In the January 7, 2026 edition of The Legal Intelligencer, Edward Kang writes, “Authenticity Under Pressure: Rethinking Rule 901 in the Age of AI.“

For decades, Federal Rule of Evidence 901 has been a pillar of evidentiary stability. Its intentionally flexible standard—requiring only “evidence sufficient to support a finding that the item is what the proponent claims it is”—easily accommodated evidence from handwritten letters to surveillance footage. Authentication disputes were rarely dispositive, typically resolved through minimal foundation and common sense.

Enter the age of artificial intelligence (AI). The advent of generative artificial intelligence—specifically, tools capable of producing hyper-realistic audio, video, images and text (deepfakes)—has fractured the rule’s foundational assumptions. When synthetic media can replicate a person’s likeness or voice with near-perfect fidelity, traditional authenticity markers become unreliable. Evidence can be entirely fabricated yet appears genuine, leaving opposing parties without meaningful tools to prove manipulation.

This technological shift has triggered a parallel evolution in law. The conversation now spans from reforming Rule 901 to proposing a new Federal Rule of Evidence 707 specifically for AI-generated evidence. Simultaneously, ethics regulators are clarifying that lawyer competence requires understanding these technologies. The result is a critical convergence: the mechanics of authentication are now inseparable from counsel’s duty of competence under ABA Model Rule 1.1.

Rule 901’s Analog Assumption in a Digital World

Rule 901 was conceived in an era where forgery was typically crude, detectable, and difficult to scale. Its illustrative examples—testimony based on personal knowledge, distinctive characteristics, chain of custody—presume authenticity can be assessed through human perception and circumstantial context.

Generative AI dismantles this logic. Modern models produce videos of individuals saying things they never uttered, audio clips indistinguishable from real recordings, and documents that mimic unique writing styles—often complete with consistent metadata and artifacts that evade casual scrutiny. In this context, a witness’ assurance that evidence “looks real” offers scant probative value.

Courts are sensing this mismatch. While few opinions directly confront deepfakes, judicial unease with superficial digital authentication is growing. See, e.g., Alford v. Commonwealth, No. 2022-SC-0278-MR, 2024 WL 313431, at *6 (Ky. Jan. 18, 2024) (stating that the emergence of artificial intelligence, with the capacity and initiative to manipulate digital media, “will only serve to further compromise our determinations of authenticity unless such advancements are both recognized and addressed by our courts”). Some courts are “mindful” that the rules of evidence “may need to adapt,” yet still apply the same “low threshold for authentication” of electronic evidence as instructed by the current rules. See State v. Ziolkowski, 329 A.3d 939, 950 (Conn. 2025). The result is unpredictability: similar evidence may be admitted in one courtroom and excluded in another, based largely on a judge’s comfort with the technology rather than a consistent doctrinal framework. “As artificial intelligence progresses, battles over the accuracy of computer images and manipulation of deepfakes can be expected to intensify.” See Pegasystems v. Appian, 904 S.E.2d 247, 279 (Va. App. 2024), appeal granted (Mar. 7, 2025); see also People v. Smith, 969 N.W.2d 548, 565 (Mich. App. 2021) (“we are mindful that in the age of … so-called deep fakes, a trial court faced with the question whether a social-media account is authentic must itself be mindful of these concerns”).

The Case for Reforming Rule 901: Asymmetry and Reliability

The push for reform centers on two flaws exposed by AI: asymmetry and compromised reliability. A proponent of synthetic evidence needs only to clear Rule 901’s low bar of plausibility. The opponent, however, may bear an impossible burden to prove falsity without access to proprietary tools, training data, or generation logs. The current rule relies on adversarial testing, but the technology itself can obscure any meaningful test.
Proposed reforms vary. Some suggest amending Rule 901’s examples to explicitly reference AI-generated evidence, signaling that courts may demand technical proof. Others advocate a more structural shift, placing an affirmative burden on the proponent of AI-susceptible evidence to demonstrate authenticity through forensic analysis.

Skeptics warn that rewriting Rule 901 risks complexity and could disadvantage less-resourced litigants. They argue that judicial discretion and evolving common law—which have adapted the rule to include email and digital photos—can suffice. Yet even skeptics acknowledge deepfakes present a qualitative leap: unlike prior technologies, generative AI is designed to evade detection. This reality fuels the argument for a more targeted solution.

Proposed Rule 707: A Surgical Response to Synthetic Evidence

In the November 20, 2025 edition of The Legal Intelligencer, Kelly Lavelle writes, “Understanding and Applying Local Rules When Drafting ESI Protocols.“

ESI protocols govern how parties preserve, collect, review, and produce electronic evidence in federal litigation. What once was an obscure procedural topic now lies at the center of nearly every civil case involving documents, emails, databases and other forms of electronic data. ESI protocols provide structure and predictability in an area that can otherwise be costly and difficult to manage. A well-drafted ESI protocol defines production formats, metadata requirements, search terms, and privilege review procedures, reducing disputes and helping discovery move forward efficiently.

The Role of Local Rules in Electronic Discovery

With ESI protocols now a regular part of litigation, local rules and court practices play a more significant role in guiding the process. While the Federal Rules of Civil Procedure provide the foundation for electronic discovery, many district courts have developed their own local rules and forms to guide parties in drafting ESI protocols. Some districts have detailed local rules governing electronic discovery, while others, including the Eastern District of Pennsylvania, have not enacted a formal local rule governing ESI, but rely instead on individual judges’ policies and preferences that serve the same purpose. These guidelines show that courts expect parties to manage ESI in an organized way and to address potential issues in advance rather than waiting for them to arise. Following local practice helps lawyers know what the court expects, makes negotiations smoother, and saves time by avoiding mistakes the court has already ruled out.

Recent case law demonstrates how these local practices guide judicial decisions on ESI. In Hall v. Warren, 2025 WL 1392294 (W.D.N.Y. May 14, 2025), the parties failed to reach an agreement on an ESI protocol governing the production of electronically stored information. When negotiations fell apart, plaintiffs moved to compel production of metadata from internal reports and investigative files, arguing that such information was necessary to verify whether documents had been altered and to confirm their authenticity and completeness. Unable to obtain agreement from the parties, the court issued its own ESI protocol order that included selected provisions from each side’s proposal.

The defendants filed multiple objections to the court’s order, arguing that the order violated the district court’s local rules and imposed undue cost and technical burden. They claimed the order mandated universal metadata production, required technical tasks they could not perform, demanded compatibility with opposing counsel’s document review platform, and ordered native production without proper justification.

The court rejected these arguments, clarifying that the ESI order did not require many of the things defendants claimed it required and that the order’s actual requirements were consistent with the local rules and, in many instances, mirrored the local rules specific provisions. The order also provided flexibility for the parties to meet and confer on alternate formats or cost-sharing if a production became disproportionately burdensome.

The critical lesson from Hall is that the defendants misunderstood both the ESI order and the local rules they said it violated. The defendants clearly had read the district’s local rules because they cited them throughout their objections. Their problem was not ignorance of the local rules but misunderstanding what those rules actually required. The defendants thought the ESI order required things it did not require. They believed it violated local rules when it actually followed them. They argued that certain procedures were mandatory when the order actually provided flexibility. Because they misunderstood the local rules from the beginning, they could not negotiate effectively. As such, the defendants ended up with a court-imposed protocol that likely was less favorable than what they could have achieved through informed negotiation.

While Hall shows how local rules guide substantive resolution of ESI disputes, the case Husidic v. FR8 Solutions, No. 3:24-cv-963-WGY-SJH (M.D. Fla. Sept. 10, 2025), demonstrates the importance of complying with local procedural requirements even when parties agree. In Husidic, the parties submitted a joint motion requesting that the court enter the parties’ stipulated ESI protocol as an order. The magistrate judge denied the motion identifying three defects. First, the motion cited no legal authority for the proposition that courts should routinely enter agreed ESI protocols as orders. Second, the parties failed to include the memorandum of law required by the U.S. District Court for the Middle District of Florida’s local rules governing motion practice. Third, the request lacked any showing that court adoption of the protocol was necessary or appropriate.

The magistrate judge also identified a substantive issue with the parties’ proposed stipulation, which included ambiguous provisions referencing privilege and work-product protections that might implicate Federal Rule of Evidence 502, yet neither the stipulation nor the motion addressed Rule 502(d). The court emphasized that if parties seek a non-waiver order, they must make the request expressly and provide factual support demonstrating why such an order is necessary.

In declining to endorse the parties’ ESI protocol, the court implied that judicial resources should not be spent approving private agreements that can be managed through cooperation and adherence to the local rules. Further, compliance with local procedural requirements is essential, even when parties agree on the substance of an ESI protocol. Counsel must understand not only the local rules governing electronic discovery but also the local rules governing motion practice and the standards for obtaining court orders.

Practical Guidance for Counsel

For lawyers, these cases show that the most effective ESI protocol is one based on the local rules of the district court or specific judges’ policies and procedures. Counsel should familiarize themselves not only with the federal rules but also with the district court’s ESI checklists, policies, procedures, and discovery guidelines, many of which provide practical direction that supplements the federal rules. Before the Rule 26(f) conference, counsel should review the district’s local rules on electronic discovery and consider how those rules, and the judge’s preferences are likely to influence court resolution of any disputes. By following local rules from the beginning, parties can reduce the likelihood of motion practice and avoid judicially imposed resolutions that may be less favorable than a negotiated agreement.

Kelly A. Lavelle is an associate at Kang Haggerty. She focuses on e-discovery and information management, from preservation and collection to review and production of large volumes of electronically stored information. Contact her at klavelle@kanghaggerty.com.

Reprinted with permission from the November 20, 2025 edition of “The Legal Intelligencer” © 2025 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

In the November 20, 2025 edition of The Legal Intelligencer, Edward Kang writes, “Method, Not Mystique: The Renewed Demands of Rule 702.“

For many years, it was common practice to address expert challenges late in the litigation cycle. Create case themes. Discovery proceeds. Case themes change or develop alongside witness testimony. The Daubert briefing arrives near the end. The expectation was that juries would resolve competing expert views through cross-examination and credibility determinations. That cycle no longer accurately reflects reality in federal courts within the U.S. Court of Appeals for the Third Circuit and throughout the country.

Since the 2023 amendment to Federal Rule of Evidence 702, courts have adopted a more explicit and front-loaded approach to expert admissibility. The rule did not rewrite the familiar elements of qualification, reliability, and fit, but it clarified who bears what burden and when. Trial courts must now ensure, more likely than not, that an expert has not only employed a reliable method but applied that method reliably to sufficient facts or data. Issues that once passed as matters of weight for the jury now receive substantive scrutiny at the admissibility stage.

Lawyers accustomed to relying on experience-based experts must now make the analytical path explicit. Credibility and cross-examination alone could rescue a thin factual basis or an implicit chain of reasoning. Admissibility is no longer a late-stage checkpoint. It is a threshold gate, and lawyers must plan accordingly from the outset of a case.

The Approach Within the Third Circuit

In Slatowski v. Sig Sauer, 2024 WL 1078198 (E.D. Pa. Mar. 12, 2024), aff’d in part, rev’d in part and remanded, 148 F.4th 132 (3d Cir. 2025), the U.S. District Court for the Eastern District of Pennsylvania excluded two causation experts in a firearm-discharge case despite their credentials and experience. The district court found the opinions lacked a reliable analytical bridge, emphasizing that neither expert offered any conclusion that could be subject to testing or specific to the circumstances in which the plaintiff’s pistol fired. The lack of incident-focused methodology and analysis proved fatal under amended Rule 702.

The Third Circuit affirmed. The panel stressed that the “hallmark of Daubert‘s reliability” prong is the scientific method, meaning the “generation of testable hypotheses that are then subjected to the real-world crucible of experimentation, falsification/validation, and replication.” The court noted that a qualified expert must bridge the gap between theory and reality, and the lack of factual context was fatal in this case. Even if the expert testimony was “reliable about whether the [pistol’s] design could have caused an accident,” it needs to be reliable about “whether the design did cause this accident.”

It is worth noting that the court did not characterize this decision as a close call or a matter better left to cross-examination. Instead, it treated the Rule 702 amendment as a clear directive: opinions that lack testable, case-grounded reasoning cannot reach the jury. The ruling signals a practical expectation that plaintiffs must now present a documented analytical path that connects method to facts with precision, not inference or shorthand experience.

The Growing Trend of Demanding Reliable Application of Reliable Methods to Facts

Courts outside the Third Circuit are moving in the same direction. The amended rule and the advisory committee’s commentary have become a touchstone, and courts are citing them to clarify that the sufficiency of basis and reliability of application belong to judges, not juries. Three circuits illustrate this shift.

The Sixth Circuit’s approach is best illustrated by In re Onglyza and Kombiglyze Products Liability Litigation, 93 F.4th 339 (6th Cir. 2024), where exclusion of the plaintiffs’ cardiology expert was affirmed after the court found that, although the expert used “undeniably a reliable methodology,” the opinion was unreliable because it rested on selective data points and inconsistent application of several factors required by the method. The opinion cites the 2023 amendment and emphasizes its “corrective effect:” Rule 702’s recent amendments “were drafted to correct some court decisions incorrectly holding ‘that the critical questions of the sufficiency of an expert’s basis, and the application of the expert’s methodology, are questions of weight and not admissibility.’”

The Ninth Circuit’s decision reveals a similar posture, but with different emphasis. In Engilis v. Monsanto, 151 F.4th 1040 (9th Cir. 2025), the court rejected any presumption of admissibility by noting that “there is no such presumption, as a proponent of expert testimony must always establish the admissibility requirements of Rule 702 by a preponderance of the evidence.” The court affirmed the lower court’s exclusion of expert testimony and granting of summary judgment where the expert failed to provide any “scientifically sound reason” when ruling out a potential cause, thus failing to establish that his testimony was “based on sufficient facts or data.” The Fifth Circuit has been equally direct. Nairne v. Landry, 151 F.4th 666, 705 (5th Cir. 2025), reinforces the point by excluding a statistics expert who failed to explain the method-to-data application.

Across jurisdictions, the pattern is consistent. Courts expect transparent and documented analysis sufficient to show a reliable application of established methods to relevant facts. When some part of the analytical or reasoning chain is missing, courts will exercise their role as gatekeepers and exclude the expert testimony. The cases do not signal hostility to plaintiffs or to experts. They signal a renewed willingness on the part of the courts to enforce Rule 702 as written: reliability must now be demonstrated, rather than assumed.

Practical Guidance for Plaintiffs Attorneys

For plaintiffs lawyers, the shift in expert testimony admissibility is not theoretical. It reorders when and how cases must be built. The admissibility of expert testimony should be treated as a design principle from day one: identify the theory of causation early, map the analytic chain, and assemble the factual record intentionally so that each step is visible and testable. Litigation strategy must align with admissibility demands, rather than assuming that cross-examination will supply what the record lacks.

The amended Rule 702 rewards intentional sequencing. It punishes gaps that emerge only after discovery closes. Ask experts, before engagement if possible, to articulate precisely how their method connects to the facts at issue and what data they will need to apply it reliably. Build discovery around that roadmap. If testing, literature review, or additional medical documentation is necessary, get it early. Document the methodology as a narrative, not merely as a set of citations. Writing it early sharpens the analysis and exposes weaknesses in time to cure them. Treat expert testimony admissibility as architecture, not defense. In doing so, plaintiffs will not only meet the demands of Rule 702 but also strengthen the merits of their cases in the process.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Reprinted with permission from the November 20, 2025 edition of “The Legal Intelligencer” © 2025 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

OpenAI CEO Sam Altman recently warned that ChatGPT conversations are not legally protected and can be used as evidence in court. Speaking on a podcast, Altman acknowledged that OpenAI is legally required to retain user chats, including deleted ones, due to a current court order discussed later in this article. Comparing AI conversations to those with doctors, lawyers, or therapists, Altman argued that similar confidentiality protections should exist but currently do not, leaving sensitive exchanges with public AI tools fully exposed to discovery, an issue he described as needing to be addressed with urgency.

The use of AI tools like ChatGPT and Claude has created new issues for the discovery process. Lawyers must recognize that AI queries and outputs may qualify as electronically stored information (ESI) under both federal and state discovery rules. As AI technology becomes more integrated into legal practices, discovery requests are beginning to target the use of these technologies, seeking access to AI-generated documents, search histories and communication logs.

Many users may view AI tools as private assistants rather than potential witnesses. However, the use of AI tools like ChatGPT and Claude can inadvertently expose sensitive information, including legal strategies and privileged facts. Users may not realize that third-party AI platforms can be compelled to produce records during litigation, potentially compromising confidentiality and privilege. Many platforms keep detailed logs that include prompts and generated output, often tied to user accounts. Users may be surprised to learn that if they have employed these tools to draft documents or summarize confidential facts, those entries may be discoverable. This misunderstanding can create serious risks.

Several recent cases illustrate the discovery concerns associated with AI use. In some instances, AI-related ESI has been sought in discovery, challenging both privilege and work product protections. These cases highlight the importance of understanding the discovery implications of AI use and the need for protective measures. The discoverability of ChatGPT searches and their status as non-privileged information in legal proceedings may depend on the context in which the searches are conducted and the applicable privileges.

In some cases, courts have found that AI prompts and outputs, particularly when drafted by counsel, can constitute attorney work product. In Tremblay v. OpenAI, No. 23-cv-03223-AMO, 2024 WL 3748003, at *2-3 (N.D. Cal. Aug. 8, 2024), the court held that prompts created by attorneys reflected their mental impressions and opinions, making them work product rather than mere factual material. Applying that same reasoning, a California district court recently concluded that certain prompts, settings, and outputs from the Claude AI model were likewise protected, rejecting the argument that such materials were automatically discoverable. See Concord Music Group v. Anthropic PBC, 2025 WL 1482734, at *1 (N.D. Cal. May 23, 2025). The court emphasized that these materials were generated during counsel’s investigative process and therefore qualified for work product protection. However, the court also recognized that work product protection can be waived when a party relies on such materials in pleadings or motions. Here, the plaintiffs used specific prompts and outputs in their complaint and preliminary injunction filings, producing nearly five thousand prompt-output records that they relied upon. Under the “fairness principle,” this created a limited waiver. However, the court refused to extend it to all prompts, settings, and outputs, finding that discovery requests for every AI interaction were overreaching and not “closely tailored” to the opposing party’s legitimate needs nor limited to what is necessary under the fairness principle.

On the other hand, and perhaps the most sweeping example is the ongoing New York Times v. OpenAI lawsuit, which alleges that OpenAI unlawfully used millions of Times articles to train its AI models, including ChatGPT. In connection with that case, on May 13, 2025, Magistrate Judge Ona T. Wang ordered OpenAI to “preserve and segregate all output log data that would otherwise be deleted on a going forward basis,” a directive affecting hundreds of millions of ChatGPT users. See In re OpenAI Copyright Infringement Litigation (relating to The New York Times v. Microsoft, 23-cv-11195), No. 25-md-3143 (SHS) (OTW), ECF No. 551, at 2 (S.D.N.Y. May 13, 2025). OpenAI objected, arguing the order forced it to “disregard legal, contractual, regulatory, and ethical commitments” and retain up to 60 billion conversations, of which the plaintiffs estimated only 0.006% might be relevant. See OpenAI Defs.’ Supplemental Opp’n to News Pls.’ Mot. Regarding Output Logs , No. 25-md-3143 (SHS) (OTW) (S.D.N.Y. May 23, 2025), ECF No. 578. The district judge rejected those arguments, affirming the order and noting that OpenAI’s own terms of use allowed preservation for legal requirements. See Order, No. 25-md-3143 (SHS) (OTW), ECF No. 712 (S.D.N.Y. June 26, 2025). Although the court later clarified that certain categories were excluded, the case highlights how deleted AI data can become subject to preservation and discovery.

Lawyers should address these concerns and advise clients at the outset that interactions with AI tools may be discoverable and should be treated accordingly. This means instructing clients not to input privileged or confidential strategy into public or unsecured AI platforms. Clients should understand that the same caution they would apply to an email applies to AI prompts.

Further, the integration of AI tools like ChatGPT into legal practices necessitates a careful consideration of discovery obligations. Firms should adopt clear policies governing the use of AI tools for litigation tasks. These policies should address acceptable uses, data protection measures, and procedures for handling AI-generated content.

Kelly A. Lavelle is an associate at Kang Haggerty. She focuses on e-discovery and information management, from preservation and collection to review and production of large volumes of electronically stored information. Contact her at klavelle@kanghaggerty.com.

Reprinted with permission from the August 21, 2025 edition of “The Legal Intelligencer” © 2025 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

In the March 20, 2025 edition of The Legal Intelligencer, Edward T. Kang writes, “Shifting the Balance: Use Offer of Judgment in Litigation.“

In the February 6, 2025 edition of The Legal Intelligencer, Kyle Garabedian writes, “EB-5 Immigration Investor Program: a Win-Win Program, or Is It?“

Even if you have not heard of the EB-5 program, you have probably benefited from it, at least indirectly from the many businesses and even infrastructure programs it helped support. Created in 1990 by a bipartisan congress, the EB-5 program is a type of visa program designed to stimulate the economy by attracting foreign investments and creating new jobs. Whether invested directly into a business or larger aggregated funds, EB-5 investors must make a sizeable investment—as much as $1.8 million (though this number is reduced if invested in certain targeted areas)—in a U.S. business and demonstrate that their investment will support ten jobs in the United States. In exchange, the foreign investor gets a path to a green card and, eventually, citizenship. In theory, it’s a win-win for the investor and the U.S. economy.

In practice, however, these projects can be perilous for investors, ranging from bad deals to outright scams. Even under the best circumstances, there are significant language and cultural barriers that can complicate both the initial negotiations and the ensuing working relationship. Anyone who has ever worked with an interpreter knows that the phrase “lost in translation” is more than a cliché. The risk of misunderstanding is even higher when dealing with complex business models or lengthy contracts full of jargon. Cultural differences only compound these issues. Each country has its own business sensibilities, many of which are more focused on interpersonal relationships or norms that do not always line up with the United States’ more formalistic business practices.

While many U.S .sponsors of the EB-5 program participate in the program in good faith, hoping to raise money through foreign investments for their business ventures, some sponsors do not come with good intentions. Unfortunately, some of the sponsors abuse the program by exploiting foreign investors. These sponsors intentionally prey on linguistic and cultural differences to take advantage of trusting Investors. The meaning of a contract can shift completely based on the meaning of a single word, which can easily get lost when one party speaks English as a second language (if they speak it at all). We’ve even seen cases where critical terms of the agreement are completely different when read in English versus the investor’s native language.

When the business starts operating, the investor often has no insight or control over how their investment is spent. In addition to the language issues, the investor may live a continent away from the project, making it challenging to stay informed about the investment. Without local ties, it can be difficult for investors to find anyone to help represent their interests in the company, often leaving investors at the mercy of sponsors or intermediaries with a financial stake in placating the investors instead of getting answers.

These conditions, unsurprisingly, create an environment that is ripe for abuse. In extreme cases, investor money can go missing or wind up in the sponsor’s pocket. That kind of abuse can take a long time for a trusting investor to discover, especially if the sponsor tries to conceal it. Even then it can be difficult to remedy the issue without the assistance of local forensic accountants or business lawyers—professionals that the average EB-5 investor from abroad is unlikely to have in their contacts. In many instances, resorting to litigation is the only hope EB-5 investors have to protect their interests.

While most EB-5 projects are not that kind of blatant scam, even legitimate EB-5 investment programs can pose serious challenges for investors. The sponsors of these investments know that their investors have a purpose for making the investment beyond just getting a return. They know that the chance to get a green card is a powerful draw for investors and leverage that advantage early and often. As a result, the investment documents for EB-5 investments are often horribly one-sided, giving virtually all the rights and profits from the investments to the sponsor, while providing the investors with minimal prospects to make money and minimal protection against losses.

For instance, it is not uncommon for EB-5 sponsors to combine EB-5 investors into a fund and then loan the money to another business controlled by the same managers of the EB-5 fund. While EB-5 investors could potentially get a return on their investment from interest on the loan, these loans are frequently unsecured or under-secured, leaving investors last in line to get paid behind a laundry list of other creditors. Many foreign investors are not told about this kind of risk adequately before they make their investments. They also do not know what to do even after discovering their predicaments.

Reprinted with permission from the February 6, 2025 edition of “The Legal Intelligencer” © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the November 7, 2024 edition of The Legal Intelligencer, Edward Kang writes, “Civil RICO’s Expanding Reach: From Foreign Schemes to Lost Employment.”

In the July 5, 2024 Edition of The Legal Intelligencer, Edward T. Kang writes, “From Mobsters to Fraudsters: Clearing the Bar for Civil RICO Claims.“

When I hear practitioners talk about RICO, I often hear how no one understands it. I also hear some practitioners talk about how RICO is dead. It is not.

The Racketeer Influenced and Corrupt Organizations Act (RICO) was enacted by Congress and signed into law in 1970 as a tool to combat organized crime in the United States. In addition to imposing substantial criminal penalties for violations, the RICO statute authorizes a private right of civil action, enabling the victims of a person or business engaging in a “pattern of racketeering activity” to recover treble damages and attorney fees for injury to their business or property. Civil RICO is seen as “the litigation equivalent of a thermonuclear device,” Miranda v. Ponce Federal Bank, 948 F.2d 41 (1st Cir. 1991), and civil RICO claims are often employed in complex, high-stakes litigation.

The U.S. Supreme Court has consistently recognized the importance of the civil RICO claims. For example, the court has stated that the object of civil RICO is “not merely to compensate victims but to turn them into prosecutors, ‘private attorneys general,’ dedicated to eliminating racketeering activity.” See Rotella v. Wood, 528 U.S. 549 (2000). Data seems to suggest that it is useful and expedient for plaintiffs attorneys to effectively bring RICO claims like prosecutors. For example, plaintiffs brought an average of 759 civil RICO claims each year between 2001 and 2006. Of all RICO cases decided by federal appellate courts between 1999 and 2001, 78% were civil, and only 22% were criminal. As a result, judges and legal scholars have routinely complained that civil RICO’s overly expansive reach gives many ordinary civil cases an entrée to federal court.

Reprinted with permission from the July 5, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the May 17, 2024 edition of The Legal Intelligencer, Edward T. Kang wrote, “FTC Ban on Noncompetes: Antitrust Implications of Agreements.”

Massachusetts’s Route 128 high-tech corridor was supposed to be America’s high-tech capital. In the 1970s, armed with talents from Harvard and MIT and home to computer companies like Digital Equipment Corp. and Wang Laboratories, the Boston metro area was leading the charge for minicomputer innovation. Back then, the total technology employment in the area was roughly triple that of Silicon Valley, and the notion of Silicon Valley outshining Boston as the high-tech capital seemed implausible. Fast forward to 1995. Silicon Valley saw the highest increase in export sales among U.S. metro areas, while Boston did not make the top five. What explains Silicon Valley’s rise and Boston’s decline? Legal scholars have identified one key reason: while most states, including Massachusetts, enforce noncompete agreements, California does not. The result was a strikingly open culture in Silicon Valley where employees are free to go from one company to another or start their own, enabling and sustaining more successful regional development. In the last decade, there has been a surge in public initiatives including new legislations and regulatory initiatives aiming to reign in employers’ use of noncompetes, with the most recent example being the FTC’s issuance of its final rule banning nearly all noncompete agreements. The final rule has yet to take effect, however, and legal challenges are already looming. Rather than just describing the new FTC rule, we should examine noncompetes’ anticompetitive effects, a critical aspect of the rule’s underlying rationale. As a growing body of academic literature asserts, noncompetes are restraints against competition, and they are harmful to both employees and the economy. As one of the major levers that the federal government has over the economy, antitrust laws can provide significant deterrence to abuse of noncompetes by employers.

The Spectrum of State Laws on Noncompetes

The legal system has historically addressed noncompetes almost entirely under state common law. Nowadays, the treatment of noncompete provisions varies significantly from state to state. On one end of the spectrum, five states completely prohibit almost all noncompete agreements. These states include California, Colorado, Minnesota, North Dakota and Oklahoma. On the opposite end of the spectrum regarding enforceability, numerous states rely on common-law development to assess non-compete agreements and generally uphold noncompete agreements. However, all states subject such agreements to closer scrutiny than typical contracts by applying a balancing test that requires employers to show a “protectable interest,” or requires more than minimal consideration. Generally, under the balancing test, a court must consider whether the restraint is greater than is needed to protect the employer’s legitimate interest; the hardship to the employee; and (3) the likely injury to the public. See Modern Environments v. Stinnett, 561 S.E.2d 694 (Va. 2002).

On the enforceability of noncompete agreements containing unenforceable provisions, courts in these jurisdictions are split among three approaches: the “all or nothing” approach, which voids the agreement entirely if any part is unenforceable, the “blue pencil” approach, which enables the court to enforce the reasonable terms provided the agreement remains grammatically coherent once its unreasonable provisions are excised, and the “partial enforcement” approach, which reforms and enforces the restrictive covenant to the extent it is reasonable, unless the “circumstances indicate bad faith or deliberate overreaching” on the part of the employer. See Ferrofluidics v. Advanced Vacuum Components, 968 F.2d 1463 (1st Cir. 1992).

The Anticompetitive Effects of Noncompetes

By imposing outright limits on employees’ ability to engage in competitive work, noncompetes can deter employees from leaving their employers and impede their access to economic opportunities. Moreover, noncompetes, in the aggregate, can cause broader harm to society when they impede free trade and open competition.

An example is helpful to illustrate the threat to competition posed by noncompetes. Imagine a hospital in a rural area with a fixed number of trained nurses. Suppose the hospital owner is worried that another hospital might be established in the area and bring in competition, both in the product market for medical services and the labor market for skilled medical professionals. In that case, the hospital can hire additional unneeded nurses out of the pool of trained nurses and subject all nurses to noncompetes of three years. The noncompetes would be a significant entry barrier for any new hospital that wants to enter the market. Even if a new hospital is willing to pay a significant wage premium to hire the nurses employed by the incumbent hospital, the new hospital will have to wait three years while the nurses remain unemployed. Furthermore, this entry barrier will harm not only the labor market for nurses, but also all the other labor markets, such as the markets for doctors and hospital administrators, from which the new hospital would have drawn, and the product market for medical services because there are fewer consumer choices. In summary, in addition to employees subject to the noncompete, a non-compete can harm the labor markets from which the employer draws, and the product market in which the employer operates.

Empirical studies have highlighted the harmful effects of noncompetes in the aggregate on competition and entrepreneurial activities. Enforcing noncompetes reduces the formation of “spinout” firms, which are new firms founded by employees leaving their previous employer. A one standard deviation increases in state law enforceability of noncompetes leads to a 28.7% decrease in new spinout firm formation. Venture capital is more effective at generating firms and jobs in states without noncompete enforcement than states that enforce noncompetes.

The prevalence of noncompetes and the labor markets being highly concentrated exacerbate the anticompetitive effects caused by noncompetes, creating a vicious cycle. If a labor market is competitive and many employers exist, the employers are more likely to free ride on each other rather than to pay the wage premiums for employees to sign noncompetes. However, most labor markets are highly concentrated. One study found that 60% of labor markets have a Herfindahl-Hirschman Index (HHI) exceeding 2,500, a threshold considered “highly concentrated” by the Justice Department and FTC. If employers use noncompetes infrequently, their adverse effect of deterring entry and causing market concentration might only be seen in the long term. Noncompetes are common, however. Approximately one in five American workers, which amounts to approximately 30 million people, are restricted by non-compete clauses. As a result, non-competes in aggregate are harmful to labor markets.

Using the Sherman Act to Challenge Noncompetes

As agreements in restraint of trade, noncompetes fall within the ambit of the Sherman Act. But, lawsuits challenging noncompetes under antitrust law are almost nonexistent. In earlier cases, courts dismissed plaintiffs’ challenges because they found that noncompetes involved de minimis effects on competitions and did not harm the public interest, as shown by the plaintiffs’ failure to show non-competes effects on the market. See e.g., Bradford v. New York Times, 501 F.2d 51 (2d Cir. 1974). Courts also evaluated noncompetes under the deferential rule of reason standard rather than the per se illegal or quick look standard. Under the rule of reason standard, a plaintiff cannot prevail unless she can prove that the defendant has market power, that is, the power to force the employee to do something that she would not do in a competitive market; and that the noncompete measurably reduces competition. See United States v. Topco Associates, 405 U.S. 596 (1972). Proving that a single noncompete can harm an entire labor market is difficult. Given that such challenges usually involve a single plaintiff defending against the enforcement of one non-compete, the effect of the noncompete on wages and the employee’s mobility in the labor market is likely to be lost in statistical noise. Moreover, while various versions of the rule of reason require considerations of the agreements’ potential impact on the public interest, most courts do not engage in this inquiry, and the process for making such factual determinations remains unclear. As a result, a restraint deemed reasonable in scope typically will not be invalidated due to public interest alone.

Scholars have long critiqued the application of the rule of reason to noncompetes. In the late 1970s, Prof. Charles Sullivan published “Revisiting the ‘Neglected Stepchild’: Antitrust Treatment of Postemployment Restraints of Trade,” where he argued that otherwise “reasonable” noncompetes could violate Section 1 of the Sherman Act. To remedy this problem, he asserted, “courts should look to the general use of noncompetes in the industry to determine whether the collective effect of such practices is to lock-in classes of key employees so as to create a general barrier to competition.” In reaching this conclusion, Sullivan made two factual assumptions: first, that the prevalence of non-competes is much broader than could be surmised from reported caselaw; and second, that as a consequence, non-competes were likely to have broader effects in aggregate beyond what courts would typically discern when examining the specific circumstances of individual cases.

The new empirical literature on noncompetes supports both assumptions and has revealed non-competes’ pernicious effects on labor markets. Antitrust law applies equally to labor markets as to markets for other services and products. The Supreme Court has made clear that antitrust law does “not confine its protection to consumers, or to purchasers, or to competitors, or to sellers” but that the law is instead “comprehensive in its terms and coverage, protecting all who are made victims of the forbidden practices by whomever they may be perpetrated.” See Mandeville Island Farms v. American Crystal Sugar, 334 U.S. 219 (1948). The antitrust regime should incorporate these findings and treat noncompetes as presumptively anticompetitive. Under this approach, courts will not demand proof of market power, and an employee subject to a noncompete would nearly always have a prima facie Section 1 claim. The burden will shift to the employer to rebut the presumption. Suppose the common law standard is imported into the antitrust law. In that case, the plaintiff will only have a prima facie claim when a noncompete is excessive under the common law, and the employer will have the burden of providing a business justification.

The Takeaways

There are limited situations where noncompetes are used to protect legitimate business interest. No one would buy a business, for instance, unless the seller agrees to refrain from competing with the business from the relevant market for a limited period. Most noncompetes are not designed to protect legitimate business interest, however (e.g., an employer requiring a noncompete from every employee). In the latter category, emerging evidence suggests that noncompetes create barriers to competition. Treating noncompetes as presumptively illegal under the Sherman Act will allow the courts to hold employers accountable under antitrust laws if noncompetes undermine market competition.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Reprinted with permission from the May 17, 2024 edition of “The Legal Intelligencer” © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

In the March 21, 2024 edition of The Legal Intelligencer, Edward T. Kang wrote “When Hearsay Meets ESI: Navigating Evidence Rules in the Digital Age.”

Evidence plays a pivotal role in shaping the outcome of cases. One evidentiary ruling could affect the outcome of the case. Most relevant evidence is typically deemed admissible after a proper foundation has been established. Upon authentication, the Federal Rules of Evidence dictate the exclusion of hearsay evidence. In the digital age, electronically stored information (ESI) provides crucial evidence. ESI is any data stored or transmitted electronically, including emails, documents, images and messages. In 2006, the Federal Rules of Civil Procedure introduced e-discovery amendments, which formally defined ESI and recognized its discoverability.

These amendments encompass all forms of computer-based information and are designed to accommodate any changes or advancements in technology that may occur. Understanding the concept of hearsay and its application to ESI evidence is crucial for practitioners to navigate the complexities of evidentiary rules effectively.

The Three-Step Hearsay Test

Hearsay evidence, under Federal Rule of Evidence 801, is defined as “a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” Determining whether evidence qualifies as hearsay generally involves a three-step process.

• Step 1: Does the evidence satisfy hearsay’s definition?

The first step is to ascertain whether the evidence meets the criteria outlined in the hearsay definition. This involves identifying whether the statement is made by a “person” (more on this definition below), whether it was made outside the current proceeding, and whether it is being offered to prove the truth of the matter asserted.

• Step 2: If yes, does the evidence qualify as nonhearsay?

Certain types of evidence are deemed nonhearsay under FRE 801, even if they satisfy the hearsay definition. These include admissions by a party-opponent and prior consistent or inconsistent statements by a declarant-witness when he was subject to cross-examination. There is also certain nonhearsay under common law, such as verbal acts.