FDA Advisory Committee Not Rife with Conflicts of Interest? — “Please!” Quips Federal Judge

FDAIn order to achieve results that it believes are vital to public health, the Food and Drug Administration (FDA) has demonstrated time and again that it’s not afraid to trample laws and constitutional rights along the way. Occasionally, judges reintroduce FDA to the Rule of Law. We applaud one such recent rebuke by Judge Richard Leon, whose July 21 Lorillard v. FDA decision reminded FDA that it cannot stack a science advisory panel with members who will tell the agency what it wants to hear.

FDA tobacco control. After the U.S. Supreme Court rejected the agency’s attempt to seize regulatory oversight of tobacco products in 2000 (FDA v. Brown & Williamson), Congress granted FDA the authority it coveted in 2010. Banning or severely restricting the use of menthol in cigarettes has long been a goal of FDA’s friends in the anti-tobacco movement. FDA created a science advisory panel, the Tobacco Products Scientific Advisory Committee (TPSAC) to study menthol. The TPSAC concluded in 2011 that menthol had a negative effect on public health. Two companies filed suit in Febuary 2011, charging that FDA violated federal law by appointing members to the TPSAC who had clear conflicts of interest. The plaintiffs asked the court to strike the TPSAC’s report from the regulatory record.

Judge Leon’s opinion. The TPSAC members in question had ongoing contracts to testify as expert witnesses for plaintiffs in suits against tobacco companies. They also served as consultants to manufacturers of tobacco cessation products. FDA didn’t feel such relationships conflicted with their duties on the TPSAC. Judge Leon was quite flabbergasted by FDA’s decision. “Please!” he exclaimed, adding, “This conclusion defies common sense.” With regard to the members’ work with plaintiffs’ lawyers, Judge Leon explained that they had a financial incentive not to make any recommendations that would compromise the lawsuits in which they would testify. On the product consulting work, the judge noted that any FDA regulation of menthol would likely inspire more smokers to quit, potentially with the assistance of cessation products. Thus the TPSAC members also had a financial incentive to offer advice that would encourage a ban or restrictions on menthol. Judge Leon concluded that such blatant disregard for obvious conflicts violated federal law, and he enjoined FDA from utilizing the report in its assessment of menthol. Continue reading

Will Fourth Circuit Decision to Unseal a CPSC Case Be a Boon to Asbestos Defendants?

4th CircuitThe U.S. Court of Appeals for the Fourth Circuit issued a decision on April 16 in a case called Company Doe v. Public Citizen that signals hope for asbestos defendants who are seeking to combat fraudulent claims in North Carolina. Those claims were brought in connection with a bankruptcy proceeding styled as In re: Garlock Sealing Technologies, LLC et al. (“Garlock”). How could an anonymous CPSC case from Maryland affect a gasket company’s asbestos bankruptcy from North Carolina? In a word: transparency. Both cases involve the ability of third parties to gain access to documents enmeshed in public litigation.

In issuing its ruling in Company Doe, the Fourth Circuit surely had no inkling that its words might cheer long-suffering asbestos defendants. However, that court’s insistence on transparency and public access to the judicial process bodes well for an asbestos case in which similar issues have been percolating. When the district court (and perhaps eventually the Fourth Circuit) hears motions from asbestos defendants and others about divulging sealed documents from the Garlock asbestos bankruptcy docket, the recent decision in Company Doe will surely loom large. There is no guaranty as to where the Fourth Circuit ultimately will come down on the sealing issues in Garlock. But it does appear that a new day is dawning, and—if the Court of Appeals acts consistently with its stated policy favoring public access in Company Doe—it just might prove to be the Day of Reckoning for fraudulent asbestos plaintiffs and their trial lawyer accomplices.

Company Doe Takes Two Steps Forward in District Court

Company Doe v. Public Citizen, No. 12-2209 (“Company Doe”), started when the U.S. Consumer Product Safety Commission received a “report of harm” and sought to post it on its new government-run product safety database website. [Full disclosure: I worked as legal counsel to CPSC Commissioner Anne Northup from 2009 through 2010, but left before this report of harm was received.] The report alleged that a company’s product was related to the death of an infant, but the company strongly objected that the report of harm was not accurate. When the company could not obtain satisfaction through direct negotiations with the Commission, it was forced to file suit against the CPSC in federal district court in Maryland (where the CPSC is located) to enjoin the Commission from posting the erroneous report of harm. Continue reading

Proxy Advisory Services: Making Glass (Lewis) Transparent—and ISS Too

nasdaqCross-posted at WLF’s Forbes.com contributor page

With 2014 and many corporations’ annual meetings just around the corner, more and more publicly-traded companies find themselves girding for costly proxy fights over corporate governance issues.  The small cadre of firms that provide proxy advisory services increasingly hamper management’s ability to prevent proxy battles, and to win those it can’t forestall.  Entities like Glass Lewis & Co. and Institutional Shareholder Services (ISS) provide advice to their institutional money manager and investment adviser clients that increase the percentage of shareholders voting against management’s recommendations.

But it is not at all clear that this proxy voting trend serves shareholder interests.  The Securities and Exchange Commission (SEC) has been studying these firms (which together control some 97% of the proxy services market )and their grip over proxies.  As Edward Knight, General Counsel of NASDAQ OMX (the public company that owns NASDAQ) points out: “[T]here is evidence that the Firms not only increase the costs of being a public company, but also create disincentives for companies to become public in the first place.”  Perhaps, as an October petition filed with SEC by NASDAQ OMX urges, it’s time the SEC stopped studying and started acting to make the methodology behind such influential proxy voting advice more transparent.

A Creature of Regulation.  The current problem began when, in an effort to curtail potential conflicts of interest, SEC imposed a new rule in 2003—the “Proxy Voting by Investment Advisers” rule—that required entities such as institutional investors and investment advisers to disclose “the policies and procedures that [they use] to determine how to vote proxies.”  To satisfy this new requirement, investment advisers began turning to third-party firms that offer advice on proxy voting.  When a 2004 SEC no-action letter clarified that relying on such firms creates a veritable safe harbor, the reliance on these firms grew and their impact blossomed.

Thanks to a second 2004 no-action letter, SEC has also instructed proxy advisory firms that they can provide advice to public companies on corporate governance issues—including how to win proxy votes—at the same time that they make proxy voting recommendations to investment advisers.  As James Glassman and J.W. Verret wrote in a Mercatus Center analysis last April, “Instead of eliminating conflicts of interest, the rule simply shifted their source.  Instead of encouraging funds to assume more responsibility for their proxy votes, the rule pushes them to assume less.”  Such concerns, voiced both by public companies and SEC Commissioners, led SEC to publish a “Concept Release on the U.S. Proxy System” that elicited over 300 comments. Continue reading

FDA’s Disrespect for the First Amendment (and Federal Courts) Dips to a New Low

cnbcCross-posted at WLF’s Forbes.com contributor page

The Food and Drug Administration (FDA) has long had “commitment issues” in its relationship with the First Amendment.  It possesses statutory authority to prevent the sale and distribution of drugs whose intended use and labeling are not FDA-approved, but in doing so it routinely treads on manufacturers’ speech.  Federal courts have held repeatedly that the First Amendment severely restricts FDA’s regulation of truthful speech about approved drugs.  The agency has responded with assurances that it will comply fully with those court decisions.  Recent actions make clear, however, that FDA shows little or no respect for those rulings and apparently believes it is not bound by the First Amendment.

The latest example of FDA’s defiance took the form of a Warning Letter issued by FDA’s Office of Prescription Drug Promotion (OPDP) on November 8, 2013 to Aegerion Pharmaceuticals.  OPDP’s letter objected to an appearance by Aegerion’s CEO on a CNBC talk show directed to the financial community.  During the course of his interview, the CEO suggested that Juxtapid, a drug manufactured by Aegerion, was safe and effective for several off-label uses that are closely related to its approved uses.  For example, the CEO could reasonably have been understood to say that the drug, when taken by itself, was effective in reducing a patient’s “bad” cholesterol levels, even though FDA has approved Juxtapid as a treatment for reducing “bad” cholesterol only as an “adjunct” to a “low-fat diet and other lipid lowering treatments.”  The Warning Letter did not contend that the CEO’s statement regarding efficacy was false, but it nonetheless charged that the statement was illegal because it rendered Juxtapid “misbranded.”  The letter demanded that Aegerion “immediately cease misbranding Juxtapid” and to issue “corrective messages” to rectify the situation.

So how did OPDP reach the remarkable conclusion that truthful statements made on a television talk show aimed at the financial community can render an otherwise lawful drug “misbranded?”  OPDP noted that a “misbranded” drug is defined to include a drug that lacks adequate directions for all intended uses.  It is safe to assume that a drug’s approved labeling does not include adequate directions for uses that have not been approved by FDA.  So if a manufacturer distributes a drug with the objectively verifiable intent that it be sold for an off-label use, the drug can be deemed “misbranded.”  So far so good.  Continue reading

FDA Proposed Rule on Generic Drug Preemption May Violate Its Statute

FDALast Friday just prior to the Veterans’ Day weekend, the Food and Drug Administration (FDA) issued a highly anticipated notice of proposed rulemaking which addresses the U.S. Supreme Court’s 2012 decision, PLIVA v. Mensing. The proposal, Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products, was introduced by Dr. Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, in an FDA Voice blog post. The proposal, according to her, is “intended to improve the communication of important drug safety information about generic drugs to both prescribers and patients.”

As emphasized in a New York Times story about the proposal, “The rule would also pave the way for lawsuits from patients who could now claim that generic companies did not sufficiently warn them of a drug’s dangers.”

As WLF’s Rich Samp argued here last August in Can FDA Lawfully Overrule SCOTUS Generic Drug Preemption Decision Through Regulation?, WLF doubts that FDA has the authority under federal law to take such an action. We look forward to participating in the regulatory process and the accompanying debate that will intensify now that FDA has formally proposed the rule.

The Federal Government is Coming For Your Magnets

Magnetic regulation?

Magnetic regulation?

Cross-posted at WLF’s Forbes.com contributor page

The U.S. Consumer Product Safety Commission held a public hearing Tuesday on its proposed safety standard for magnet sets.  Although the proposed standard originally issued last year, the agency failed to do the required oral hearing at that time and is now making up for that oversight.  In the interim, however, the agency filed a lawsuit against a manufacturer of magnet sets and its CEO, a lawsuit that is still pending in front of an Administrative Law Judge.  The Commissioners will sit in judgment as an appellate body if any party appeals the ALJ’s ruling in that case.  If any Commissioner thinks it inappropriate to nonetheless proceed with a ban on the product in question, it went unremarked at the hearing.  Does anyone believe that the Commission could impartially oversee such an appeal having already banned the product about which the ALJ is ruling?

The ostensible purpose of a public hearing is to ensure that all views are heard, yet not a single opponent of the regulations appeared to testify.  Not one.  Given that the written comments submitted to the agency last year included many comments opposing the agency’s action, it seems unlikely that no one wanted to testify in person against the agency’s proposal.  The agency apparently did a much better job of inviting supporters of the regulation from the medical and advocacy communities than from, say, the companies whose employees will lose their jobs when this product ban goes into effect.  One founder of a company directly affected by the agency’s action complained that he did not receive any notice of the event prior to the cutoff for submitting testimony.  One need not go very far out on a limb to speculate that the doctors who testified in front of the CPSC did not learn about the hearing from reading the Federal Register notice themselves.  Shame on the biased CPSC for not doing more to seek out the views from the affected industry at this hearing.  The agency did at least leave the hearing record open until Oct. 29, in case any latecomers want to file additional written comments. Continue reading

Regulatory Federalism Eroded: Senior West Virginia Officials Upbraid EPA in New WLF Paper

west vaOn September 13, Washington Legal Foundation released a Legal Backgrounder authored by three senior officials from the state of West Virginia: Patrick Morrisey, Attorney General; Randy Huffman, Cabinet Secretary of the West Virginia Department of Environmental Protection; and Elbert Lin, the state’s Solicitor General.

The paper, Last Call For Cooperative Federalism? Why EPA Must Withdraw SIP Call Proposal On Startup, Shutdown & Maintenance, focuses on a proposed Environmental Protection Agency rule which impacts 36 states’ implementation of the federal Clean Air Act. This proposed rule, as the authors explain, reflects two troubling EPA practices: 1) the agency’s retreat from working cooperatively with state environmental regulators and 2) the revision of existing rules or the imposition of new requirements through the settlement of lawsuits brought by private activist groups (aka, “sue and settle”).

The proposed rule involves state regulations that impact emissions occurring during power plant startup, shutdown, and maintenance (“SSM”). Even though EPA formally acknowledges that during SSM, conditions arise that are beyond the plant operators’ control, the proposed rule claims that those 36 states’ rules inadequately address these “excess emissions.” The rule issues what’s known as a “SIP call” (SIP=State Implementation Plan) even though, General Morrisey and his co-authors write, “EPA has not identified any [air quality] violation resulting from an SSM provision in West Virginia’s or any state’s SIP.” The paper goes on to make a compelling legal case why the proposed rule is an unlawful exercise of EPA authority.

The proposal attracted a substantial number of comments, some of which were from state attorneys general and environmental regulators criticizing EPA’s departure from cooperative federalism and its embrace of rulemaking through litigation settlement. West Virginia’s comment can be seen here.

EPA’s sue and settle tactics have been the subject of a recent WLF publication as well as Legal Pulse commentary. In addition, thirteen state attorneys general filed suit against EPA in the Western District of Oklahoma on July 16 seeking information on agency settlements of activist groups’ lawsuits. EPA rejected a February 6 Freedom of Information Act request the attorneys general filed for information on contacts EPA has had with specific activist groups on a specific state-implemented regulation.

A Trail To Data Insecurity: ObamaCare’s “Navigator” Program Lacks Privacy Protections

sextantCross-posted at WLF’s Forbes.com contributor page

With the October 1 date for open enrollment in ObamaCare health insurance exchanges rapidly approaching, the handful of states which agreed to run the exchanges are relying on everything from football teams to storied folk legends to spread the word. In the 36 other states that the federal government is in charge for now, outreach and education will be done by “Navigators,” a fancy term for taxpayer-funded community helpers. Though the Navigator program has yet to begin, many elected officials have raised serious concerns over whether it sufficiently prevents Navigators from helping themselves to sensitive consumer information. October 1 is just 26 days away, and those valid privacy concerns remain unaddressed.

$67 Million with Scant Privacy Strings Attached. The Department of Health and Human Services, which just two weeks ago doled out $67 million to 100 organizations for ObamaCare navigation, has ignored letters from congressional committee chairmen and state attorneys general criticizing the Navigator program’s severe privacy shortcomings. The rule governing the Navigator program, finalized just this past July, offers broad principles and platitudes about data quality and integrity, but few clear standards for ensuring the privacy of health records, social security numbers, and other patient information. It neither requires background checks nor dictates that any prior criminal act (such as, perhaps, identify theft) would per se disqualify a Navigator applicant. There are no licensing requirements, no obligations that Navigators or their employers carry liability insurance, and no provisions holding any entity, including HHS, responsible for data breaches. It’s not even clear whether HHS will assist an ObamaCare insurance exchange customer who is defrauded. Continue reading

Update: 8th Circuit Orders EPA to Pay Attorneys’ Fees to Challenger of Regulatory Guidance

8th CircuitIn an April Featured Expert Contributor post, Appeals Court Rejects EPA Effort to Avoid Judicial Review Through Guidance Documents, Hunton & Williams’ Allison Wood examined a U.S. Court of Appeals For the Eighth Circuit decision, Iowa League of Cities v. EPA. The court ruled that EPA violated the Administrative Procedures Act when it changed two policies for regulating municipal wastewater treatment plants through letters sent to Senator Charles Grassley. Such changes constituted “rules” for which EPA should have engaged in formal notice and comment rulemaking.

In a July 30 order, the court ordered EPA to pay Iowa League of Cities $526,138.41 in attorneys’ fees. The Eighth Circuit panel had initially rejected the League’s request for fees under Clean Water Act Section 509(b)(3) . The League filed a Petition for Partial Rehearing, which EPA opposed.

The court agreed that the League was a “prevailing party” under the Clean Water Act, and that the lawsuit

assisted in the proper implementation of the CWA by upholding ‘the policy of Congress to recognize, preserve, and protect the primary responsibilities and rights of States to prevent, reduce, and eliminate pollution’ and by ensuring public participation in the development of effluent limitations.

We’re pleased to see that the cost, and the risk, of avoiding public accountability have just gone up for EPA and other federal agencies.

Commissioner Wright Moves to Advance Discussion on FTC Act Section 5

MurinoFeatured Expert Column

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati*

Still just a few months into his tenure, Federal Trade Commissioner Joshua Wright made good on his early promise to move Section 5 of the Federal Trade Commission Act into the public dialogue. N1  On June 19, 2013, Wright released a “Proposed Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act,” together with an accompanying explanatory speech.  Some two months after announcing his intention (about which I wrote here), the proposal calls for the FTC to “recast its unfair methods of competition authority with an eye toward regulatory humility in order to effectively target plainly anticompetitive conduct” by clarifying the standards and limits the FTC will employ in the context of Section 5.  Wright’s call to arms is necessary, he says, because the failure to articulate clear standards by which Section 5 will be prosecuted creates uncertainty for the business community and consumers, and risks the Commission’s credibility as an expert body and future steward of Section 5.

Importantly, Wright’s proposal is not merely an intellectual think piece.  Rather, Wright provides for a specific definition of conduct that will violate Section 5, as well as concrete examples.  There is no doubt in his mind (or in the mind of this observer), that Section 5 was intended to condemn conduct beyond that which the Sherman or Clayton Acts capture.  But he finds that without a precise definition, the Commission’s ability to consistently apply Section 5, and the ability of businesses and consumers to meaningfully predict whether their conduct could be found violative of Section 5, is virtually impossible.  Thus, he proposes defining “an unfair method of competition [as] an act or practice that (1) harms or is likely to harm competition significantly and (2) lacks cognizable efficiencies.”  Continue reading