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August 2013Newsletter

Agribusiness, Food and Beverage Newsletter

Farm Bill Work Continues From Michael Best’s New Washington, D.C. Office
Anna J. Wildeman
Laura L. Riske

In June, Michael Best & Friedrich expanded from its Midwest base and opened a Washington D.C. office. Food and agriculture will be among the key areas of regulatory and legislative focus for the firm’s new office. Michael Best & Friedrich LLP attorneys Anna Wildeman, based in the D.C. office, and Madison-based David Crass have been working closely with firm clients on the landmark five-year Farm Bill which will include major revisions in agriculture policy.
 
On June 10th, the Senate approved their bi-partisan comprehensive version of the Farm Bill (S 954) which included a nutrition title that authorized funding for the Supplemental Nutrition Assistance Program, commonly referred to as SNAP or food stamps. In addition, the Senate version included a Market Stablization Program (supply management), which gives the government the control of the nation’s milk supply.
 
On July 11th, the House approved their own version of the Farm Bill (HR 2642) with no Democrats in support that did not include a nutrition title, but did include a measure that would repeal the 1938 and 1949 farm laws and make the commodity title of the 2013 bill the new permanent law. The House version did not include the Market Stablization Program. Instead, the House bill included the Goodlatte/Scott Amendment which contains a safety net called margin protection insurance that is similar to other government commodity insurance programs but does not include any form of supply management that would control output from our dairy industry. The House passage of the Goodlatte/Scott Amendment was seen as a significant win for our client, the Dairy Business Association.
 
The House passed Farm Bill is now expected to move on to a conference with the Senate passed Farm Bill. As of this writing it appears unlikely that a formal conference will begin before the August recess.


 

Series of One-Day Strikes Hits the Fast Food Industry
Carlos R. Pastrana

On May 15, 2013 and August 1, 2013 hundreds of Milwaukee fast-food workers walked off their jobs and launched separate one-day strikes demanding a raise to $15 per hour and the right to unionize without intimidation or retaliation. The May 15 strike was the fifth one-day strike by fast food workers in six weeks, following strikes in St. Louis and Detroit the week before, and in New York and Chicago in April. There were also subsequent fast food workers’ strikes in Seattle in May and in the District of Columbia in May and July. Another round of strikes took place last week in all these cities, including the August 1 strike in Milwaukee, plus Flint, Michigan and Kansas City, Missouri.
 
These strikes share several common characteristics. In each of these strikes, local groups organized fast food workers with support from the Service Employees International Union (SEIU), one of the nation’s largest unions. All of these strikes were also preceded or followed by the filing of unfair labor practice charges against the employers with the National Labor Relations Board. In each strike, the striking workers were backed by ad hoc coalitions of unions and community groups. In the case of the Milwaukee strike, the organizing group was called “Wisconsin Citizen Action” and the campaign was called “Raise [sic] Up, MKE”. The St. Louis campaign was called “STL Can’t Survive on $7.35”, Detroit’s was called “D15”, and Seattle’s was called “Strike Poverty and Raise Seattle.”
 
These one-day strikes have all been part of “minority unionism” campaigns. In this type of campaign, the strikers’ focus is on staging actions by a minority of the workforce, rather than waiting until they have gained support from a majority of the workers. The strikers’ long-term goal with this approach is to gain community support and inspire their non-striking co-workers to organize. The short duration of this sort of strike is calculated to minimize the risk that employers will replace the striking workers after walking off their jobs.
 
These fast food strikes have taken place amid a long-term decline in strikes in the U.S. In 2012, there were only 19 major strikes and lockouts, as reported by the U.S. Bureau of Labor Statistics, and only 19 in 2011 as well. Both the fast-food and retail industries are largely not unionized. The strategy pursued by the groups organizing these strikes is to call attention to the wages and working conditions of the employees in these industries, and to put pressure on fast food industry employers to raise their wages.


 

Adverse Possession; Old Issue but Very Real Problem
Nancy L. Haggerty

Would you pay real estate taxes on land owned and used by your neighbor? Most companies would not do so intentionally, but may inadvertently be doing just that because a neighbor has gained the ownership of some of their land by adverse possession. This is a bigger issue for ag land owners, because of the amount of acreage they hold.
 
The laws of adverse possession are very old, and allow a party to gain ownership of land (the “Contested Land”), by using that Contested Land for a long time, typically 20 years, if that party (the “User”) has occupied the Contested Land in a manner that is “open, notorious and adverse.”
 
A case crossed my desk recently about the ownership of a sizable triangle of ag land, cut off from a main field by a railroad right of way. Our clients held a recorded deed for that triangle, had a title insurance policy for the deed, and had been paying real estate taxes on it, but a neighbor had been farming the Contested Land for many years, and keeping the profits. The parties settled the case but the User was able to show his “open, notorious and adverse” use of the land could have convinced a judge to award ownership of the land to the User.
 
There are also practical issues involved here. Because the Register of Deed’s Office would still show the deed owner as entitled to the Contested Land, the User would have to take action to have his name inserted into the chain of title. Often the neighbors come to an agreement, usually after the payment of money, resulting in the owner of record signing a deed to the User which cleans up record title. If the parties are not in agreement, the User must apply to a Court in a “quiet title” action, providing proof to the Court and then securing a Court Order that the User is now the full owner of the Contested Land. If the record Owner has mortgaged the Contested Land to its lender, using the description in its deed, the User might also have to secure a Partial Release of Mortgage for the Contested Land before title is clear. Recording a Deed or an Order, with a Transfer Tax Return, will cause the property tax records to be corrected as well. Easements can also be created by adverse possession, or by implication, when land is split creating a landlocked parcel.
 
If a neighbor is using your land, you can stop the adverse possession clock from running by entering into an easement agreement, which allows the neighbor to continue that use, without their gaining ownership of the land.


 

Every Business Needs an IP Plan
Jeffrey D. Peterson

Every business, from Apple to the local farmer, has intellectual property (IP). Oftentimes non-technology based businesses think of intellectual property primarily as patents for software, drugs and complex machinery that is the playground for the Apples, General Motors and Pfizers of the world. While patents can be an important IP asset, for most businesses their most important IP assets are the assets they use every day. This includes a business’s name, its website, the look and feel of its packaging and products, its customer and supplier lists, and a host of other forms of IP that provide assets to leverage against a business’s competition. In a highly competitive world, how a company uses its IP assets is becoming more and more critical. For large technology companies, having an IP plan in place to assist management in developing protecting, and analyzing the companies IP is common place, but it is more and more critical for companies not historically thought of as technology company’s to actively plan and manage its IP assets to maximize the value of these assets.
 
In order to approach developing an effective IP plan for a business, the business should first identify and prioritize the fundamental needs of a business into a few basic categories. A typical example of such a list for most businesses would include: 1) the ability to be able to continue to operate the business on a day-to-day basis; 2) the ability to be able to obtain an advantaged market position in the existing markets the business is in; and 3) the ability to be able grow the business into new markets. Intellectual property has a role to play in meeting all of these business needs, and an IP plan for a business should take into account how to utilize and analyze IP to meet these needs for the business.
 
With respect to the most fundamental need, the ability to operate a business on a day-to-day basis, a business must be able to operate at a level with predictable challenges and opportunities to maximize the efficient operation and growth of the business. To meet this first and most important need of a business, an IP plan must address how a business deals with what IP practitioners call, “freedom to operate”. This means identifying and addressing any IP that would prevent the business from carrying out its regular services and product offerings. The plan should address how a business identifies any possibly conflicting trademarks, trade dress, patents, or other IP of any competitor that could restrict the ability of the business to continue to operate its business in its existing and potential markets. Regular searches of public databases of website registrations, trademark filings and patent filings can be done to see what IP competitors currently have and are filing on. These databases will often provide insight to a business as to what new product names, or products or services themselves, a competitor will be offering in the future, and will identify potential IP barriers that the business may need to deal with so that it can continue its normal operations. Additionally, such searches should be done before the business chooses any new product name, new website, or new products, to identify any barriers of commercializing any such new products or names. A successful IP plan will provide protocols and procedures of when and how a business conducts such searches and analysis in the regular operation of the business.
 
With respect to the need to obtain an advantaged market position in a business’s principal market, an IP plan should address how a business protects and develops its own IP assets. As to securing the IP assets, the first thing the policy should do is develop the appropriate confidentiality, assignment policies and employee policies and contracts to maintain the trade secrets of the business and to secure ownership of any employee and contractor created materials and ideas in the company. The policy should also develop protocol on how research and development results or other employee ideas are evaluated for IP protection by the business. A system of how such information is provided to management should be developed and a system of how the business evaluates and decides on the appropriate protection mechanism for the information (e.g. patent, copyright, trade secret, trademark, trade dress, etc.) should be established. For example, as trade secret protection requires that the information be maintained in secret within the company, the policy should put into place the appropriate confidentiality protocols to protect information designated by the business as a trade secret. As pursuing patent protection requires that patent filing be made before any public disclosure or sale of the product or process to be patented is done, the policy should have process protocols developed as to the timely submission and analysis of such information. This is done so that the business can decide whether or not it wants to pursue possible patent protection, before it inadvertently loses the chance to do so based on the business’ own disclosures or sales activities. The business should also have a protocol on how it protects its trademarks, monitors its trademarks for possible infringement, and protects and monitors its website and online activities.
 
With respect to the ability to expand the business into new markets and territories, the IP plan should address new freedom to operate issues in new markets and territories. This includes formalized protocols to perform patent, copyright and trademark searches with respect to new products to be developed and territories to enter into to determine possible barriers before certain expenditures on additional development and expansion is undertaken. The IP plan also can include how a company evaluates the possibility of out-licensing any IP of the business to possible partners and developers in the process of expanding the products, services, markets and territories of the business.
 
The items above are just some examples of the types of issues an IP plan can address to assist a business in meeting its business needs and more fully protecting and utilizing the IP assets that the business has. Michael Best has worked with a variety of agribusinesses entities in assisting them in effectively developing and implanting such polies.


 

Michael Best & Friedrich LLP Joins Global Water Council
Scott C. Beightol

It goes without saying that a majority of agribusinesses, from food processors to producers, face water-management issues on a daily basis and are looking to the newest water-related technologies to find innovative solutions. Earlier this year, Michael Best joined the growing list of tenants at the Global Water Council, a water research & business accelerator center in Milwaukee’s Walker’s Point neighborhood. The building houses water-related research facilities for universities, existing water-related companies, and accelerator space for new, emerging water-related companies. The facility will be a venue for attracting and creating new businesses in the water industry, and will address key local and global water-quality technology and policy issues.
 
As a legal service provider with extensive experience in venture capital, intellectual property and corporate transactions, Michael Best has done a substantial amount of work with both start-ups and emerging companies in the technology transfer space. This experience provides us with the understanding of the unique legal needs of entrepreneurs, the ability to deliver legal services and strategic advice needed to grow in today’s economy, and allows us the opportunity to introduce venture capital and private equity investors to early and mid-stage investment prospects.
 
The center is a venue for creating and developing new opportunities in the water industry as well as addressing critical local and global water technology and policy matters. In addition to laboratory and office space, the Center offers first class business amenities including Type II laboratory standard and pre-treatment for a Type I standard water, high-speed internet service, boardroom style conference room, 45 person auditorium, Networking Cafe, and a location at the center of a vibrant cultural and entertainment. To learn more about the Global Water Council, their initiatives and the Global Freshwater Seed Accelerator, click here.


 

FDA’s Implementation of FSMA Continues, Now with Judicial Encouragement
Leah H. Ziemba

In August 2012, the Center for Food Safety filed suit under the Administrative Procedures Act to force the U.S. Food and Drug Administration (FDA) to propose and implement a number of food safety regulations within the time frame that Congress set in the Food Safety and Modernization Act of 2010 (FSMA). In April 2013, the U.S. District Court for the Northern District of California, granted the Center for Food Safety’s request for a judicial declaration that FDA had violated FSMA by failing to promulgate the required regulations within the deadlines mandated by Congress. However, the court acknowledged FDA’s arguments against a rushed or arbitrary rulemaking timeline and required that the parties propose a joint timeline. Not surprisingly, the Center for Food Safety and FDA were unable to agree to a joint proposed timeline so the court decided to set its own timeline that provided FDA with more time than the Center for Food Safety had requested but with less flexibility than the “target” timelines that FDA desired. Thus, on June 21, 2013, the court ordered FDA to:
Publish all proposed FSMA regulations by November 30, 2013;
Close the comment period for each proposed regulation no later than March 31, 2014; and
Publish all final regulations in the Federal Register no later than June 30, 2015.
 
It is not yet clear whether FDA will appeal the court’s decision. Michael Best & Friedrich LLP’s Agribusiness, Food and Beverage team continues to monitor FDA’s implementation of FSMA and is available to answer specific questions about how FSMA impacts your business.


 

FDA: More Accountability for Food Imports Will Be Required
Paul E. Benson

On July 26, 2013, the U.S. Food and Drug Administration (FDA) proposed two new rules holding food companies accountable for the safety of imported food, and establishing a program for the accreditation of third-party auditors to certify foreign food facilities. The rules are promulgated under the 2011 Food Safety Modernization Act (FSMA).

The first proposed rule requires importers to maintain a “foreign supplier verification program.” The goal of this program is to make imported food as safe as U.S. produced products. The second proposed rule allows FDA to recognize companies or foreign governments as “accreditation bodies.” Once so recognized, an accreditation body can approve third parties to audit and certify the safety of food and food facilities.

FDA Commissioner Margaret Hamburg said in a statement: “Today's announcement of these two new proposed rules will help to meet the challenges of our complex global food supply system … Our success will depend in large part on partnerships across nations, industries and business sectors.” The Grocery Manufacturers Association, a leading food industry group based in Washington D.C., expressed a similar sentiment in a statement: “We are very pleased that implementation of FSMA is moving forward and look forward to working with the FDA by continuing to share our food safety expertise and best practices and by evaluating and commenting on these and future proposed rules.”

The FDA is accepting comments on the new proposals for the next 120 days.


 

FDA Expands Outreach to Produce Farmers as Comment Period Remains Open on FSMA’s Proposed Produce Safety Rule
Leah H. Ziemba

FDA has, yet again, extended the comment period for two of the agency’s major proposed rules, the rule on preventive controls for food manufacturers and the rule on safety standards for fresh produce. Comments on both rules are now due November 16, 2013. Earlier this month, FDA released a number of resource documents targeted to produce farmers to explain the proposed produce safety rule and solicit the agricultural industry’s input.
 
The proposed produce safety rule was released for public comment on January 4, 2013 and, as required by the Food Safety and Modernization Act of 2010 (FSMA), proposes science-based standards for growing, harvesting, packing and holding produce on domestic and foreign farms. The proposed rule sets standards associated with identified routes of microbial contamination of produce, including: (1) agricultural water; (2) biological soil amendments of animal origin (3) health and hygiene (4) animals in the growing area and (5) equipment, tools and buildings.
 
Although the proposed produce rule covers most fruits and vegetables while they are in their raw or natural (unprocessed) state, it does not apply to raw agricultural commodities that are rarely consumed raw, those produced for personal or on-farm consumption, and (with certain documentation) those destined for commercial processing, such as canning, that will adequately reduce microorganisms of public health concern. In addition, some farms would not be covered by the rule, or may qualify for a partial exemption based on factors including the monetary value of their food sales and to whom they sell. The partial exemption would still subject eligible farms to certain modified requirements, and could be withdrawn in certain circumstances.


 

EPA Targets CAFOs for Criminal Enforcement Actions under the Clean Water Act; CAFOs to Continue to be National Enforcement Priority for EPA in FY 2014-2016
Leah H. Ziemba

The U.S. Environmental Protection Agency (EPA) recently issued a “Criminal Enforcement Alert” that summarized the agency’s most recent criminal enforcements against concentrated animal feeding operations (CAFOs). According to EPA, the purpose of the Alert was to “increase public awareness of the consequences of knowing or negligent Clean Water Act violations by animal confinement operations.” The Clean Water Act authorizes EPA to criminally prosecute livestock operation owners or operators that knowingly or negligently discharge pollutants (including manure or process wastewater) from a point source (lagoon, tank, pipe or other conveyances) into waters of the United States without a permit.
 
The EPA Alert summarizes the agency’s most recent criminal enforcement actions against livestock operators. The eight examples listed in the Alert all involved deliberate discharges to a water of the United States or repeat offenses that caused significant environmental damage. Examples of EPA criminal enforcement activities outlined in the EPA Alert are:
 
A Hog farm in North Carolina was required to pay $1.5M in fines and penalties, 5 years of probation and the company President was sentenced to 6 months imprisonment for pumping 324,000 gallons of hog manure from a lagoon into a nearby waterway.
 
An Oregon cattle operation was convicted of 27 state criminal acts of water pollution from an unpermitted CAFO operation for discharging animal waste using a manure gun into a nearby creek. The owner was required to pay $300,000 in fines, had 5 days of imprisonment and 3 years of probation.
 
A repeat offender feedlot in Nebraska was required to pay $12,000 and 3 years of probation after over-application of manure caused pollutants to flow into a nearby large wildlife protection area.
 
An Ohio egg producer was required to pay $300,000 in fines and penalties for a significant discharge to a creek of process wastewater after a worker over-applied wastewater from its wash water lagoons by leaving the spray application running unattended overnight.
 
EPA’s Alert serves as a timely reminder that one of the agency’s national enforcement initiatives for FY 2011-2013 has been to “take action to reduce animal waste pollution from livestock and poultry operations that impair [the] nation’s waters, threaten drinking water sources, and adversely impact vulnerable communities.” Although EPA sets its national priority enforcement initiatives every 3 years, the agency decided in January 2013 to continue its work on the same enforcement priorities for FY 2014-2016. In EPA’s announcement about the FY 2014-2016 national enforcement initiatives, EPA noted that it would “continue to focus federal enforcement investigations primarily on existing large and medium CAFOs identified as discharging without a permit to waters of the U.S., particularly in areas of concern due to impacts form CAFO/AFO wastes. In addition, EPA’s resources will be used to assure that CAFOs that already have permits are in compliance with those permits.”
 
Finally, EPA has indicated that it anticipates completing its review of the agency’s 2003 CAFO Rule’s impact on small entities in November 2013. This review, which began in October 2012, will evaluate whether the 2003 CAFO rule should continue without change, or if it should be rescinded or amended to minimize adverse economic impacts on small entities pursuant to the Regulatory Flexibility Act.


 

Employers Required to Use New Version of Form I-9
José A. Olivieri and Kelly M. Fortier

Remember that, effective May 8, 2013, employers must use the new version of Form I-9 (Rev. 03/08/13) to verify the identity and employment eligibility of their employees. Employers who fail to use the new version of Form I-9 after May 8 may be subject to civil money penalties and, in some case, criminal penalties. The new Form I-9 and its instructions are available here.
 
The Department of Homeland Security issued the newly-designed Form I-9 and revised its instructions to minimize errors in completing the Form. The Form I-9 has been reformatted for clarity and is now a two-page (rather than a one-page) document. Additional data fields within the new Form I-9 require employers to input the employee’s telephone number and email address, as well as the employee’s foreign passport information (if applicable). Employers should note that, although a Spanish-language version of the new Form I-9 is available, this version may be used only in Puerto Rico.
 
The essential rules for Form I-9 completion continue to apply. Specifically, employers must complete a Form I-9 for all new employees, including U.S. citizens, permanent residents and foreign employees. However, employers need not complete a new Form I-9 for current employees for whom a properly-completed Form I-9 already exists, unless re-verification applies. When completing a Form I-9, employers may accept only original documents that “reasonably appear genuine on their face.” Additionally, employers may not specify which documents employees should produce, and they may not require more documentation than is required by the Form I-9.


 

Governor Walker Signs Wisconsin State Budget Bill Into Law
Laura L. Riske

The 2013-2014 Wisconsin State legislative session began this past January with the bulk of activity focused on passage of the budget bill. The Wisconsin State Legislature provided final approval of the budget bill on June 21, 2013, and Republican Governor Scott Walker signed the bill into law as 2013 Wisconsin Act 20 on June 30, 2013. Now that the $68 billion two year spending plan has been enacted, Wisconsin expects to begin the new fiscal year with a $670 million surplus, the largest opening balance in over a decade. Highlights of infrastructural, environmental, financial and other business items that will impact the Wisconsin agriculture, food and beverage industries included the following:

Infrastructure

  • Invested $6.4 billion in transportation infrastructure
  • Provided $517 million for continued construction of the Zoo Interchange and I-94 North-South Corridor, and additional funds to support major road projects such as the expansion of US 41 and I-39/90 South-Central Corridor
  • Maintained funds for the town road improvement program and provided an increase of $52 million for routine maintenance agreements with counties
  • Authorized updates to Babcock Hall Dairy Plant and rebuilding UW-Madison Campus Meat & Muscle Biology Lab

 

Environment

  • Provided regulatory certainty for groundwater permits by limiting the basis upon which high capacity well approvals can be challenged
  • Continued funding for the non-point pollution and UW-Extension Discovery Farms programs
  • Provided funding for the county land conservation department staff and fertilizer research at UW-Madison
  • Provided funding for the farmland preservation tax credit program
  • Expanded the existing solar and wind energy system personal property tax exemption to include biogas energy systems

 

Finance

  • Did not increase sales or income taxes, and provided $650 million in individual income tax relief across all tax brackets
  • Simplified the tax code and improved the business climate with elimination of 17 tax credits, reduced the number of income tax brackets from five to four and adopted federal treatment of several tax provisions
  • Eliminated the refundable farm income and franchise credits including the dairy manufacturing facility investment, meat processing facility investment, food processing facility and food warehouse investment and beginning farmer/farm asset owner credit
  • Eliminated the non-refundable dairy and livestock farm investment tax credit, the ethanol-biodiesel pump installation and the biodiesel fuel production credit
  • Repealed the grain storage tax
  • Retained the manufacturing and agriculture credit that provides an income tax credit for those who have income from farming

 

Business/Market

  • Prohibited local government restrictions on the sale of food and non-alcoholic beverages based on the number of calories, portion size or other nutritional criteria to ensure these type of regulations will be made uniformly statewide
  • Continued funding for the Buy Local Buy WI Program and the Livestock Premise Registration Program
  • Increased funding for county fairs
  • Created a dairy processor grant program.

 

Now that the budget bill has been signed into law, the legislators will not return to vote on any new legislative bill proposals until mid-September when the next floor session begins.

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