reflects a desire to avoid imposing overly burdensome regulations on a growing technology. His administration stated that while the intentions behind the bill were commendable, the potential consequences for businesses—especially small and medium-sized enterprises—could be detrimental. Governor Newsom emphasized the need for a balanced approach that fosters innovation while ensuring consumer protection, signaling that he is committed to working toward that approach. At the same time, he highlighted his signing into law over a dozen bills regulating specific, known risks of AI. For example, Governor Newsom signed AB 2013, which requires businesses using generative AI to make certain disclosures on their websites including providing high-level summaries of the datasets. Governor Newsom also signed into law SB 942, the California AI Transparency Act, which governs various methods of disclosing AI-generated content. The law requires AI companies to provide an “AI-detecting” tool and a “manifest” to accompany AI-generated content.

Children’s Data

Currently, there is a patchwork of laws governing the data of minors nationwide. To add more confusion for businesses, “minors” (which are generally understood as all individuals under the age of 18) and “children” (which has historically meant both individuals below the age of 13 and between the ages of 13 to 17) are defined differently under various federal and state laws. There are currently two general buckets of laws governing minors: laws governing data of children (those under the age of 13) and a new and developing regime for teenagers (those between the ages of 13 and 17).

The federal Children’s Online Privacy Protection Act (COPPA) governs data for minors under the age of 13, and requires parental consent if a business has actual knowledge that it is collecting, using, or disclosing personal information of individuals under the age of 13. Recently, state data privacy laws have started regulating the collection, processing, sale, and sharing of minors’ data. The exact requirements differ from state to state.

Comparatively, for example, California’s laws governing minors’ data are more nuanced than COPPA. California’s regulations governing minors’ data are found in its overall privacy act, the California Consumer Privacy Act (CCPA). California has an opt-in requirement for “minors” before a business can sell or share personal data. But how opt-in consent is obtained differs depending on the age of the minor. For individuals under the age of 13, affirmative parental consent must be obtained before a business sells or shares the data (notably, unlike COPPA, the CCPA does not require opt-in consent for collecting or processing such data). For teenage minors ages 13 to 16, affirmative consent from the teenager must be obtained before a business can sell or share the teenager’s personal information. The CCPA considers 16- to 17-year-olds as “adults” for CCPA purposes.

The goal of AB 1949, the Kid’s Privacy Bill, was to “close the gap” on teenagers’ data under the CCPA. AB 1949 also sought to establish stricter regulations regarding the collection and usage of minors’ data by businesses. Specifically, the bill would have required businesses to obtain opt-in consent prior not only to selling or sharing data of all minors including teenagers, but also prior to collecting and processing data of all minors.

Governor Newsom vetoed AB 1949, stating that it would be unduly burdensome on businesses.   At the same time, however, Governor Newsom signed into law a separate bill, SB 976, The Protecting Our Kids from Social Media Addiction Act. SB 976 prohibits social media companies from knowingly providing addictive feeds to minors (defined here as individuals under the age of 18) without parental consent. Governor Newsom’s veto of AB 1949 combined with signing into law SB 976 and other bills signals a measured approach to imposing data protections.

Conclusion

Governor Newsom’s veto of AB 1949 and SB 1047, while signing into law AB 2013, SB 942, and SB 976, among other laws, shows a thoughtful approach as California balances its role as a state fostering innovation while also maintaining its place as a leader in regulations protecting consumers’ privacy rights. The Governor’s decisions are at a complex intersection of consumer rights, business interests, and the evolving landscape of data privacy.

As the demand for stronger data privacy regulations continues to rise, particularly for minors, stakeholders will need to engage in constructive dialogue to find a balance that protects consumers without stifling innovation. The outcome of this debate will be pivotal in shaping California’s—and potentially the nation’s—approach to data privacy in the years to come.

For assistance navigating the ever-proliferating and changing landscape of data privacy laws, please contact the Coblentz Data Privacy Team.