2020 and 2021 brought one of the largest Initial Public Offering (IPO) booms in US history, brought about by an increased interest in digital technologies during the COVID-19 pandemic. However, in 2022, this market stagnated because of worsening market conditions and a Fed-sponsored contractionary monetary policy. Once inflation slowed down, the stock market rebounded considerably, leading the Federal Reserve to cut interest rates. This resulted in market volatility returning to pre-pandemic levels in 2024. As such, analysts predicted that this company-friendly environment would trigger a resurgence of IPOs by 2025.

However, a disappointing first quarter of 2025 has cooled that excitement. Much of last year’s initial excitement was based on a spike in IPOs in 2024. Additionally, the newly elected administration promised in their campaign to deregulate the IPO market and thus encourage investment growth.

However, this narrative overlooked the importance of the tech sector in the IPO market. In 2024, the healthcare sector led the number of IPOs with 43% of all IPOs, but these IPOs only brought in 26% of the total capital invested. On the other hand, the tech sector accounted for 18% of the total number of IPOs, with 23% of the total capital invested. This disparity highlights that tech firms attract a disproportionate amount of investment – and were the real drivers behind the upswing in IPO capital raised in 2024.

Recently, however, investor confidence in tech startups has wavered, mainly due to the volatility of that market. Investors fear overexcitement in a sector that has brought forward the most significant IPOs (such as Facebook and Alibaba), but also some of the worst (with Rivian and Robinhood). As such, tech startups have remained private longer to consolidate their financial records and wait for the right opportunity to go public.

Additionally, major tech companies such as OpenAI have been able to raise enough capital through private markets instead of being forced into a volatile public market that might reduce their valuation. As a result, the IPO market has lost one of its primary drivers of large, high-profile deals. With a lack of substantial tech listings, the predicted rise in 2025 IPO investment appears uncertain, driven more by traditional sectors offering modest returns than exciting tech debuts.

Not only that, but there was a significant chilling effect on IPOs because of the number of tech IPOs conducted in 2021 that opted to circumvent U.S. Securities and Exchange Commission (SEC) regulations through a special reverse merger structure. Tech companies looking to go public would reverse-merge a private firm with a public shell company incorporated solely for the purposes of the merger (named a “Special-Purpose Acquisition Company,” or SPAC). The lack of regulatory scrutiny created by the SPAC reverse merger structure generated much controversy amongst investors. It effectively created a loophole in the disclosure obligations regulated by the SEC to safeguard investors from potential share pricing fraud. Consequently, fraud accusations (such as Rivian’s IPO) and poor performance on these IPOs (by 2022, 80% of 2021 IPO’s still hadn’t seen positive earnings and 33% were trading below their opening price) led to investors seeking alternative methods of investments. This created further mistrust between public offerors and potential investors. Thus, even before the SEC regulated this loophole, investments in reverse-merger IPOs had dropped by 93%.

Finally, the macroeconomic landscape does not seem inviting for a public offering led by volatile tech firms. Investors expected the new administration officials to remove Biden-era rules and descale what was perceived as overreaching regulations. The new administration still insists they will conduct such deregulation, but until they do, Biden-era regulations are still enforceable. For now, investors are stuck waiting on whether the administration will deliver their deregulation promises and wondering if it’s worth betting on such rollbacks. This hesitation has only grown with the administration’s recent moves, which increase uncertainty in an already volatile market.

A new trade war has sent markets into a tailspin from which it still has not recovered. Economists have been reluctant to predict a recession, but the Fed has rejected further lowering interest rates, fearing that the administration’s trade war would result in higher inflation. As a result, the market volatility index increased by 52% in the last month, meaning that investors are less likely to invest because of high risk and low returns. If a tech startup wanted to conduct an IPO under such conditions, it would have to sacrifice the expected valuation of its shares. Thus, raising capital will become more expensive, discouraging potential investors.

Ultimately, while early signs in 2024 sparked hopes of an IPO resurgence, the reality has proven far more complex. The absence of significant tech listings, lingering regulatory hurdles, and rising geopolitical uncertainty have all combined to dampen investor enthusiasm. For now, the IPO market appears to be entering a more cautious and selective phase—one where traditional sectors lead modest recoveries. However, the explosive tech-driven growth of past years remains out of reach. Until investor confidence returns, and regulatory clarity emerges, the IPO landscape will likely stay sluggish, especially for tech startups that once used IPOs to fuel their most lucrative deals.

As globalization accelerates, effective transfer pricing strategies have become crucial in cross-border mergers and acquisitions (M&A). Transfer pricing sets the prices for transactions between affiliated entities within the same corporate group, aiming to allocate profits based on the arm’s-length principle—treating intercompany transactions as if they were between unrelated parties. Inaccurate transfer pricing can lead to tax investigations, penalties, and significant damage to a company’s financial health and reputation. Proper profit distribution across operations is essential for foreign-owned companies to navigate tax regulations. Non-compliance may lead to tax liabilities, as tax authorities could claim improper profit shifting to low-tax jurisdictions. Effective transfer pricing strategies are therefore essential for multinational corporations involved in cross-border deals.

Section 482 of the U.S. Internal Revenue Code mandates that transactions between related companies must occur at market prices. This section establishes the legal framework for making transfer pricing adjustments, requiring U.S. companies to document intercompany transactions thoroughly. In the U.S., transfer pricing documentation is mandatory, placing the burden of proof on companies to demonstrate compliance during tax audits. The Organization for Economic Cooperation and Development (OECD) offers internationally accepted guidelines for transfer pricing, widely used by tax authorities globally. While U.S. regulations align largely with these guidelines, there are subtle differences that foreign companies must be aware of when operating in the U.S.

When a U.S. company is acquired, integrating its operations and supply chain often requires revisiting intercompany transaction prices to reflect changes in business structure. For example, shifting raw material or product prices directly affects transfer pricing, making it essential to reassess prior arrangements post-acquisition. One of the most challenging aspects of transfer pricing in M&A is valuing intangible assets such as brand value, patents, trademarks, and proprietary technology. Inaccurate valuations can lead to adjustments by tax authorities, resulting in additional tax liabilities.

OECD guidelines outline five primary transfer pricing methods used to determine arm’s-length pricing and these form the foundation of international best practices.

U.S. regulations, under Section 482 of the Internal Revenue Code and the associated Treasury Regulations, generally align with these methods, particularly the Comparable Profits Method (CPM), which is widely applied in the U.S.

However, there are important distinctions. For instance, while the OECD treats all five methods as potentially equal in applicability depending on the facts, the U.S. regulations emphasize the “best method rule,” which requires taxpayers to use the most reliable method based on the available data.

Moreover, the U.S. tends to favor methods that rely on publicly available comparable data, like CPM, whereas the OECD may place greater emphasis on methods like the Profit Split Method in cases involving valuable intangibles or highly integrated operations.

Understanding these nuances is critical for foreign multinationals acquiring U.S. targets, as they must ensure that their transfer pricing strategies comply not only with international norms but also with specific U.S. regulatory expectations.

The OECD’s five methods fall into two categories: traditional transaction methods and transactional profit methods. Traditional transaction methods focus on comparing specific terms or prices of transactions between related companies with independent ones, while transactional profit methods focus on comparing the overall profits of related companies with those of independent companies.

Traditional Transaction Methods

• Comparable Uncontrolled Price (CUP) Method
  The CUP method compares prices between related companies with prices between unrelated companies. This method is most effective when there are sufficient comparable transactions between independent entities to establish a benchmark. For example, a U.S. car rental company may price the use of its brand for a Canadian subsidiary by comparing it to an independent deal with a third-party car rental company.
• Resale Price Method (RPM)
  The RPM uses a product’s resale price and subtracts a gross margin based on comparable transactions. It is commonly applied when goods are purchased from a related party and resold to an independent third party. For example, a U.S. shoe distributor may buy from an Irish affiliate and compare the price to that of an unrelated supplier. The gross margin from the unrelated supplier sets the price for the related party.
• Cost Plus Method (CPLM)
  The CPLM adds a market-based profit margin to the cost of producing goods. It is typically used for routine manufacturing or distribution activities. For example, a French company selling goods to its German parent may apply a markup based on comparable market transactions.

Transactional Profit Methods

• Comparable Profits Method (CPM)
  The CPM compares the net profit from a controlled transaction to the net profits from similar transactions between unrelated companies. This method is widely used and relatively easy to apply when financial data is available. For example, a U.S. clothing company with a Canadian distributor may compare the Canadian distributor’s profit margins to those of similar companies in Canada.
• Profit Split Method (PSM)
  The PSM is used when related companies collaborate on a joint project or product and split profits based on their contributions. For instance, a pharmaceutical company and its R&D affiliate may agree to split profits based on the investments each entity made in developing a new drug. While useful for highly integrated businesses, the PSM can be subjective and difficult to apply, potentially leading to disputes with tax authorities.

The case of Coca-Cola Co. v. Commissioner of Internal Revenue highlights the complexities of transfer pricing. Coca-Cola contested the IRS’s retroactive decision to change the transfer pricing method it had been using for years. Initially, the IRS approved the “10-50-50” method for allocating profits between Coca-Cola and its foreign affiliates, allowing affiliates to profit on 10% of gross sales before splitting the remaining profits “50-50” with Coca-Cola. However, the IRS later switched to the Comparable Profits Method (CPM), reallocating a significant portion of income back to Coca-Cola and increasing the royalties owed by affiliates to Coca-Cola. Coca-Cola argued that the change was arbitrary and violated administrative law principles. The IRS, however, emphasized that the affiliates lacked ownership of key intangible assets like trademarks, which Coca-Cola solely owned. The application of CPM, which compared the profitability of Coca-Cola’s affiliates to independent bottlers, aimed to allocate profits more accurately according to the arm’s-length principle. The Tax Court upheld the IRS’s decision, stating that the switch was appropriate. This case underscores the unpredictability in transfer pricing assessments and the challenges multinational corporations face when tax authorities contest established methods.

To mitigate transfer pricing risks in cross-border M&A transactions, companies must establish clear and transparent pricing policies that comply with domestic and international tax regulations. Best practices include maintaining thorough transfer pricing documentation, conducting regular audits, and staying updated on regulatory changes. Additionally, foreign-owned companies should periodically reassess intangible asset valuations and global pricing strategies to ensure compliance with evolving tax laws.

Integrating transfer pricing considerations into the M&A due diligence process is also crucial. This will ensure that any pre-existing transfer pricing risks or issues are identified and addressed before the deal is finalized. By taking proactive measures to manage transfer pricing risks, multinational companies can minimize the likelihood of tax disputes and position themselves for long-term success in the global market.

In conclusion, effective transfer pricing strategies are vital to successful cross-border M&A transactions. By understanding the complexities of international tax regulations and choosing the appropriate transfer pricing methods, companies can navigate the risks, ensure compliance with the arm’s-length principle, and avoid costly disputes. These strategies will ultimately help companies mitigate tax risks and achieve sustainable success in an increasingly interconnected global marketplace.

Delaware has held a dominant position in corporate law for more than a century. When New Jersey liberalized its incorporation statute in the late 19th century, it successfully attracted new incorporations and states raced to deregulate. Delaware adopted much of the New Jersey statute as its general corporate law in 1899. However, in 1910, New Jersey reversed course and altered its corporate code to be less business-friendly, so companies moved to reincorporate in Delaware to take advantage of its nonregulatory enabling statute. Until recently, companies haven’t looked back.

Despite being the second smallest state in the United States, more than two-thirds of Fortune 500 companies are incorporated in Delaware. Corporations are a significant part of Delaware’s budget, with the annual “franchise tax” accounting for more than 12 percent of revenues to the state. The State of Delaware attributes its significance in corporate law to its ability to provide “managers and investors with laws optimal for engaging in ethical and profitable business.” The State cites five factors as contributing to Delaware’s preeminent place in corporate law:

(1) The Delaware General Corporation Law’s (DGCL) statute, which contains only a few mandatory requirements to protect investors and otherwise offers corporations full flexibility to run their business.

(2) The Delaware court system, including its specialized, jury-free, bipartisan Court of Chancery with jurisdiction over corporate disputes.

(3) Delaware’s case law and its extensive body of favorable precedent, including its “business judgment rule” (that courts shouldn’t second-guess business decisions made in good faith and with due care).

(4) The array of expert attorneys in Delaware corporate law who help the Delaware legislature by reviewing and recommending changes to Delaware corporate law.

(5) The Delaware Secretary of State’s office, which offers corporations expedited services for time-sensitive matters.

However, in recent years, a widely shared perception has emerged that Delaware courts have become more receptive to shareholder litigation, leading some companies to consider reincorporating outside of Delaware. This perception has been matched with recent moves by other states – specifically Texas and Nevada – to attract businesses to incorporate and invest in their states. In combination with several high-profile reincorporations, some outside observers question the longevity of Delaware’s preeminent place in corporate law.

In August 2024, Texas launched a new Texas Business Court in an attempt to create a forum similar to the Delaware Court of Chancery. The court comprises eleven geographic regions, five of which are currently operational, and seeks to resolve certain complex business disputes. As enacted in Texas’ House Bill 19, the court’s jurisdiction includes corporate governance actions, claims related to state or federal securities laws, actions seeking to hold directors or officers liable, and other actions arising from transactions. According to a recent Op-Ed in the Wall Street Journal from Texas Governor Greg Abbott, Texas’ legislature is also considering amendments to its Business Organizations Code to codify the business judgment rule and set ownership limitations for derivative suits.

Likewise, Nevada has also promoted itself as an attractive destination for corporations. Nevada’s legislature has sought to distinguish the state’s corporate law statutes from Delaware’s for decades by offering corporate managers greater protection than Delaware. Later this year, Nevada’s legislature will also consider a constitutional amendment to establish a business court with exclusive jurisdiction over business-related disputes. Judges on the court would be appointed by Nevada’s governor to six-year terms and chosen from a list of nominees provided by a judicial selection commission.

While it is too soon to know if these changes will lead to an exodus from Delaware, several high-profile reincorporations illustrate the need for Delaware to take these changes seriously. For example, since 2024, Elon Musk has moved three companies – SpaceX, Neuralink, and Tesla – to Texas. This was prompted in large part by multiple adverse outcomes before Delaware Chancery Judge Kathaleen St. J. McCormick. In 2022, Chancellor McCormick rejected Musk’s efforts to back out of purchasing Twitter. More recently, Musk appeared before McCormick in a shareholder lawsuit alleging that Tesla’s directors breached their fiduciary duties by awarding Musk a $55.8 billion compensation package. Writing for the Chancery Court, McCormick criticized the board’s process, conflicts of interest, and Musk’s compensation amount, before ultimately rescinding Musk’s compensation plan. In response, Tesla shareholders voted to re-approve Musk’s compensation package and support Musk’s proposal to move the company’s legal home to Texas. Musk then posted on X: “Never incorporate your company in the state of Delaware.”

Additionally, a February 2025 Delaware Supreme Court ruling in Maffei v. Palkon could pave the way for more companies to reincorporate out of Delaware. The case arose from TripAdvisor’s reincorporation from Delaware to Nevada, which the plaintiffs alleged was a self-interested transaction because Maffei provided the decisive votes in favor of reincorporation. The decision applied the business judgment rule, allowing the reincorporation to proceed because no board member received a material benefit. The decision provided needed legal clarity for companies considering reincorporation, which could lead to additional reincorporations in the future.

It isn’t yet clear how many other companies may choose to reincorporate out of Delaware. The Wall Street Journal recently reported that Meta is also considering moving its legal residence out of Delaware, with the company apparently weighing the benefits and drawbacks of reincorporating to Texas. While Meta’s motivations aren’t certain, commentators have speculated that shareholder litigation against Meta in Delaware may be a factor. Meta potentially leaving Delaware on the heels of Tesla’s reincorporation could represent a shift that could have significant reputational repercussions for the State of Delaware.

In response, Delaware Governor Matt Meyer is weighing unilateral changes to Delaware’s chancery court system. Meyer highlighted how the Chancery Court is designed to assign one judge all subsequent cases involving the same company. While intended to improve the court’s efficiency by allowing judges to use their prior knowledge of the company to expedite litigation, companies may feel they aren’t getting a fair opportunity when repeatedly appearing before the same judge (particularly if that judge has already ruled against them, as demonstrated by Elon Musk’s criticism of Chancellor McCormick).

Most notably, however, the Delaware state legislature recently enacted Senate Bill 21 to quell additional corporate defections from the state. Signed into law on March 25, the legislation provides a safe harbor for directors or officers, as well as controlling stockholders like Musk and Zuckerberg, who have interests or relationships that might not normally render them independent in a transaction. The changes to the DGCL will protect directors or officers if their actions were approved or ratified by a majority of disinterested directors or stockholders (something that may have resulted in a different outcome for Musk’s compensation package). Further, the legislation sets forth new limitations and procedures that stockholders must follow to inspect a corporation’s books and records, which could reduce stockholder’s influence over a corporation. Senate Bill 21 passed the Delaware Senate with the Governor’s backing 20-0 on March 13, passed the Delaware House of Representatives 32-7 on March 25, and was quickly signed into law.

While Tesla and TripAdvisor were highly visible reincorporations, Delaware’s swift response to amend their corporate laws, and other companies’ relative caution, suggest that Delaware’s place of preeminence won’t change anytime soon – despite other jurisdictions’ efforts to seize Delaware’s longstanding role as the top state for corporate law.

Sports representation by Big Law firms is by no means a novel concept: Traditional Big Law giants and American sports league staples have long partnered on sports deals ranging from contract negotiations to dispute resolution. But the deeply established partnership of the two traditional powerhouses is being confronted by both a transformative investment and athletic landscape: private equity and emerging non-traditional sports leagues. Amid the recent sports deal boom, a question unique to these recent trends remains: Which Big Law players will represent which sports leagues?

The explosion of sports transactions this past year—despite general M&A down-trending—is a testament to the growing legal sports sphere. However, this deal increase has been less dominated by the established sports Big Law firms—Latham & Watkins, Hogan Lovells, Covington & Burling, to name a few—than in years past. Deeply traditional firms such as Cravath, Swaine & Moore and Wachtell, Lipton, Rosen & Katz have entered the sports deal world, existing as competitors to the cemented sports deal firms and reflecting the sports transaction growth. In late 2023, Cravath represented the Snyder family, billionaire heirs of the In-N-Out fast food restaurant chain, in its sale of the Washington Commanders. Wachtell, along with Hogan Lovells, advised on a complex deal investing $3 billion into the Professional Golf Association this past June. The sports industry newcomers have expressed little hesitation in dealing with sports transactions despite ostensible hurdles: Marke Greene, head of the corporate department at Cravath, shared that the firm “did not have an expert and . . . figured [the NFL league rules] out just fine.” But although new entrants into the industry appear to have quickly gained deal traction, traditional firms have touted their “competitive advantage” in expertise of sports teams sales while also recognizing the growing competition for sports-related deals.

Today’s sports transactions are less crowded with the traditional sports powerhouses of the Major League Baseball, National Basketball Association, and National Football League. Less established leagues have gained a foothold in sports representation, reflecting the public’s, and consequently the legal field’s, embracement of the newfound popularity of non-traditional sports. Since June, Latham & Watkins has represented the private equity firm Carlyle in its investment in the National Women’s Soccer League club Seattle Reign FC as well as a deal concerning UpShow, a digital software that assists in selling companies the rights to stream NFL Sunday. Hogan Lovells has similarly embraced the modern sports landscape, being involved in a deal concerning a virtual golf circuit founded by Tiger Woods.

But what is the source of all this newfound sports transaction business? The true origin of the uptick in “riskier” sports investments is the growing portfolios of large private equity firms. The firms have had huge financial incentive to tackle the sports industry—with many sports teams outperforming the S&P 500—and have embraced the industry’s modernization. With investment in the traditional sports leagues exhaustive, private equity firms have set sights on new, modern sports transactions, often focusing on both the sports and technology industries. Silver Lake, a prominent sports private equity investor, acquired global entertainment and media company Endeavor Group Holdings for $13 billion last April, which owns the Unted Fighting Championship, World Wrestling Entertainment, Pro Bull Riding circuit, and Euroleague Basketball. With deal representation needed, several major law firms were also given a bite of the non-traditional Bull Riding apple. Private equity shows no signs of stopping their sports investment takeover, and major law firms have expressed little hesitation in getting involved. CVC Capital Partners, represented by Freshfields, invested $150 million in the Women’s Tennis Association, with dealmakers citing a goal to grow the size of women’s tennis in the nation. Investment firms’ interest in sports deals carries an inherent diversification of law firm sports representation, as major law firms have deep ties to private equity partnerships.

With private equity maintaining its reputation for high-risk, high-reward deals, the sports industry is the investment strategy’s likely new target. As a growing number of major law firms desire a chunk of the hotbed of sports transactions, it appears that private equity’s sports deal moves will reflect a larger trend towards a diverse, robust sports representation portfolio of Big Law firms.

More than 800,000 homes in California currently lack insurance coverage — 40% higher than the national average. As wildfires grow more frequent and severe, homeowners struggle to find insurers willing to cover their properties. The crisis became impossible to ignore after the Eaton and Palisades fires, when many residents found themselves displaced and uninsured. Public outrage quickly turned toward insurance companies, which were accused of abandoning homeowners in their time of need. Nevertheless, studies from the federal government and leading universities suggest that this trend began years before these fires started. They point to a different culprit: state-imposed price control regulation that makes it financially unsustainable for insurers to operate in high-risk areas.

Why? Insurance companies operate on probability and risk assessment. There is uncertainty in predicting the exact number of claims they will receive and have to pay out, so insurers rely on statistical models to adjust their premium prices. The insurers analyze past data and use probability to adjust that data for future trends. This allows insurers to offer premium prices that accurately reflect the risk associated with insuring someone’s life, property, land, and so on.

However, California’s Proposition 103 requires insurers to obtain government approval prior to increasing premiums. This is not an uncommon practice in other states. However, Proposition 103 goes further: it prohibits insurers from using forward-looking risk models that account for rising threats, such as climate change. This significantly impacts insurers’ ability to accurately allocate risk through the pricing of their insurance premiums in California. Proposition 103 forbids insurers from considering the increasing severity of wildfires, as they can only adjust their prices based on historical data. The problem arises as climate change has dramatically altered wildfire patterns — burn areas have grown fivefold since 1979, and the United Nations predicts a 57% increase in extreme wildfires by the end of the century. Nevertheless, because California law prevents insurers from pricing in this growing risk, the cost of insuring homes remains artificially low.

Insurance companies have had to reinvent their pricing structure to keep operating under this unsustainable business model. They began to raise the prices of premiums in lower-regulated states, subsidizing their operations in high-risk areas, such as California. This effectively and unfairly transferred the rising risk of climate change to homeowners living in less-risky areas, while artificially inflating home prices in those areas. However, this business strategy still doesn’t generate enough profit to allow insurers to operate in high-risk areas. Therefore, they have halted operations in areas where they have determined it is too risky to cover wildfires.

Another unexpected externality is that homeowners have been flocking to areas with a high risk of wildfires. There are two reasons for this. The first one is that home prices have been kept artificially low by insurance premium control measures that do not reflect the actual risk of wildfires. Attracted by low real estate prices, the demand for homes in high-risk wildfire areas has increased. The second factor is gentrification. As homes in high-wildfire-risk regions are destroyed, insurers are compelled to cover the costs of rebuilding. These rebuilds mean that homes tend to be newer, with better appliances. This works in conjunction with the previous factor: new homes in wildfire-prone areas are extremely attractive to new homeowners, as they are brand new and sold at low prices that overlook the risk of wildfires. Homeowners are being misled, and the California government ultimately puts the people it claims Proposition 103 is trying to protect in danger.

This does not mean that corporate greed should be left entirely uncontrolled by state regulation. Insurance companies operate as profit-maximizing businesses, and consumers need some degree of protection from this. However, California’s wildfire insurance crisis is a failure of policy that has distorted the way risk is priced and distributed. California should consider that its strict price control measures tend to dampen investment and growth. In this case, it even endangers possible homeowners. By forcing companies to rely solely on historical data, the law ignores the reality of a rapidly changing climate, leading insurers to withdraw from high-risk areas altogether. Without reform, what other possible remedies can the California government implement to address this crisis? It can only force insurers to operate in a market they are unwilling to or establish a state-sponsored insurance policy. Neither of these options looks sustainable in the long term.

To avoid further destabilizing its insurance market, California policymakers must permit insurers to utilize forward-looking risk models that account for climate change. The state’s focus should shift from suppressing premium increases to reducing actual wildfire risk—through stronger building codes, fireproofing incentives, and relocation programs for the most vulnerable areas. Without these reforms, the state risks deepening its insurance crisis: leaving more homeowners uninsured, more lives at risk, and an already fragile housing market on the brink of collapse.

The debate surrounding generative AI is not a recent phenomenon. While AI’s roots trace back to the 1950s, pioneered by Turing and Samuel, today’s explosion in generative AI has given rise to a much wider range of complex issues such as data harvesting, regurgitation, memorization and copyright. With companies harnessing vast datasets to train large language models (LLMs), legal battles in the US now center on the ‘fair use’ defense, with significant ambiguity surrounding the question of whether AI’s reliance on copyrighted material can ever be reined in without stifling innovation.

In the US, the infringement case defenses largely pivot on the doctrine of fair use as established by Section 107 of the Copyright Act. The fair use doctrine allows limited use of copyrighted material without permission for various purposes and Copyright Act outlines factors to determine fair use, including purpose, nature, amount, and market impact. The landmark case, Authors Guild v. Google, Inc. plaintiffs argued that verbatim copies of authors’ works were infringing, yet claims were denied as court held that artificial and nominal numbers of the original work were used in the reproduction. In this case, the defendant’s claim of 16% of original content used from the authors’ work was sufficient enough to meet the definition of a transformative purpose under the fair use doctrine. Authors Guild highlights the inherent ambiguity of the fair use doctrine, which is evaluated on a case-by-case basis rather than by strictly-set standards. This flexibility provides power player AI companies room to maneuver around copyright infringement claims, even as authors contend that such practices devalue their creative output and disrupt traditional revenue models.

Subsequent litigation has continued to test the boundaries of legal boundaries regarding AI. In Kadrey v. Meta Platforms, Inc., plaintiffs sought to expand the legal protection claiming that copyright offers to include not just scanning  publicly available copyrighted works but also made a claim against obtaining authors’ work illegally – extracting it from “shadow libraries.” Here, the issue was twofold: not only did it matter how much material was used, but also whether it was obtained from legally dubious sources. Specifically, the case underscored concerns that companies may be reaping financial benefits from data that was not properly licensed, essentially free-riding on the creative labor of authors.

Another significant issue was brought up in Tremblay v. OpenAI, Inc., which discussed self-conflicting claims made in naming the underlying difference on input vs output. The issue notably being that claims brought rely on the AI output accuracy in the context of copyright infringement, when the information scrapped is rather a discussion of input prompts and data sources. Although the plaintiffs accused OpenAI of and named hallucinated data from its training corpus, the defendant logically argued that since hallucinating is essentially derivative of information in itself, no direct copying had occurred. Claiming on copyright infringement yet relying not copying itself but hallucination widened the debate of input vs output distinction and further complicating claims of copyright infringement that judges would be expected to rule on in the future.

Finally, The New York Times v. Microsoft Corp. brought attention to the issue of AI’s memorization of copyrighted content. Here, the NYT argued that AI’s verbatim recitation of journalistic work not only undermines the original effort of its writers but also risks redirecting audiences away from the source extending the claim on Article I Clause 8, which also leads to the argument of remuneration for author’s work. Seemingly, this triggers disruption to market theory.

In all the above cases, American courts have largely refrained from imposing strict injunctions against AI, creating a legal environment that often favors innovation over rigid copyright enforcement. In contrast, Europe has taken a much more restrictive approach, marked by its strict regulatory framework. The EU’s robust data protection laws–epitomized by the General Data Protection Regulation (GDPR)–empower authorities to act decisively against companies that misuse personal data. For instance, Clearview AI’s aggressive scraping of billions of images led Dutch regulators to impose fines of over 30 million euros, which was later compounded by additional penalties in other EU countries. Similarly, the case against X (formerly Twitter) by the Irish Data Protection Commission underscored how ambiguous user consent practices, such as hiding default “opt-out” options behind convoluted settings, can violate fundamental privacy rights.

The EU’s insistence on clear, explicit consent and the ‘right to be forgotten’ create a legal landscape where data processing for AI training must be justified on legitimate interests to have basis to obtain the training data. The strict provisions of various EU Directives make it near-impossible for companies to scrape large amounts of data, which is necessary to create a training corpus for generative AI in the first place – and thus minimizes AI business traction in the EU compared to the US.  Meanwhile, the US currently grants broad freedom to companies with focus on a definition of fair use and minimal intervention. Ultimately, the “genie” of AI in the US may prove to be too powerful to completely confine, whereas the EU does not allow the “genie” to leave the bottle in the first instance.

While AI companies currently face an unregulated, free market in the US, the fines and legal issues that similar companies in the EU deal with reveal potential challenges these US businesses might face in the future. The fines and legal challenges faced by companies operating in the EU reveal a regulatory challenge to be considered when shaping market’s regulatory future in the USA or taken into considerations by AI players when scaling abroad. While hard policies may not be adopted because of the prominence of the innovation economy and the historical freedom that start-ups have had in the US, some form in regulation will have to be achieved in the future and implications might be alike even at lower scale.

From a venture capitalist’s standpoint, early-stage AI startups already carry a heightened exposure to data and copyright litigation, while rapidly-shifting regulatory requirements make it unclear how hurdling the regulation might become. This risk is magnified if business is also conducted in the EU, given that the GDPR raises the stakes for due diligence and compliance. Private equity investors, who typically focus on AI-layered technologies and established companies, face the added burden of ensuring that established revenue streams remain insulated from privacy fines, reputational damage, and operational disruptions caused by potential technological overrides of regulation or intellectual property disputes. Although these challenges may seem minor because AI currently remains unregulated, the legal risk exposure that these technologies expose investors to should be kept in mind as regulations change in the future and business plans should be drafted with outlook on framework from various authorities such as the National Institute of Standards and Technology AI Risk Management Framework or the Federal Trade Commission Guidelines on AI and Automation.

The legal battle between OpenAI and DeepSeek has ignited heated debate about artificial intelligence innovation, intellectual property rights, and competitive dynamics in the AI industry. OpenAI–the undisputed industry leader in generative AI backed by billions in funding–alleges that DeepSeek violated its terms of service by leveraging a technique known as “distillation” to build a competitive product.

Distillation is a method in AI development that enables a smaller “student” model to replicate or approximate the performance of a larger “teacher” model by learning from its outputs. Due to the method’s ability to lower computational costs, distillation has become a widely regarded technique for creating AI systems more efficiently. However, OpenAI claims that DeepSeek’s approach—reportedly querying OpenAI’s model at scale and using its responses as training data to improve DeepSeek’s own AI—crossed a line by extracting OpenAI’s proprietary data without permission.

If OpenAI’s allegations lead to a legal battle, the outcome could have a substantial impact on the future of the generative AI industry. This case highlights a recurring dilemma in the tech industry: how to balance the right innovators have to protect their technological advancements against the broader public interest in ensuring open access to transformative technologies. A notable example of this was the legal dispute between Oracle and Google over the use of Java APIs in the Android operating system. Oracle sued Google, alleging that functional software elements (such as APIs) are subject to copyright protection; thus, the replication of Java APIs on Android constituted copyright infringement. In 2021, the U.S. Supreme Court ruled in favor of Google, determining that Google’s use of the Java APIs was a lawful fair use. The Court emphasized that certain forms of software replication can drive innovation rather than hinder it, outweighing Oracle’s desire to control its copyrighted software.Had Oracle prevailed, developers might have faced significant restrictions on API usage, potentially stifling interoperability and innovation within software ecosystems.

A similar dynamic is playing out in the AI industry. OpenAI’s massive financial and research investments, including a recent $6.6 billion funding round, have driven the development of advanced models like GPT-4.5. A ruling in favor of OpenAI would strengthen the legal protection that companies with AI models have, preventing other companies from using distillation. This would provide firms with greater legal assurance that their technological advances cannot be easily reproduced, encouraging further investment in AI research. Companies with large-scale computational infrastructure, which would benefit from a more predictable and enforceable intellectual property landscape, would likely be incentivized to expand their AI initiatives.

Additionally, such a ruling could pave the way for industry-wide licensing frameworks, where AI firms must obtain explicit permissions or pay for access to use large proprietary models rather than extracting their outputs through distillation. This shift could lead to a more standardized business model in AI, allowing companies to commercialize access to their models while ensuring that smaller firms can still legally participate through licensing agreements. As a result, AI developers could receive financial compensation for their innovations, creating a sustainable ecosystem where AI research is funded without fear of imitation.

Conversely, if distillation is considered a legitimate practice, it would make the development of advanced AI accessible to a wider range of companies. This would drastically change the dynamics of the AI industry. Currently, building state-of-the-art AI models requires enormous computational resources, access to vast datasets, and significant financial backing. These barriers make it nearly impossible for smaller startups or independent researchers to compete with tech giants like OpenAI, Google DeepMind, and Anthropic, which have billions of dollars in funding and access to specialized hardware such as high-end GPUs and TPUs.

By allowing distillation as a legal practice, smaller AI companies could train efficient models using knowledge extracted from larger, more advanced AI systems without having to replicate the expensive training process from scratch. Instead of needing to collect and process massive datasets—often a key advantage held by large companies—smaller firms could leverage the distilled knowledge from publicly available models or even commercial APIs to develop lighter, more cost-effective AI systems tailored to specific use cases.

For example, a healthcare AI startup that lacks the resources to train a large-scale medical language model from the ground up could apply distillation techniques to a commercially available model to develop a specialized AI assistant for doctors. Similarly, a legal tech firm might use distillation to fine-tune an AI system focused exclusively on contract analysis, making legal AI tools more affordable and widely available to law firms and in-house legal teams.

Distillation could thus encourage AI adoption in industries that large tech companies typically overlook. While OpenAI and Google DeepMind focus on broad, general-purpose AI systems, smaller companies could use distilled models to create highly specialized AI solutions for niche markets such as agriculture, local governance, small business automation, and environmental monitoring. These applications might not be financially viable for large tech firms to pursue but could thrive in a more open AI ecosystem where smaller players have access to efficient AI development techniques.

This increased accessibility would create a more competitive AI landscape, as more companies could afford to develop their own models without relying on a handful of dominant firms for licensing access. Instead of AI advancements being controlled by a few large corporations, startups and independent developers would have more opportunities to innovate, leading to faster technological progress and more diverse AI applications across different industries.

Ultimately, if distillation remains a widely accepted practice, it would democratize AI innovation, making it more feasible for smaller players to enter the industry and compete with established giants. This shift would not only increase competition and drive down costs for AI-powered products and services, it would also lead to a more diverse and inclusive AI landscape. Innovation would not solely be driven by a few massive corporations but rather by a global network of researchers, startups, and independent developers working on AI applications that address a wide range of real-world challenges.

The ongoing debate surrounding the potential legal dispute between OpenAI and DeepSeek encapsulates a pivotal moment in the evolution of artificial intelligence. This situation compels stakeholders to weigh the benefits of democratizing technology against the necessity of protecting significant investments and maintaining industry standards. As discussions progress, the implications are likely to ripple through the AI industry, potentially reshaping the landscape of innovation, market dynamics, and regulatory policies for years to come.

In recent years, corporate boardroom diversity efforts have gained momentum. This shift is fueled by growing recognition of the benefits that diverse perspectives bring to decision-making and corporate performance. However, there have been significant setbacks for the diversity of corporate boards in the US in recent months, strengthened by President Trump’s Executive Order terminating government DEI programs. For instance, Goldman Sachs’ decision to reverse its initial public offering (IPO) diversity mandate and the Fifth Circuit Court of Appeals’ decision to invalidate Nasdaq’s Board Diversity Rules both point to a potential change in corporate governance. Although these occurrences underscore the growing legal and commercial challenges to mandatory diversity programs, one key question remains: Will firms continue their efforts through voluntary means and market-driven incentives, or is the era of board diversity regulations really coming to an end?

The Fifth Circuit’s Decision on Nasdaq’s Board Diversity Rules

Originally approved by the Securities and Exchange Commission (SEC) in 2021, the Nasdaq Board Diversity Rules required that listed businesses report the diversity makeup of their boards and include at least one female member and one member from an underrepresented minority or the LGBTQ+ community. Companies that failed to meet these criteria were mandated to explain their reasoning.

The Fifth Circuit Court of Appeals, however, recently declared these regulations as unconstitutional. Although Nasdaq operates as a self-regulatory organization, the court ruled that it exceeded its authority by imposing rules that effectively demanded businesses to comply with requirements similar to affirmative action.  The court also questioned the SEC’s approval of the rule, noting that the agency failed to demonstrate how the standards aligned with the Securities Exchange Act’s objectives, such as protecting investors, preventing market manipulation, and promoting competition. As a result, the Fifth Circuit ruled that the SEC exceeded its regulatory authority under the Act.

The court concluded that requiring disclosure of gender and race diversity on boards did not directly safeguard investors, and the comply-or-explain mandate had little to do with the main objectives of the Act. Through this action, the court applied the “major questions doctrine,” which holds that federal agencies must have clear congressional authorization for significant regulatory actions. Therefore, it ruled that the SEC lacked the explicit authority from Congress to regulate corporate board structures, particularly in politically sensitive areas. In other words, the court reasoned that the SEC had overreached its customary regulatory purview, which is centered on market manipulation and proxy voting, by approving Nasdaq’s Diversity Rules, infringing on issues that are under the purview of other authorities.

Goldman Sachs’ Reversal of IPO Diversity Requirements

By declaring in 2020 that it would not underwrite IPOs for businesses without at least one diverse board member, Goldman Sachs established itself as a pioneer in corporate diversity initiatives. The company’s dedication to enhancing corporate governance was demonstrated in 2021 when it increased the need to at least two diverse directors.

However, Goldman Sachs recently retracted this requirement in response to growing political and legal scrutiny. The firm cited client feedback and changing market conditions as justifications for dropping the mandate. The reversal implies that financial institutions are being more cautious about diversity standards out of concern about potential legal challenges or investor reaction against required measures.

The Road Ahead for Board Diversity

Institutional investors and shareholder activism will play a crucial role in shaping the future of board diversity. Beyond financial institutions withdrawing their diversity mandates, major institutional investors are now revising their board diversity policies. BlackRock’s 2025 policy removes numerical diversity targets, eliminating its prior disclosure-based proxy vote guidelines. However, it retains the option to take voting action against S&P 500 boards that deviate significantly from market norms. Vanguard has similarly softened its stance, replacing explicit gender, race, and ethnicity requirements with a broader emphasis on “cognitive diversity” and skill. However, it maintains the right to vote against nominating committee chairs if diversity-related disclosures are inadequate. State Street has taken the most significant step back by entirely removing numerical diversity targets and no longer voting against boards that fail to meet prior diversity standards. Instead, it now emphasizes that nominating committees should oversee board composition. In comparison, the global company BNP Paribas is strengthening its diversity policies for 2025, raising its gender diversity target to 40% female directors. The Fifth Circuit’s ruling, Goldman Sachs’ revised policy, and shifting institutional investor behaviors raise major questions about the future of board diversity. Although regulatory mandates for board diversity might be diminishing, the need for diverse leadership is expected to persist. The Fifth Circuit’s decision could create a precedent that dissuades exchanges or regulators from enforcing diversity mandates, causing companies to be reluctant in establishing formal diversity goals because of legal concerns.

However, other firms might see these changes as a chance to adopt a more proactive and voluntary strategy. Companies can advance their diversity objectives while staying within legal and regulatory boundaries by fostering a culture of belonging, setting internal diversity targets, and implementing inclusive hiring practices. Moreover, companies can gain an advantage in attracting elite talent, fostering customer loyalty, and enhancing their brand by committing genuinely to diversity and inclusion.

These challenges for board diversity mandates do not necessarily indicate the end of corporate diversity initiatives. Market-driven pressures, institutional investor activity, and voluntary corporate initiatives can sustain the momentum for diversity and inclusion, even though legal and regulatory restraints may limit the use of quotas and requirements. The attitude of businesses, investors, and stakeholders to value diversity as a moral and business necessity will ultimately determine the future of board diversity.

As the corporate world navigates this evolving challenge, one thing is clear: the pursuit of diversity and inclusion is far from over. The objective of making boardrooms more inclusive and equitable is still as crucial as ever, whether it is achieved through volunteer efforts or legal requirements. In light of tackling these challenges, the question is not whether board diversity is ending but rather how businesses can innovate and adapt to sustain diversity.

Under Rule 14a-8 of the Securities Exchange Act of 1934, shareholders are entitled to submit proposals for company action for inclusion in a company’s proxy statement to be voted on at annual shareholder meetings. In theory, shareholder proposals empower investors to shape corporate action by putting plans shareholders wish to see the company implement to a vote. While not always binding, if the board approves a proposal and it has enough shareholder support, shareholders can put significant pressure on the board to follow the proposal’s advice. Recent years saw a trend in many proposals focused on environmental, social, and governance (ESG) concerns, often conflicting with corporate management’s preferences.

On February 12, 2025, the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC) rescinded Staff Legal Bulletin No. 14L (SLB 14L) and issued Staff Legal Bulletin No. 14M (SLB 14M), making it easier for public companies to exclude ESG shareholder proposals from being voted on at annual meetings. SLB 14M rolls back the policy introduced by SLB 14L in 2021, which made it “markedly easier for shareholders to put certain environmental and social proposals to vote” by adopting an expansive view of shareholders’ ability to raise concerns about a company’s social policies. This decision reverts SEC policy to the stance it held during President Trump’s first term, tracking a notable shift in how companies and investors engage in corporate governance: redistributing discretion from shareholders back to the boardroom.

Rule 14a-8 and the SEC No-Action Letter

Companies rely on Rule 14a-8(i)—particularly, Rule 14a-8(i)(5) (the “economic relevance” exclusion) and Rule 14a-8(i)(7) (the “ordinary business” exclusion)—to exclude a proposal from a shareholder vote. If a company wishes to exclude a proposal, it may request SEC staff to comment on whether the rules permit the omission through a “no-action letter.” If granted, the company can exclude the proposal without fear of enforcement action.

SLB 14L’s broad interpretation of these exclusions enabled shareholders to put to vote proposals that normally would be subject to exclusion. SLB 14M re-narrows the scope and application of these exclusions, thus limiting the power of shareholder proposals.

Rule 14a-8(i)(5): The “Economic Relevance” Exclusion

Rule 14a-8(i)(5) allows for the exclusion of proposals that (1) relate to operations which make up less than 5% of the company’s total assets, profit, and gross sales at the end of the last fiscal year and (2) are not otherwise significantly related to the company’s core business. Under SBL 14L’s broad interpretation, proposals that did not meet the economic threshold requirements (and thus did not comply with the rule’s economic concern standard) but raised “broad social or ethical concerns” could not be excluded. Staff would not issue no-action letters for such proposals—regardless of how small the operations were—thus prioritizing corporate responsibility above concerns of shareholder micromanagement. SLB 14M disregards the importance of social and ethical issues “in the abstract,” instead analyzing the economic relevance of the proposal to the company’s business on a case-by-case basis. This would make it effectively impossible for shareholders to address ESG concerns in their proposals unless those concerns significantly affect key aspects of the company’s core business.

Rule 14a-8(i)(7): The “Ordinary Business” Exclusion

Under Rule 14a-8(i)(7), a company may exclude proposals that deal with the company’s “ordinary business operations” on the basis that certain day-to-day tasks should be decided by management rather than being subject to direct shareholder oversight. SLB 14L’s expansive interpretation of “significant social policy” meant that companies couldn’t exclude shareholder proposals that related to day-to-day business matters so long as the proposal also raised broad social concerns—regardless of whether there was a nexus between the policy issue and the company. As a result, “during the 2022 proxy season after SLB 14L’s issuance, proposals concerning environmental topics increased over 50%.” SLB 14M reverts to a pre-SLB 14L “company-specific approach,” with the staff now allowing exclusions when a policy issue is not significant to a specific company. This limits shareholders’ ability to raise ESG proposals that bear on managerial discretion regarding business operations.

Limiting Shareholder Micromanagement

Lastly, SLB 14M also reinstates restrictions on shareholder micromanagement by allowing companies to exclude proposals that (1) seek intricate detail or specific timeframes for implementing complex policies and (2) are highly prescriptive, supplanting management discretion in decision-making. For instance, the bulletin explicitly states that proposals to reach net-zero emissions by a given year are now excludable as micromanagement because they impose timelines and limit management’s flexibility.

Effects on Industry

The Commission’s move follows a sharp decline in investor support for ESG-related shareholder proposals, having dropped from 21% in 2021 (the year SLB 14L was issued) to just 3% by 2023. In 2024, only four (1.4%) out of 279 assessed proposals received majority support. The trend marks a growing resistance to ESG-driven shareholder activism. Considering that six of the largest banks in the U.S.—Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs—already withdrew from the UN-sponsored net-zero emissions banking alliance weeks before the SEC’s announcement, the new bulletin likely marks the proverbial nail in the coffin for an era of investor-driven environmental impact.

The release of SLB 14M just as the current proxy season gains momentum makes it even harder to hold the world’s largest companies accountable. Many shareholder proposals this year focus on ESG issues that investors believe have a material impact on a company’s financial value. However, a significant number of these proposals will likely be excluded from proxy ballots because SLB 14M was issued too late for investors to adjust their proposals to fit its stricter standards. SEC Commissioner Caroline A. Crenshaw is concerned that the timing of this guidance disproportionately benefits corporations, allowing them to revise their no-action requests to exclude proposals while leaving investors without a similar opportunity to adapt.

The full effect of these changes is unlikely to be seen until next proxy season, but for now, SLB 14M marks a shift toward greater corporate control over shareholder proposals. This will likely lead to a decline in ESG-related initiatives and perhaps a shift toward alternative shareholder advocacy strategies like direct engagement or even litigation. Future regulatory or political changes could reshape these rules again, but as it stands, shareholder activism faces a more restrictive landscape.

What do trailer parks, hospitals, prison services, and accounting firms have in common? Private equity (PE) has acquired a stake in all of them—and it’s not stopping there. From 2023 to 2024, PE firms closed $565 billion in announced deals, a 25% increase in value. With so much capital in play, PE is ever on the lookout for its next conquest—and now it has set its sights on a domain long considered off-limits: law firms. Historically, regulatory and ethical barriers have kept non-lawyer investors out of the legal industry. Yet if there’s one thing we know about PE, it’s that where big money stands behind a closed door, they will find a way to pry it open.

PE potentially views law firms as a way to “print money.” As David Marcus writes in The Allure of Law Firms for Private Equity, “Recent investments by [PE] in accounting firms suggest PE would find attractive targets in the legal profession if more state bar associations allow nonlawyers to own stakes in law firms.” Indeed, over the past few years, PE sponsors have acquired major stakes in several top accounting firms, including one deal that reached a valuation of $2 billion. Law firms, like these accounting firms, have “reliable cash flows and low capital expenditures​​,” making them prime candidates for PE. However, one thing stands in PE’s way—the American Bar Association (ABA).

The ABA, whose legal standards most states follow, created Rule 5.4—formally titled “Professional Independence of a Lawyer”—to ensure that client interests, not outside investors, dictate legal decisions. By prohibiting fee-sharing and partnerships with non-lawyers, the rule aims to maintain broad ethical standards and foster public confidence that legal advice remains free from business imperatives. It also protects client confidentiality by preventing outside stakeholders from accessing sensitive information. The core idea is that without external investors, lawyers are bound solely to provide high-quality, conflict-free representation—not to maximize returns for shareholders.

Yet critics of Rule 5.4 argue it’s a double-edged sword: While it guards against undue profit-driven influence, it also prevents law firms from tapping outside capital. Scholars at Stanford Law point out that the United States, despite hosting one of the largest pools of lawyers in the world, still ranks abysmally—109th out of 128 countries—in access to affordable civil legal services. They see Rule 5.4 as a prime suspect, explaining that the lack of external funding leads to limited investment in various areas, such as new technology solutions, streamlined business structures, and wider consumer outreach. Tom Lenfestey of the Law Practice Exchange agrees that sponsor-backed funding could modernize firms and improve services for underrepresented clients. Meanwhile, PE firms see themselves as the ones capable of bringing these efficiencies to the legal field, but only if Rule 5.4 is reformed.

Advocates for reform can now point to the last few years for evidence that Rule 5.4 is unnecessary, with states like Arizona and Utah successfully bypassing it. In 2020, Utah launched a regulatory sandbox, allowing non-lawyers to hold ownership stakes under close judicial oversight. The program has proven successful enough that the Utah Supreme Court extended it through 2027. Arizona went even further by eliminating its ban on non-lawyer ownership of law firms. Under its Alternative Business Structure (ABS) framework, approved entities must meet stringent requirements such as licensing, malpractice insurance, and background checks on owners to ensure professional standards remain intact. So far, over 100 ABS licenses have been granted, reflecting Arizona’s enthusiasm for this new model. Proponents say such reforms could help expand access to legal services and lead to lower legal fees through expanded legal access. For now, though, Rule 5.4 still holds in most U.S. jurisdictions, keeping PE’s capital, expertise, and ambitions largely at arm’s length.

At first glance, loosening Rule 5.4 seems promising: Let outside investors pour in capital, achieve economies of scale, and serve the communities we’ve historically neglected. But if PE’s track record in healthcare and accounting is any guide, there’s also an alarming side. A 2023 study has even shown that Medicare patients at PE-owned hospitals suffered a 25% increase in complications, and many accountants lament losing their independence. Why would lawyers be immune? If non-lawyer owners offer large buyouts to senior partners, firms could soon be hardwired to prioritize maximizing returns over their duty of loyalty to clients.

Yet a total meltdown isn’t guaranteed. Arizona and Utah have tested regulatory sandboxes and Alternative Business Structures, and so far, there has been no wave of ethical collapses. Moreover, not every PE fund is incentivized to focus only on maximizing profits, like in dentistry, where PE firms have preferred generating steady returns and cultivating a mutually beneficial relationship where they help manage the nonclinical aspects of the practice.

That’s the tension: Rule 5.4 has shielded client interests from outside meddling for decades. However, critics argue that it stifles innovation, pushing America’s legal costs so high that it’s 109th worldwide in affordability. So, do we commence reforms despite the risk of replaying a corporate exploitation script?

It all depends on the details of any reform. Tear down Rule 5.4 wholesale, and sure, we could see cynical cash grabs, gutted ethics, and vulnerable clients left behind. But it’s naive to pretend existing ethics rules can fix the dearth of legal access, especially when in 2023 alone, of the 55% of Californians who experienced a civil legal problem, only 30% received legal assistance. If Arizona and Utah’s experiments hold up—if real guardrails keep investors from hollowing out the soul of legal practice—maybe we can harness new capital and provide the American public with better access to legal services.

In short, Rule 5.4 isn’t just an “obstacle,” nor is its reform a “silver bullet.” It’s a decades-old ethical foundation that deserves scrutiny and shouldn’t be dismantled without care. Whether the drumbeat of expanding legal access is just a Trojan horse for corporate profit or a legitimate reform that could lift more boats ultimately depends on us: how we write the regulations, how we hold investors accountable, and how we preserve the independence and integrity of law as a profession.