Minimum Competence - Daily Legal News Podcast
Minimum Competence
Legal News for Tues 12/19 - Apple Watch in Trade Jail, Bayer hit With Monsanto Verdict, Final DEI Law School Class and my column on OECD Pillar 2 Tax Credit Loopholes

Legal News for Tues 12/19 - Apple Watch in Trade Jail, Bayer hit With Monsanto Verdict, Final DEI Law School Class and my column on OECD Pillar 2 Tax Credit Loopholes

Apple tweaking its watch to wriggle out of a ban, Bayer hit with massive Monsanto verdict, final DEI law school class most diverse on record and Column Tuesday, on tax credits under OECD Pillar 2.

An Apple Watch in a jail cell, pencil sketch.

This Day in Legal History: Hong Kong is Transferred Back to China

Today marks a significant date in legal history with the anniversary of the Sino-British Joint Declaration, signed on December 19, 1984. This historic agreement between the United Kingdom and China heralded a major geopolitical shift, as it outlined the terms for transferring sovereignty of Hong Kong to China in 1997. This treaty was not just a transfer of power; it was a unique blend of diplomacy and legal ingenuity.

The Declaration was a testament to complex international negotiations, balancing the interests and concerns of both the UK and China. It crafted a "one country, two systems" framework, ensuring that Hong Kong would maintain its capitalist economy and democratic freedoms for at least 50 years post-transition. This framework was unprecedented in international law, symbolizing a delicate balance between sovereignty and local autonomy.

The treaty's significance extends beyond its immediate impact on Hong Kong. It set a new standard for international treaties dealing with sovereignty and administrative control, reflecting the evolving nature of global diplomatic relations. Legal scholars and political analysts have since studied the Declaration for its innovative approach to resolving international disputes.

In retrospect, the handover of Hong Kong under this treaty has had far-reaching consequences, affecting not just the region but also international relations and discussions about sovereignty and autonomy. As we reflect on this day, the long-term implications and effectiveness of the "one country, two systems" principle continue to be a subject of global interest and debate. The Sino-British Joint Declaration remains a pivotal point in legal and political history, illustrating the complexities of international law and diplomacy.

Apple Inc. is urgently modifying its smartwatch software to avoid a looming U.S. ban on its products, potentially impacting its $17 billion business. This initiative involves altering algorithms related to blood oxygen level measurement, a feature claimed by Masimo Corp. to infringe on its patents. The engineering challenge is unprecedented for Apple, especially given the timing around Christmas and the significant market at stake in the U.S.

The ban, scheduled for December 25th unless overturned by the White House, has resulted from a decision by the International Trade Commission (ITC). Apple's response includes software updates and exploring other technical and legal avenues. The company has begun adjusting retail strategies, notably altering promotional materials to exclude the Series 9 and Ultra 2 models, which are directly affected by the ban.

Apple's stock experienced minimal fluctuation following the news, while Masimo's shares saw an increase. Apple is hopeful that software revisions will suffice to address the issue, although Masimo insists on a hardware change. The dispute centers primarily on hardware patents, challenging Apple's approach of software-based resolution.

The import restriction imposed by the ITC complicates Apple's situation, as its smartwatches are assembled overseas. Resolving the dispute solely with software modifications might be difficult, considering the breadth of Masimo's patents. Any hardware changes, however, would necessitate a lengthy process for production, shipping, and regulatory approval, potentially taking months.

The blood oxygen feature, central to the dispute, was introduced in the Apple Watch Series 6 in 2020 and is key for monitoring health, particularly during the COVID-19 pandemic. This functionality is also present in later models, whose sales could be halted by the ban. Notably, third-party retailers may continue selling the affected models.

Apple's smartwatches have become a significant revenue stream, with sales rising from $9.1 billion to $16.9 billion over five years. These products not only contribute financially but also play a crucial role in keeping users within the Apple ecosystem. The White House's decision on a possible veto remains uncertain, with considerations complicated by the fact that both Apple and Masimo are U.S.-based companies. The situation reflects the complexity of patent disputes and the impact of regulatory decisions on major tech companies.

Apple Races to Tweak Software Ahead of Looming US Watch Ban (1)

Bayer AG was ordered to pay $857 million in damages to former students and parent volunteers at Sky Valley Education Center in Washington state. This verdict comes after the exposure to polychlorinated biphenyls (PCBs) in the school's lighting system was deemed unsafe, leading to brain damage and other health issues. This case is the eighth such decision in the state, bringing total damages awarded in similar cases to over $1.5 billion. Bayer, which acquired Monsanto in 2018, plans to appeal the verdict and challenges the claims of unsafe PCB levels, while also grappling with legal issues related to its Roundup weed killer and other Monsanto-inherited liabilities.

Bayer Hit With $857 Million Verdict on Toxic Monsanto Chemicals

The latest enrollment data for U.S. law schools shows stability after two volatile years, with a slight decline in first-year Juris Doctor students compared to 2022. This fall, there were 37,886 new law students, a modest decrease from 38,060 the previous year. Despite the overall decline, racial diversity among new law students reached a historic high, with 40% of the new class being students of color. This marks the third consecutive year of record-setting diversity in law school enrollments.

The increase in diversity comes just before the U.S. Supreme Court's ban on affirmative action in college admissions, which will impact future admissions cycles. The ban represents a significant change, as this year's class is the last admitted under the affirmative action policies.

The Law School Admission Council notes the importance of continuing efforts to promote access, equity, and fairness in the legal profession, especially in light of the Supreme Court's ruling. Despite the ruling, early data shows a 4% increase in new law school applicants, with non-white applicants constituting a slightly higher percentage of the applicant pool compared to last year. This indicates that the ruling has not deterred diverse candidates from pursuing legal education.

Final law class admitted before affirmative action ban is most diverse on record | Reuters

First, you need to know what Pillar 2 is. Pillar 2, part of the Two-Pillar Solution to address tax challenges from digitalization, was introduced on December 20, 2021, by 137 OECD/G20 member jurisdictions. It aims to ensure that large multinational enterprises (MNEs) pay a minimum tax level in each jurisdiction of operation. The rules, spanning about 60 pages, serve as a template for jurisdictions to incorporate into domestic law. They encompass a 15% minimum tax rate, applying to MNEs with over EUR 750 million in consolidated revenues. Exemptions include entities like government and non-profit organizations. The rules calculate the effective tax rate per jurisdiction and require payment of any top-up tax to meet the minimum rate of 15%. In other words, in over simplified terms, a tax haven that taxes an MNE at less than 15%, let’s say 10%, potentially leaves on the table an additional 5% in taxes which can be collected by other jurisdictions that the MNE does business in. Pillar 2’s global minimum tax thus blunts the efficacy of a tax haven.

My column discusses the implications of Pillar Two on MNEs, focusing on the treatment of tax credits. It highlights a potential loophole in the distinction between refundable and non-refundable tax credits under Pillar Two rules. By way of definition, refundable tax credits can exceed the amount of taxes a taxpayer owes, resulting in a refund. Non-refundable tax credits, on the other hand, can only reduce the tax bill to zero and do not result in a refund if they exceed the amount owed.

In my column I suggest that refundable tax credits, treated as income rather than tax reductions, might enable state-backed tax avoidance. I argue for a broader approach to evaluating what I’m calling “state fiscal concessions” to multinationals, emphasizing the need for a comprehensive policy that considers all forms of state support, not just tax credits, in the context of global minimum tax compliance. 

Multinationals Need Universal Treatment on Pillar Two Credits

Minimum Competence - Daily Legal News Podcast
Minimum Competence
The idea is that this podcast can accompany you on your commute home and will render you minimally competent on the major legal news stories of the day. The transcript is available in the form of a newsletter at